2003 ANNUAL REPORT Management’s Responsibility Auditors’ Report Consolidated Balance Sheets Consolidated Statements of Operations & Deficit Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements Corporate Information Part 2 Table of Contents Corporate Profile Cautionary Statement Regarding Forward-Looking Statements Letter to Shareholders from President & CEO of CGX Energy Inc. Regional Potential Berbice Onshore Corentyne Licence Georgetown Licence & Annex Pomeroon Licence MD&A (Management’s Discussion & Analysis) Part 1 This PDF file contains only one (1) of two (2) parts that make up the complete 2003 Annual Report for CGX Energy Inc. Important information is contained in both parts as described in the list, below. If you do not have both parts, please return to the CGX Energy Inc. website at www.cgxenergy.ca in order to download the missing part. IMPORTANT NOTE opinion on these consolidated financial statements. accounting principles and include amounts based on management’s informed judgments and financial statement presentation. management. Our responsibility is to express an opinion on these consolidated financial operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit March 12, 2004 the financial position of the Company as at December 31, 2003, and 2002 and the results of its We conducted our audits in accordance with Canadian generally accepted auditing standards. In our opinion, these consolidated financial statements present fairly, in all material respects, used and significant estimates made by management, as well as evaluating the overall consolidated then ended. These consolidated financial statements are the responsibility of the Company’s statements based on our audits. consolidated financial statements. An audit also includes assessing the accounting principles and 2002 and the consolidated statements of operations and deficit and cash flows for the years President & Chief Executive Officer Chief Financial Officer includes examining, on a test basis, evidence supporting the amounts and disclosures in the Kerry E. Sully James N. Fairbairn, C.A. April 30, 2004 recommendation of the Audit Committee. the auditors. The Board of Directors has approved the consolidated financial statements on the We have audited the consolidated balance sheets of CGX Energy Inc. as at December 31, 2003, To the Shareholders of CGX Energy Inc. Auditors’ Report is reliable and accurate and assets are safeguarded. Management maintains internal controls to provide reasonable assurance that financial information with that contained in the consolidated financial statements in all material aspects. The Audit Committee has reviewed the consolidated financial statements with management and financial statements and performed the tests deemed necessary to enable them to express an financial statements have been prepared in accordance with Canadian generally accepted estimates. The financial and operating information included in this annual report is consistent External auditors, appointed by the shareholders, have independently examined the consolidated Management is responsible for all information contained in this annual report. The consolidated Management’s Responsibility Director Approved by the Board: See notes and supplementary information to the consolidated financial statements. Shareholders’ equity Capital stock (Note 5) Deficit Future income tax liability (Note 5) Minority interest LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable and accruals Petroleum and natural gas properties (Note 2 and 4) A SS ETS Current assets Cash and short-term investments Receivables and other Drilling supplies As at December 31 (Denominated in United States Dollars) CONSOLIDATED BALANCE SHEETS Director 4,538,275 $ 4,680,572 5,850,641 $ 6,432,605 10 16,882,627 (12,344,352) 142,297 581,964 52,297 52,297 90,000 — $ 456,624 — 125,340 456,624 19,090,956 (13,240,315) $ $ 4,680,572 $ 6,432,605 729,247 94,950 299,192 1,123,389 3,557,183 $ 2002 3,214,674 3,217,931 $ 3,088,891 63,063 62,720 2003 (605,185) (11,739,167) $(12,344,352) $ (895,963) (12,344,352) $(13,240,315) $ N ET LO SS Deficit, beginning of year D E F I C I T, E N D O F Y E A R N ET LO SS P E R S H A R E – B A S I C See notes and supplementary information to the consolidated financial statements. W E I G H T E D -AV E R A G E N U M B E R O F S H A R E S O U TSTA N D I N G 49,453,078 47,006,373 (0.01) (605,185) — (1,151,963) 256,000 N ET LO SS B E F O R E I N CO M E TA X E S Future income tax recovery (0.02) (605,185) — (742,589) (409,374) N ET LO SS B E F O R E OT H E R I T E M S Writedown of petroleum and natural gas properties (Note 4) 884,928 905,017 279,743 