ITEM 1. BUSINESS
GENERAL Optima Petroleum Corporation (hereinafter referred to as "Optima" or the "Company"), along with its wholly owned United States subsidiary, Optima Energy (U.S.) Corporation, ("Optima US"), is engaged in the business of oil and gas exploration and development in Canada and the United States.
The Company was incorporated under the name "Lathwell Resources Ltd.", by registration of Articles and Memorandum pursuant to the laws of the province of British Columbia on April 11, 1983. On February 5, 1988, consolidating its share capital on a 1 for 5 basis, the Company changed its name to "Optima Energy Corporation". On July 9, 1992, the Company changed its name to "Optima Petroleum Corporation" concurrently with a 1 for 2.5 consolidation of its share capital. It was continued under the Canada Business Corporation Act ("CBCA") on May 23, 1995.
Effective December 1, 1992, the Company acquired through Optima US, from a director of the Company, a 100 percent interest in the common shares of Arenosa Resource Corporation (Arenosa), a company engaged in oil and gas exploration and production. Arenosa was acquired at fair value as determined by a December 1, 1992 reserve evaluation prepared by independent engineers and was approved by the shareholders. Arenosa was subsequently amalgamated into Optima US.
On September 8, 1995 the Company acquired 100% of the shares of Roxbury Capital Corporation pursuant to a plan of arrangement under the CBCA. The purchase of Roxbury Capital Corp. was accounted for as an acquisition at a consideration of $6,186,272 in exchange for 1,374,727 common shares ($4.50 per share).
Optima participates primarily as a working interest holder, in numerous oil and gas prospects which are operated either by itself or by third parties. By funding its proportionate share of drilling costs of a successfully completed well, Optima earns an interest in the well and in the related acreage, based on the terms of the applicable participation agreement.
The Company's oil and gas interests as at December 31, 1996 are described under Item 2

ITEM 2. PROPERTIES
DESCRIPTION The Company's corporate finance office is located in leased office space at #600 - 595 Howe Street, Vancouver, British Columbia, Canada, V6C 2T5. The registered office of the Company is Suite 2170, Bow Valley Square Four, 250 - 6th Avenue, S.W., Calgary, Alberta, T2P 3R7. Properties in which the Company holds interests, are located in the province of Alberta, in Canada and in the states of Louisiana, and New Mexico, in the USA.
No material weather or environmental problems are anticipated. Oil and gas exploration, development and exploitation should not be inconsistent with the various areas' current mining, recreational and residential uses, which are minimal. Normal practices to reduce noise, changes to air quality and water quality are expected to be sufficient. The project operators have obtained all necessary permits for exploration work performed to date in each of their respective locations, and anticipate no material problems obtaining the necessary permits to proceed with development.
The following discussion outlines the acquisition, the location, and summary of operations, for each of the properties in which the Company holds interests.
ALBERTA PROPERTIES
WILDHAY RIVER The Wildhay project is located 135 miles northwest of Edmonton, Alberta, Canada and covers 19,520 gross acres. Optima has participated in the drilling and/or completion of the following ten wells on 30 1/2 sections of land. These interests were acquired through a combination of farm-in agreements, direct petroleum and natural gas leases and drilling license acquisition:
Notes: (1) subject to crown royalties (2) BPO means: before payout of well costs; APO means: after payout (3) GORR means a royalty of 15% of production
Pursuant to AUERB regulations each well holds by production a one section spacing unit (640 acres) in which the well is located. The gross daily field production for December, 1996 was 8,850 mcf of natural gas and 100 barrels of liquids with Optima's share averaging 55%. The 16-22 well is expected to be tied-in by the end of March, 1997. Another well is scheduled for drilling later in 1997.
SNIPE LAKE The Company re-entered a cased wellbore at 02-24-70-18W5M in November, 1996. Although, the workover program undertaken did establish oil production from the Swan Hills formation, the projected, stabilized rate of production does not warrant equipping and tie-in expenditures. No further work is anticipated in 1997 on this prospect.
LOUISIANA PROPERTIES
TURTLE BAYOU / KENT BAYOU PROSPECT The Company has participated in the drilling of 10 wells since 1990 on this prospect. As at December 31, 1996, there are seven producing wells, three standing cased wells and one abandoned well. The Company's ownership in the various producing wells are as follows:
During 1996, a deep CIB-OP test well, CL&F #11 was drilled to its targeted depth of 15,340 feet in September, 1996. The well is standing cased and subject to further evaluation of 3-D seismic and other technical data. Gross daily production as at December 31, 1996 was 11,641 mcf and 171 barrels of condensate. The Company's weighted average working interest is 14.78%.
