ANNUAL REPORT 2011 - Connacher Oil and Gas

AR 2011
PG 78
structure that allows multiple financing options when a financing need or opportunity arises and to optimize its use of long–term debt and equity at an
appropriate level of risk. The company manages its capital structure and follows a financial strategy that considers economic and industry conditions,
the risk characteristics and the long–term nature of its underlying assets and its growth opportunities. It strives to continuously improve its credit rating
with the objective of reducing its cost of capital. Connacher’s current capital structure is summarized below:
As at December 31
2011 2010
(Canadian dollar in thousands)
Long–term debt (1) $ 856,068 $ 847,387
Shareholders’ equity 421,076 523,187
Total long–term debt plus equity (“capitalization”) $ 1,277,144 $ 1,370,574
Long–term debt to capitalization (2) 67% 62%
(1) Long–term debt is stated at its carrying amount, which is net of transaction costs.
(2) Calculated as long–term debt divided by the book value of shareholders’ equity plus long–term debt.
The long–term debt agreements contain certain provisions, which restrict the company’s ability to incur additional indebtedness, pay dividends, make
certain payments and dispose of collateralized assets.
23. CASH flow information
Changes in non–cash working capital
As at December 31
2011 2010
(Canadian dollar in thousands)
Trade and accrued receivables $ (4,752) $ (15,618)
Inventories (2,277) (21,802)
Other assets 6,061 (173)
Trade and accrued payables 20,535 (21,166)
Total $ 19,567 $ (58,759)
Relating to:
Operations $ 14,048 $ (23,962)
Investing 5,519 (34,797)
Total $ 19,567 $ (58,759)
Non–cash transaction
In 2011, the company received 3.3 million common shares and 841,000 common share purchase warrants of Gran Tierra Energy in exchange for the
interest in associate. See note 8.2 and 21. There were no significant non–cash transactions in 2010.
24. RELATED PARTY Transactions
Subsidiaries
Details of the company’s subsidiaries at the end of December 31, 2011, December 31, 2010 and January 1, 2010 are as follows:
Name of subsidiary Principal activity Place of incorporation
and operation
Proportion of
ownership interest
Great Divide Holding Corporation Holding company Canada 100
Great Divide Pipeline Corporation Petroleum and natural gas USA 100
Great Divide Pipeline Limited Petroleum and natural gas Canada 100
Montana Refining Company, Inc Refining USA 100
Balances and transactions between Connacher and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. Details
of transactions between the company and other related parties are disclosed below.
Associate
Under the terms of an Administrative Services Agreement, dated January 1, 2008 with Petrolifera, Connacher provided certain general and
administrative services to Petrolifera. The fee for this service was $15,000 per month. Petrolifera paid Connacher $45,000 in 2011 (2010: $180,000)
under the Administrative Services Agreement. Petrolifera also reimbursed Connacher for certain other out–of–pocket expenses incurred by
Connacher on Petrolifera’s behalf. The agreement was terminated upon closing of the transaction under the Plan of Arrangement. See note 8.2.
The company also rented a portion of its office building to Petrolifera on sublease. The company recovered rental expenses of $30,000 in 2011
(2010: $137,000). The sublease was terminated upon completion of the transaction under the Plan of Arrangement. See note 8.2.