162,428 356,009 (89,150) 266,859 12,884 $ 161,626 802 218,601 (56,975) 2002 407,837 98,059 92,111 107,831 165,814 — 13,276 $ 2003 620,285 157,097 83,943 72,676 60,450 35,957 (125,391) EXPENSES General and administration Professional fees Depletion, amortization and site restoration Production Shareholders’ information Loss on disposal of petroleum and natural gas properties (Note 4) Foreign exchange (gain) loss Interest Year Ended December 31 REVENUES Petroleum and natural gas Royalties, net of ARTC (Denominated in United States Dollars) CONSOLIDATED STATEMENTS OF OPERATIONS & DEFICIT (940,068) 1,669,315 729,247 2,359,644 729,247 $ 3,088,891 See notes and supplementary information to the consolidated financial statements. C A S H A N D S H O R T-T E R M I N V E ST M E N TS , E N D O F Y E A R I N C R E A S E ( D E C R E A S E ) I N C A S H A N D S H O R T-T E R M I N V E ST M E N TS Cash and short-term investments, beginning of year 11 (761,297) (559,226) $ (761,297) 608,522 (1,167,748) I N V E ST I N G Proceeds on disposition of petroleum and natural gas properties Petroleum and natural gas properties Net cash used by investing activities 530,925 2,870,729 Net cash from financing activities (709,696) 48,141 579,190 — (48,265) (45,329) — (151,293) 31,887 236,472 402,471 (605,185) 92,111 — — — $ 83,943 409,374 35,957 (256,000) (895,963) 2002 2,440,510 496,400 (66,181) $ 2003 FINANCING Issuance of common shares Issuance of common shares by ON Energy Inc. (Note 2) Costs of share issuances Net cash from (used by) operating activities O P E R AT I O N S Net loss Adjustments to reconcile net loss to net cash used by operating activities: Depletion, amortization and site restoration Writedown of petroleum and natural gas properties Loss on sale of petroleum and natural gas properties Future income tax recovery Net change in non-cash operating working capital items: Receivables and other Drilling supplies Accounts payable and accruals Year Ended December 31 (Denominated in United States Dollars) CONSOLIDATED STATEMENTS OF CASH FLOWS The Company uses the temporal method of foreign currency translation in accounting for its integrated foreign operations. Under this method, monetary assets and liabilities denominated in foreign currency are translated into U.S. dollars at the exchange rate prevailing at the balance sheet date, while non-monetary assets and liabilities are translated into U.S. dollars at the exchange rate prevailing on the transaction date. Revenue and expenditures denominated in Foreign Currency Translation CGX is a Canadian holding company whose principal assets are its wholly owned subsidiary, CGX Resources Inc. and its controlling interest in ON Energy Inc. Although the company generates cash flow from its Canadian operations, its main source of cash is through capital market financing. This financing is used to fund both its Canadian operations as well as its subsidiaries’ petroleum and natural gas activities, which are denominated in United States (U.S.) dollars. Capital market financing is principally denominated in U.S. dollars. However, some financing is denominated in Canadian dollars to fund its Canadian operations. The Company’s shares are traded and quoted on a Canadian exchange in U.S. dollars; accordingly, the U.S. dollar is the functional currency of the consolidated financial statements. Nature of Operations CGX is exploring its Guyanese petroleum and natural gas properties and has not yet determined whether they contain economically recoverable reserves. The recovery of both the costs of acquiring the petroleum and natural gas properties and the related deferred exploration expenses depends on the existence of economically recoverable reserves, the ability of the Company to obtain the financing necessary to complete exploration and the development of the properties, and the future profitable production, or alternatively, on the sufficiency of proceeds from disposition. 1. Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of the Company together with its wholly owned subsidiary, CGX Resources Inc., a Bahamas-based company, as well as its 84.6% interest in ON Energy Inc., a Guyana-based public company. The 1998 acquisition of CGX Resources Inc. has been accounted for as a reverse takeover. As such, these consolidated financial statements reflect the continuation of the legal subsidiary, CGX Resources Inc., and not that of the legal parent. The Company’s Canadian exploration, development and production activities are undivided interests in properties that are developed jointly with others. Accordingly, the consolidated financial statements also reflect the Company’s pro rata