As at December 31, 1996, the gross acreage position was 5,955 gross acres. A number of voluntary production units were established with the Department of Conservation State of Louisiana in February, 1997 and accordingly, our leased acreage position will be substantively reduced to 1,688 gross acres from 5,955 gross acres.
VALENTINE In August, 1995, the Company acquired additional interests in Valentine Field, Louisiana. A 35% working interest was acquired in 23 wells of which 4 are producing oil wells and 5 are producing gas wells. Additionally, the Company increased the net revenue interests ("NRI") on the petroleum and natural gas leases from a 68% NRI to an average 82.5% NRI. The Company's share of daily production was 51 barrels of oil and 717 mcf of gas for the month of December, 1996. As a condition to this acquisition, Optima US was required to fund from production its pro rata share of a $1.4 million escrow account. The proceeds from this account will be utilized for wellsite restoration. This escrow account was fully funded as at January 31, 1997.
A well was drilled to the Southcoast #3 sands in June, 1996 and was abandoned. The Company anticipates the commencement in the latter part of 1997 of a seismic based program to identify deeper drilling targets on the Valentine salt dome. In this respect, the land position as at December 31, 1996 was 3,460 gross acres as compared to approximately 2,600 gross acres a year earlier.
TMR JOINT VENTURE Pursuant to the master participation agreement with Texas Meridian Resources Corporation ("TMR") dated October 1, 1993, the Company has evaluated ten prospect areas of which five have been drilled, four rejected pursuant to the geological and geophysical review, and one prospect at Stella is to be drilled by the end of 1997. Seven features have been evaluated by drilling resulting in five gas wells, four oil wells and five dry holes.
Optima US holds between a 4% and 8% working interest in the wells operated by TMR pursuant to the joint venture. This represents a daily working interest production rate of 303 barrels of oil and condensate plus 1,125 mcf of natural gas based on December, 1996 production. Subsequent to year end, the Henry 28 No. 1 well and J.A. Davis Estate 26 No. 1 wells at East Cameron (Backridge) were placed into production. Stabilized production rates for these two wells are expected to be in range of 2,000 barrels of oil and 1,000 mcf. Optima U.S. holds an 8% working interest in these wells. An additional 3 wells are planned for the East Cameron field for the remainder of 1997.
OTHER PROPERTIES Optima US acquired a 25% working interest in the Chrysler prospect in Lea County, New Mexico. The target is the Devonian formation and is supported by interpreted 3-D seismic. The first well, Savage #34-1 was spudded in December, 1996, drilled to 13,000 feet and abandoned on February 17, 1997. A second well is scheduled to be drilled in June, 1997.
A well at East Haynesville, Claiborne Parish, Louisiana, was drilled to evaluate the Smackover "C" sand at a depth of 10,536 feet and was cased in December, 1996. This well, Dubberly #1, in which Optima US has a 28% working interest went into production in late February, 1997 at a daily rate of 200 barrels of oil and 1,300 mcf of gas. An offset well is scheduled to commence in April, 1997.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company or its subsidiary is a party or by which any of its property is subject, other than ordinary and routine litigation to the business of producing and exploring for oil and natural gas.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on May 24, 1996, the Company's shareholders ratified the appointment of KPMG as the Company's independent auditors for 1996. The number of shares voted for and withheld with respect to the election of the directors and the number of shares voted for and against and the abstention for the ratification of the appointment of the Company's auditors were as follows:
Additionally, the following proposals were approved at the Company's annual meeting:
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK AND EQUITY The Registrant's Common Shares and Warrants trade on the Toronto Stock Exchange in Ontario, Canada under the symbol "OPP" and "OPPwt" respectively. The Registrant's common shares commenced trading on December 1, 1993 and prior to this was trading on the Vancouver Stock Exchange in British Columbia as of May 2, 1988. The Company was delisted from the Vancouver Stock Exchange on March 17, 1994. The Registrant's common shares trade on the NASDAQ in Washington, D.C., U.S.A. under the symbol "OPPCF". The Registrant's common shares commenced trading on NASDAQ on October 26, 1992.
The following table lists trading volume and high and low trading prices for the last eight fiscal quarters. The current sales price as of March 17, 1997 was Cdn.$3.70 on the Toronto Stock Exchange, U.S.$2.63 on NASDAQ.
As at March 17, 1997 the Company has 678 shareholders of record. The Company's warrants expired February 28, 1997.
The Company has not paid cash dividends on the Common Shares and does not intend to pay cash dividends on the Common Shares in the foreseeable future. The Company currently intends to retain its cash for the continued development of its business including exploratory and developmental drilling activities.
Holders of common stock are entitled to one vote for each share held of record on all matters to be acted upon by the shareholders. Holders of common stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available therefore.