share of the assets, liabilities, revenues and expenses of these undivided interests. GENERAL CGX Energy Inc. (CGX, or the Company) is incorporated under the laws of Ontario. Its principal business activity is petroleum and natural gas exploration onshore and offshore Guyana, South America, combined with a minor petroleum and natural gas exploration and development program in Western Canada. Years Ended December 31, 2003, and 2002 (Denominated in United States Dollars) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Cash and Short-Term Investments Cash and short-term investments include cash equivalents, which are investments having an original maturity of less than or equal to 90 days. The Canadian exploration, development and production activities of the Company are undivided interests in properties that are developed jointly with others. Accordingly, the consolidated financial statements reflect only the Company’s proportionate interest in such activities. The amounts recorded for depletion and depreciation of property, plant and equipment and the provision for future site restoration and abandonment costs are based on estimates. The ceiling test calculation is based on estimates of proven reserves, production rates, petroleum and natural gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty, and the effect on the consolidated financial statements from changes in such estimates in future years could be significant. The Company estimates its future site restoration and abandonment costs for its petroleum and natural gas properties on a country-by-country basis. The costs represent management’s best estimate of the future site restoration and abandonment costs based on current legislation and industry practices. Total estimated costs are on a unit-of-production basis. The annual provision included in amortization expense and actual future site restoration and abandonment costs is charged to the account as incurred. Amortization of these costs is done on a country-by-country basis and is calculated on the unitof-production method based on estimated proven reserves, before royalties, as determined by independent engineers. For purposes of depletion and amortization calculations, petroleum and natural gas reserves are converted to a common unit of measure on the basis of their relative energy content. The costs of significant unevaluated properties are excluded from the depletion and amortization base. The carrying value is limited to the recoverable amount. This is determined on proven properties by estimating the present value of future net revenues based on current prices and cost. On unproven properties, the carrying value is determined by using the lower of cost or net realizable value less estimated future site restoration costs, general and administrative expenses, financing costs and income taxes. Petroleum and Natural Gas Properties The Company follows the full cost method of accounting for petroleum and natural gas properties and, accordingly, capitalizes all exploration and development costs, drilling (including related overhead) on producing and non-producing properties and other carrying charges on unproven properties. Proceeds of disposition are applied against the cost pools with no gain or loss recognized except where the disposition results in a significant change in the rate of depletion and amortization. foreign currencies are translated into U.S. dollars at the exchange rate prevailing on the date of the transaction. Foreign exchange gains and losses arising from the translation of transactions denominated in foreign currency are reflected in operations for the year. $ 2,879,038 60,000 1,021,013 — — — (371,060) — $ 3,588,991 Balance, end of year Guyana Balance, beginning of year Acquisition costs Exploration costs Development costs Depletion Disposal Deemed disposition (Note 2) Writedown 4. Petroleum and Natural Gas Properties $ $ Net Loss per Share Net loss per share has been calculated using the weighted-average number of common shares outstanding during the year. Net loss per share, fully diluted, has been calculated reflecting the issuance of warrants and assuming the full exercise of stock options. Net loss per share, fully diluted, has not been presented, as the factors referred to above are anti-dilutive. Future Income Taxes Future income taxes are accounted for using the liability method of tax allocation. Under this method, future income taxes are based on the differences between assets and liabilities reported for financial accounting purposes and those reported for tax purposes. Because of the nature of the Company’s operations, it may be subject to income taxes in Canada, the Bahamas and Guyana. Flow-Through Shares The resource expenditure deductions for income tax purposes related to exploratory and development activities funded by flow-through share arrangements are renounced to investors in accordance with tax legislation. Under the liability method of accounting for income taxes, the future income taxes related to the temporary difference arising at the later of renunciation and when the qualifying expenditures are incurred, are recorded at that time together with a corresponding reduction to the carrying value of the shares issued. Stock Options CGX has a stock-based compensation plan. All stock-based payments to non-employees as well as direct awards of stock to employees and directors are accounted for in accordance with the fair value method of accounting for stock-based compensation. 2003 — 678,145 — — 457,795 (82,087) (644,479) — (409,374) Canada $ 3,588,991 $ 3,557,183 60,000 1,021,013 457,795 (82,087) (644,479) (371,060) (409,374) Total Guyana $ 2,879,038 $ 2,416,394 200,000 262,644 — — — — — Petroleum and natural gas properties Administrative expenses $ $ Canada 2002 160,000 354,000 678,145 466,271 — 134,314 164,340 (86,780) — — — $ 2003 $ 12 $ 3,557,183 $ 2,882,665 200,000 396,958 164,340 (86,780) — — — Total 123,000 204,000 2002 3. Related-Party Transactions Certain corporate entities that are related to the Company’s officers and directors provide consulting services to CGX. These expenditures are summarized as follows: The issue by CGX’s subsidiary of its common shares outside the consolidated group resulted in a decrease in CGX’s proportionate interest in ON to 84.6%. This dilution resulted in CGX recognizing a gain of $371,060 on this deemed disposition. This gain on deemed disposition was recorded as a reduction in the book value of the Petroleum and Natural Gas Properties. 2. Gain on Deemed Disposition of Interest in Subsidiary In 2003, CGX incorporated a wholly owned subsidiary, ON Energy Inc. (ON), a Guyana-based company, to explore and develop oil and gas onshore Guyana. ON filed an Initial Public Offering under the Securities Industry Act of Guyana, through a Prospectus dated November 5, 2003, and as amended December 5, 2003, to raise funds for its onshore activities. On December 23, 2003, the financing closed with 10,900,000 common shares being issued for total net cash proceeds of $496,400. Administrative Expenditures Administrative and general expenditures not directly attributable to the petroleum and natural gas properties are expensed when incurred. June 2000 June 2001 June 2002 December 2004 Initial Period Phase 2 Year 1 Initial Period Phase 2 Year 2 1st Renewal Phase 1 1st Renewal Phase 2 December 2006 June 2008 December 2006 June 2005 December 2004 June 2002 June 2001 June 2000 End Date Drill 1 exploration well Drill 1 exploration well Shoot 500-line kms of 3D seismic; or shoot 1,500 kms of 2D seismic; or drill 1 exploration well Main Area: Conduct a pilot geochemical study onshore. Annex Area: Interpret 3,300 kms of seismic data and reprocess 825 km Interpret well results Drill 1 exploration well Conduct regional review, shoot 1,800 kms of 2D seismic Work Commitment Berbice Block, Guyana Effective September 30, 2003, the 415,000 acre onshore portion of the Corentyne Block was transferred to ON Energy Inc., a wholly owned subsidiary of CGX registered in Guyana. The consideration for transfer of US$282,625 was satisfied through the issuance of 59.5 million shares of ON. The work commitment for this portion of the Corentyne Petroleum Agreement was to conduct a pilot geochemical study. This commitment was fully satisfied in 2003 by conducting a full-scale geochemical survey covering 250,000 acres, a portion of which covered the new Summary of Fiscal Regime: After commercial production begins, the Licensee is allowed to recover all capital and operating costs from “cost oil,” which for the first three years is up to 75% of production and thereafter up to 65% of production. The Licensee share of the remaining production or “profit oil,” for the first five years is 50% of the first 40,000 barrels of oil per day and 47% for additional production, and thereafter 45% in full satisfaction of all income taxes and royalties. If a discovery is made, CGX has the right to convert the Discovery Area plus reasonable surrounding acreage to a Production Licence, subtracting this area from the Contract Area. Partially complete Complete Complete Complete Status The principal terms and work commitment are similar to the terms for the Corentyne Block. The only work completed to date is a regional review and completion and interpretation of 1,700 