Upon liquidation, dissolution or winding up of the Registrant, holders of common are entitled to receive pro rata the assets of the Registrant, if any, remaining after payments of all debts and liabilities. No shares have been issued subject to call or assessment. There are no preemptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the Canada Business Corporate Act ("CBCA"). Under the CBCA, the Articles of Incorporation documents otherwise provide, that any action to be taken by a resolution of the members may be taken by an ordinary resolution by a vote of a majority or more of the shares represented at the shareholder's meeting.
The Registrant is a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents and residents of other countries. The Registrant is not owned or controlled directly or indirectly by another corporation or foreign government.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
All financial data should be read in conjunction with the Consolidated Financial Statements of Optima and related notes thereto included elsewhere in this report.
The value of the U.S. Dollar in relation to the Canadian Dollar was U.S.$1.3700 as at March 17, 1997. The following table sets forth a history of the exchange rates for the U.S./Canadian Dollar during the past five fiscal years:
The Company's financial statements are stated in Canadian Dollars (Cdn$) and are prepared in accordance with Canadian Generally Accepted Accounting Principals ("Canadian GAAP"); reconciliations to United States Generally Accepted Accounting Principals ("U.S. GAAP") are contained in note 11 to the consolidated financial statements.
The following table presents selected financial information:
* Total Current Assets less Total Current Liabilities.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1996 TO TWELVE MONTHS ENDED DECEMBER 31, 1995 The Company realized earnings for the year of $228,573 being $0.02 per share as compared to a loss in 1995 of $1,155,062 or $0.13 per share. This improvement of $1,384,235 is a result of increased oil and gas production and improved commodity prices. Gross natural volumes increased 40% from 2,364,489 MCF to 3,309,438 MCF. The increase in oil production was 116% from 71,122 barrels to 153,699 barrels. Combined with strong oil prices, this improvement resulted in gross oil revenue increasing by 165% from $1,719,186 in 1995 to $4,549,235 in 1996. The combined oil and gas revenue for 1996 was $12,862,701 as compared to $6,762,407 in 1995.
Earnings before interest, depletion, depreciation, amortization and income taxes ("EBITDA) increased to $6,662,544 or $0.61 per share as compared to $2,481,057 in 1995 or $0.27 per share. The weighted average number of shares used in the calculation of earnings for the year and for EBITDA was 10,945,927 shares whereas the 1995 calculations are based on 9,031,583 shares. The primary reason for this difference is the 1,374,227 shares from the Roxbury plan of arrangement which were issued in September, 1995 and shares issued from treasury in 1996.
OPERATING EXPENSE Oil and natural gas operating expenses increased from $926,159 in 1995 to $1,649,650 in 1996. On a boe basis, operating expenses fell to $2.34 in 1996 from $3.03 in 1995 an improvement of 23%. Canadian operating costs fell from $3.49 per boe in 1995 to $2.51 in 1996. Although operating expenses in the U.S. varied slightly, $2.22 per boe in 1996 versus $2.34 per boe in 1995, the 110% increase in Canadian gas production accounts for the differential.
INTEREST AND OTHER INCOME Interest revenue of $26,095 in 1996 did not vary significantly from $25,784 a year earlier. Short term Canadian interest rate averaged between 3% and 4.5% over the year.
INTEREST EXPENSE Interest expense and bank charges were $685,942 in 1996, as compared to $461,531 in 1995. The primary reason for this increase was that the combined bank loan and debenture principal balance for 1996 averaged $7.5 million Canadian, whereas in 1995 the average principal balance was below $5.0 million.
DEPLETION, DEPRECIATION AND AMORTIZATION Depletion and depreciation increased to $5,661,205 in 1996 from $3,207,118 in 1995, an increase of 77 % on a boe basis in 1996 expense was $8.03 per boe versus $6.84 in 1995 (this comparison is based on an energy equivalent of 6 mcf per boe). The calculation of depletion and depreciation is based on the Evaluation Reports as at December 31, 1996, prepared by the independent engineering consultants. These reports assure unescalated pricing and do not recognize the results of subsequent drilling and completion between December 31, 1996 and the filing date of this Annual Report.
The amortization expense of $68,494 is derived from the costs of the 1995 Roxbury plan of arrangement in 1996. These deferred charges are being amortized on a straight line basis over 60 months from the date of acquisition.
GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense of $1,663,411 in 1996 is an increase of $193,328 over 1995, a change of 13%. On a boe basis, general and administrative expenses were $2.36 down 25% from $3.16 per boe in 1995.
INVESTMENT CARRYING VALUE Pursuant to both Canadian and United States full cost method of accounting the Company is required to meet certain ceiling tests in respect of the carrying value of petroleum and natural gas interests on the balance as at December 31, 1996. The Company met these ceiling tests, and accordingly, no write-down of petroleum and natural gas interests was required.