kms Georgetown Block, Guyana The Company signed a Letter Agreement on April 19, 2002, to obtain a 25% participating interest in the Georgetown Block (offshore Guyana) from AGIP Guyana, B.V. for $100,000 on signing, $75,000 on assignment of the Joint Operating Agreement (JOA) and $1 million at the spud of the first well on the Block in which CGX participates. The Government of Guyana approved the transfer on September 3, 2002. Berbice Block under a Petroleum Agreement granted to ON on October 1, 2003. The work commitment includes a geochemical study and interpretation of existing geophysical data in year one, both of which have been completed. In year two, the commitment is to conduct further geochemical studies, or do a gravity survey, or drill a well. In year three, the commitment is to acquire seismic or drill an exploration well. In year four, the commitment is to conduct further geophysical and geochemical work and/or drill an exploration well. 20% 1% 20% 1 Relinquish at End of Period The principal terms of the licences include annual fees of $100,000, plus a guarantee for 10% of the estimated cost of the work commitment in the pending exploration period as follows: 2002, the first renewal period of the Petroleum Agreement was granted under two Petroleum Prospecting Licences, which included renegotiated work commitments and separate obligations for the eastern main area and the western annex area. 1. In January 2001, one million acres (27% of the concession) were relinquished. An additional one million acres (the Annex) were subsequently added to the concession. 2nd Renewal Phase 2 June 2005 June 1998 Initial Period Phase 1 2nd Renewal Phase 1 Start Date Period Corentyne Block, Guyana The Company holds a Petroleum Agreement for the approximately 3.8-million-acre Corentyne Block offshore Guyana. The Initial Period of the Petroleum Agreement was for a period of four years beginning June 1998, renewable for up to two three-year periods. The Petroleum Agreement was amended on December 9, 1998, June 2, 2000, and again on January 12, 2001. The required work program for the Initial Period, which ended June 2002, was completed. On November 30, $ $ 228,974 37,885 265,960 (104,334) 266,859 356,009 (89,150) 107,831 91,917 26,426 2,800 — $ $ 72,676 83,943 10,775 62,609 35,957 161,626 218,601 (56,975) 2002 5. Capital Stock Authorized and Issued Capital Stock The Company is authorized to issue an unlimited number of common shares without nominal or par value. The Company’s issued and outstanding common shares were as follows: The Company retained an independent consultant to evaluate the oil and gas reserves for the remaining properties as at December 31, 2003. This reserves evaluation resulted in a “ceiling test” writedown of the Canadian petroleum and natural gas properties asset of $409,374. As at December 31, 2003, the future site restoration costs to be accrued over the life of the remaining proven reserves are estimated to be $16,000. In 2003, the Company sold all of its Canadian reserves, retaining an interest in just two prospective properties. The proceeds of the sale were $608,522 (Cdn$820,000) resulting in a loss on disposition of $35,957. Net income (loss) Expenses Production Depletion and site restoration General and administration Foreign exchange loss Loss on disposition of properties Petroleum and natural gas revenue Royalties, net of ARTC 2003 Alberta, Canada During 2003 and 2002, the Company entered into farm-in agreements to drill for petroleum and natural gas on four properties in Alberta, and one in Saskatchewan, Canada. Only the direct costs associated with exploration and development activities have been capitalized. As such, no overhead costs have been capitalized. A summary of the operations is as follows: of 2D seismic. An exploration well is required during the Initial Period, but because sovereign issues between Guyana and Suriname prevent unhindered access to a portion of the Contract Area, in the event of any postponements, the Licensees will have a mandatory 36 months to complete the work program in the Initial Period. (90,000) — (166,000) $ 19,090,956 58,265,595 2,392,034 34,709 13,767 (66,181) — 9,480,636 100,000 85,000 — 16,882,627 577,090 2,100 (48,265) 1,854,446 10,000 — 48,599,959 $ 16,441,702 46,735,513 Amount June 1, 2005 June 12, 2005 Expiry $ $ 0.35 0.42 Exercise Price 4,740,318 4,584,068 156,250 No. Issued 13 Stock Options The Company established a stock option plan to provide additional incentive to its directors, officers, employees and consultants in their efforts on behalf of the Company in the conduct of its affairs. The total number of shares that may be issued is 5,625,000. During 2003, the Company established a new stock option plan to replace the existing stock option plan. No additional stock options may be granted under the old plan. The old plan will terminate after the exercise, expiry, termination or cancellation of all of the currently outstanding stock options that were granted under the old plan. Under the terms of the new plan, one-quarter of the options granted vest immediately, and another one-quarter vest every six-month period following the grant date. Under the terms of the old plan, all options vested immediately. All options under both the old and new plan expire on the fifth anniversary from the date of issue, unless otherwise specified. November 2003 private placement December 2003 private placement Warrants Issued Warrants CGX has the following common share purchase warrants outstanding as at December 31, 2003: Flow-Through Shares Pursuant to flow-through share agreements entered into during 2001 and 2002, the Company renounced resource expenditures of $730,530. During 2003, the Company incurred the remaining qualifying expenditures relating to the flow-through shares. The effect of these expenditures was an increase in future income taxes and a decrease in share capital of $166,000. Balance as at December 31, 2003 Balance as at December 31, 2002 Issuance of shares for cash: Private placements Warrants exercised Stock options exercised Cost of share issuances Future tax benefits renounced pursuant to flow-through shares Balance as at December 31, 2001 Issuance of shares for cash: Private placements Stock options exercised Cost of share issuances Future tax benefits renounced pursuant to flow-through shares Number of Shares 1,403,000 (85,000) (1,588,000) 5,244,000 0.23 0.16 0.18 0.57 0.65 $ $ Exercisable at year-end $ $ $ 0.53 0.30 0.21 0.79 0.53 0.61 2002 Weighted Average Exercise Price 5,514,000 1,109,000 (10,000) (485,000) 5,514,000 4,900,000 No. of Options 0.20 – 0.30 0.43 – 0.43 0.75 – 1.05 1.45 – 1.50 2.9 2.6 1.0 1.4 2.2 2,909,000 675,000 735,000 925,000 5,244,000 Weighted Average Remaining Life (Years) $ $ 0.57 0.25 0.43 0.81 1.48 Weighted Average Exercise Price 4,191,750 1,950,500 581,250 735,000 925,000 No. of Options Currently Exercisable $ $ 0.65 0.27 0.43 0.81 1.48 During 2003, CGX granted 1,278,000 stock options to employees, officers, and directors. If the Company adopted the fair method of accounting for stock options, the stock-based compensation costs associated with these options would have an impact on net loss and net loss per share as follows: In 2003, CGX’s subsidiary ON Energy Inc., a Guyana-based public company, established a stock option plan. As at December 31, 2003, there were 1,750,000 stock options outstanding. If these options are exercised, then CGX’s controlling interest in its subsidiary will be reduced. In January 2004, 350,000 stock options priced at $0.20 were exercised. In February 2004, the Company granted an additional 50,000 options exercisable at $0.63. $ Range of Exercise Prices No. of Options Outstanding Weighted Average Exercise Price – Exercisable Options The following table provides additional information about outstanding stock options at December 31, 2003. 4,191,750 5,514,000 0.53 $ No. of Options Outstanding, beginning of year Transactions during the year: Granted Exercised Expired Outstanding, end of year 2003 Weighted Average Exercise Price $ $ — $ $ 1,673,000 (1,673,000) — 4,033,000 (4,033,000) 2002 The Pomeroon License issued by the Government of Guyana in November 1997 is approximately 11,254 square kms (2,781,000 acres) in size and is located between CGX’s 100%-owned Annex portion of the Corentyne License and the Plataforma Deltana, which is offshore Venezuela. The purchase price consists of a payment of $100,000 plus the issuance of 2,000,000 unrestricted common shares of the Company on the closing date. Upon closing of the transaction, CGX shall assign to Century an Overriding Royalty Interest consisting of 2.5% of all revenues to the extent that the revenues are directly attributable to the contractor’s share of Profit Oil. 7. Subsequent Event In January 2004, the Company, through its wholly owned subsidiary, CGX Resources Inc., entered into an Asset Purchase Agreement with Century Guyana, Ltd. (Century) to acquire Century’s 100% interest in the Pomeroon Prospecting License located offshore in the Guyana Basin. Closing of the transaction is subject to written approval from the Government of Guyana. As at the audit report date, such approval has not been obtained. The Company has recorded a 100% valuation allowance against the future income tax assets because of the uncertainty surrounding their realization. Future tax assets: Benefit of non-capital loss carry forwards Valuation allowance 2003 6. Income Taxes As at December 31, 2003, the Company had non-capital losses of $4,780,000 available to reduce future Canadian source income for income tax purposes. These losses expire during the years 2004 to 2010. A summary of the future income tax asset resulting from these operating losses carry forward, using an approximate tax rate of 35%, is as follows: — 7.8% 5.0% 5 1,278,000 (1,161,963) $ (0.02) Pro forma net loss Pro forma net loss per share – basic Assumptions used in Black-Scholes option pricing model Dividend yield Expected volatility Risk-free interest rate Expected life (years) Number of options granted $(1,151,963) (10,000) Net loss as reported Stock-based compensation cost 2003 Total Assets Canada Guyana Capital Expenditures Canada Guyana Net Cash Provided by (Used by) Operations Canada Guyana Net Loss Canada Guyana Petroleum and Natural Gas Revenues Canada Guyana $ 1,455,867 3,224,705 4,680,572 6,432,605 761,298 1,538,808 2,580,243 3,852,362 298,654 462,644 (709,736) 48,141 457,795 1,081,013 (607,181) (102,555) (346,726) 394,867 605,185 895,963 356,009 356,009 — 588,492 16,693 $ 2002 785,296 110,667 218,601 218,601 — 2003 8. Segmented Information The Company has operations in Canada and Guyana, and its entire operating activities are related to the exploration, development and production of petroleum and natural gas. End of year Net reserves following sale Extensions and discoveries Revisions of previous estimates Improved recovery Purchases of reserves in place Production Proven developed reserves: Beginning of year Production Sales of reserves in place Canada 7.7 — 10.6 — — — (2.9) 43.5 (1.6) (41.9) Oil/NGLs (mbbls) CGX Energy Inc. Supplementary Information Reserve Quantity Information for the Year Ended December 31, 2003 Constant Pricing after Royalty 14 2.3 — 3.9 — — — (1.6) 504.4 (12.4) (492.0) Gas (mmcf) Bankers Royal Bank of Canada, Toronto Legal Counsel Miller Thomson LLP, Toronto Annual General Meeting The Annual General Meeting of shareholders will take place in The Board of Trade, First Canadian Place, Toronto, Ontario, on Thursday, June 24, 2004, at 4 p.m. Fax 416-364-5400 Investor Relations Contact Charlotte May 416-364-3353 Website www.cgxenergy.com Share Trading Information Trading Symbol OYL.U TSX Venture Exchange (TSX-V) 2003 High US$0.53 2003 Low US$0.14 2003 Close US$0.51 As of April 28, 2004 US$0.78 Common Shares Outstanding 62,715,595 Fully Diluted 74,293,663 Printed in Canada by Metropolitan Fine Printers Project management and editing by Perspectives MGM Inc. Design by Letterbox Design Group The Management Proxy Circular and Form of Proxy are being mailed to each shareholder with this report. Shareholders unable to attend the Annual General Meeting are encouraged to complete and return the Form of Proxy. Independent Engineering Consultant Paddock Lindstrom, Calgary Telephone 416-364-5569 E-mail info@cgxenergy.com Auditors parker simone, Chartered Accountants LLP, Mississauga Registrar and Transfer Agent Equity Transfer Services Inc., Toronto Head Office Address CGX Energy Inc. 120 Adelaide Street West, Suite 512 Toronto, Ontario, Canada M5H 1T1 CORPORATE INFORMATION Abbreviations bbls barrels bbls/d barrels per day boe barrel of oil equivalent boe/d barrel of oil equivalent per day C Canadian km(s) kilometer(s) m thousand mm million mbbls thousand barrels mcf thousand cubic feet mcf/d thousand cubic feet per day mmcf million cubic feet mmcf/d million cubic feet per day NGLs natural gas liquids DIRECTORS, OFFICERS & MANAGEMENT Adrian C. Jackson, M.A. M.B.A. Position Independent Director Age 45 Experience Adrian has 22 years experience in corporate finance, investment banking and petroleum engineering. He is the former Group Chief Financial Officer for Atlantic Energy Resources, a private exploration and production company focusing on developing discovered fields in Russia. Prior to this, he spent more than 6 years as a Vice President of The Chase Manhattan Bank, mostly within the Global Oil & Gas Group where his focus included advising on international and domestic mergers and acquisitions, and corporate and project financing. Adrian has had similar roles with the Chemical Bank and Daiwa Europe Limited. After graduation from Oxford University in 1982, he worked for 10 years with Royal Dutch Shell as a petroleum and reservoir engineer, an asset evaluator and negotiator. Adrian is a Director of JSC Pechoraneft. James (Jim) N. Fairbairn, C.A. Position Chief Financial Officer Age 46 Experience Jim has more than 17 years of financial experience with publicly traded companies. He is an officer of the following public companies: Ausnoram Holdings Limited, BandOre Resources Ltd., Black Pearl Minerals Consolidated Inc., Garrison International Ltd., and Vena Resources Inc. Edris K. Kamal Dookie, PhD Position Executive Vice President of CGX Resources Inc., Director of Guyana Operations, and Founder Age 51 Experience Kamal, a co-Founder of CGX Resources Inc., has been involved for more than 20 years in the development of start-up projects in the agricultural and mining sectors. During the last several years, he has focused on the acquisition and exploration of CGX’s licenses in Guyana. John R. Cullen Position Director and Founder Age 48 Experience John, a co-Founder of CGX Resources Inc., has had a successful career in public company financing, corporate/capital structuring and development over the last 24 years. For 10 years, John was an investment advisor with Nesbitt Burns, where he specialized in the resource sector. John is a Director of a number of public companies, including Dumont Nickel Inc., Garrison International Ltd., HMZ Metals Inc., Quincy Resources Inc., and Vena Resources Inc. Denis A. Clement, LL.M. Position Director Age 51 Experience Denis, the founding President of CGX, has 24 years of experience in law, corporate management and finance. He has held key executive and directorship positions in several companies. Denis is the Chairman and a Director of Dumont Nickel Inc., and a Director of Garrison International Ltd., and Vena Resources Inc. CORPORATE INFORMATION May Investor Relations 41 Charlotte has 16 years of experience in marketing, finance, research and investor relations in the institutional brokerage industry, and oil and gas and industrial sectors. Her institutional investment experience includes the position of Manager, Research Services, for Peters & Co. Limited, an oil and gas investment boutique, and working in the oil and gas divisions of Loewen, Ondaatje, McCutcheon & Co. Limited and Goepel, Shields & Partners Inc., where she was one of the original founders. Warren G. Workman, P. Geol., B.Sc. Position Vice President Exploration Age 53 Experience Warren is a highly experienced geophysicist and geologist who has spent more than 29 years in international and domestic exploration. His career experience includes working for Amoco Canada Petroleum, Unocal Corporation and Ranchmen’s Resources, where he was Vice President Exploration. Warren has valuable expertise in the identification and exploration of offshore oil and gas targets, including projects in the Gulf of Mexico. Kerry E. Sully, P.Eng., B.Sc. Position Director, President & Chief Executive Officer Age 55 Experience Kerry has more than 33 years of petroleum and consulting experience. He initiated computerized financial modeling at Texaco Exploration Canada Ltd., and was a key participant on its mergers and acquisition team. As a consultant for Lewis Engineering Co. Ltd. and its sister company in the United States, D.R. McCord and Associates, he completed reserve evaluations and reservoir engineering models for securities commissions and oil and gas production companies worldwide. In 1976, Kerry helped found Ranchmen’s Resources Ltd., and was its President and Chief Executive Officer from 1989 to 1995 when Ranchmen’s was the target of a $260-million takeover. In addition to his responsibilities at CGX, Kerry is Chairman and a Director of Birch Mountain Resources Ltd. Stephen McIntyre, B.Sc., B.A. Position Strategic Advisor Age 56 Experience Steve has more than 28 years of experience in the mineral business. He is the former President of Dumont Nickel Inc., and was President of Northwest Exploration Company Limited, the predecessor company to CGX Energy Inc. During his career, Steve has been the President and Chairman of other resource companies as well. Charlotte M. Position Age Experience Oliver Lennox-King, B.Comm. Position Independent Director Age 55 Experience Oliver has 31 years of experience in the mineral resource industry in the areas of financing, research and marketing. He is the Founder and Chairman of Southern Cross Resources Inc. Oliver was formerly Chairman of Pangea Goldfields Inc. and President of Tiomin Resources Inc. He is on the board of several public companies, including Dumont Nickel Inc., and Tiomin Resources Inc. NNN%:>OP%:FD @e )''+# :>O Zi\Xk\[ X cf^f n`k_ \e\i^p# dfd\ekld Xe[ fg\ee\jj% JlYkcp `e_\i\ek `e k_\ cf^f Xi\ k_\ c\kk\ij ÊZ#Ë Ê^Ë Xe[ Êo%Ë K_\ Ycl\ Xe[ ^i\\e Zfcflij i\]c\Zk fli \ogcfiXk`fe `e k_\ f]]j_fi\ nXk\ij Xe[ fej_fi\ m\i[Xek ^i\\e f] >lpXeX# n`k_ k_\ Ycl\ Xiifn fe k_\ c\]k `ejg`i\[ Yp k_\ p\ccfn Xiifn_\X[ `e >lpXeXËj ]cX^%