BALANCE SHEET The Company's total assets as at December 31, 1996 were $41,214,688 as compared to $39,178,076 a year earlier. This increase of 5% over the past year is due primarily to an improvement in working interest capital of $541,651.
Whereas the increase in petroleum and natural interests to $34,764,350 (being $50,376,801 of capital costs less $15,612,451 in accumulated depreciation, depletion and write-offs) was only $1,264,670, a reduction in the level of year end activity reduced the advances to operators by $881,352. The note receivable at year end of $497,692 is in respect of the sale at Elm Grove which closed in 1996.
In respect of liabilities and shareholders' equity, long term debt (including current portion) declined slightly to $6,850,017 from $7,390,400 a year earlier. This change is a combination of higher bank debt and the redemption of $829,000 of convertible debentures. Shareholders' equity at December 31, 1996 increased to $31,472,428 from $28,477,535. This change is a combination of $228,573 in income for the year end and the net issuance of 759,452 common shares for $2,766,320.
TWELVE MONTHS ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994 The Company realized a substantial increase in production as compared to 1994 which contributed to the increase in gross revenue and earnings before interest, depletion, depreciation of taxes. Gross natural gas volumes increased 80% from 1,311,852 mcf to 2,364,489 mcf whereas oil production almost doubled to 71,122 barrels from 36,337. Based on a barrel of oil equivalent basis ("boe") of 10 to 1 (1 barrel equals 10 mcf) which in our opinion reflects the comparative financial value of oil and gas, production increased from 167,455 boe in 1994 to 307,571 in 1995, an increase of 82%. Gross revenue increased by 63% from $4,137,141 in 1994 to $6,762,407 in 1995. Whereas 75% of the Company's production is in the form of natural gas, the 17% decline in the average gas price resulted in the rate of increase in revenue to lag behind in the increase in production.
Earnings before interest, depletion, depreciation and taxes in 1995 increased to $2,481,057 from $1,358,079 in 1994, an increase of 83%. Loss per share in 1995 fell to $0.13 per share being $1,155,062 from $0.56 in 1994, an improvement of 77%. The weighted average number of shares used in the calculation was 9,031,583 shares in 1995 as compared to 7,625,417 shares in 1994 and reflects the issuance of 1,374,727 shares from the Roxbury plan of arrangement.
OPERATING EXPENSES
Oil and natural gas operating expenses increased to $926,159 in 1995 from $615,477 in 1994. On a boe basis operating expense fell by 14% to $3.03 per boe in 1995 from $3.68 per boe in 1994. This improvement results from the benefit of economics of scale at Wildhay River and Lake Boeuf, where the Company is realizing higher production levels.
INTEREST AND OTHER INCOME Interest revenue fell from $45,628 in 1994 to $25,784 reflecting lower short-term interest rates in Canada and a lower average cash balance throughout 1995. Other income of $47,748 is a result of the conversion of debentures received on the sale of debenture received on the sale of marginal properties to SLN Ventures Corporation.
INTEREST EXPENSE Interest expense and bank charges increased to $461,351 in 1995 from $126,399 in 1994 as a direct result of an increase of $5,561,400 in bank debt.
DEPLETION, DEPRECIATION AND AMORTIZATION Depletion and depreciation increased substantially from $1,719,897 in 1994 to $3,207,118 in 1995, an increase of 86%. On a boe basis, the 1995 expense was $6.84 per boe versus $6.74 in 1994 (this comparison is based on 6 mcf equal to 1 barrel which is the energy equivalent). The calculation of depreciation and depletion is based on the Evaluation Reports as at December 31, 1995 which assumes unescalated commodity pricing and does not recognize the results of subsequent drilling and completion between December 31, 1995 and the filing date of this 10-K Annual Report.
The amortization expense of $22,587 is derived from the costs of the plan of arrangement with Roxbury Capital Corporation. These deferred charges are being amortized on a straight line basis over 60 months from the date of acquisition.
GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense of $1,470,083 in 1995 is an increase of $362,736 over 1994, a change of 33%. The increase is due to a combination of consultants expense and office rent absorbed in a plan of arrangement with Roxbury as well as on an increase in the level of remuneration. General and administrative expense were $3.16 per boe in 1995 as compared to $4.34 per boe in 1994.
INVESTMENT CARRYING VALUE ADJUSTMENT There was no write down of Petroleum and natural gas interests in 1995 as compared to $4,000,000 in 1994. The Company met the ceiling tests under Canadian generally accepted accounting principles. Under the United States full cost method of accounting for petroleum and natural gas interests, the Company using oil and gas prices at the balance sheet date, would have been required to write down its Canadian petroleum and natural gas interests by approximately $800,000.
BALANCE SHEET Total assets as at December 31, 1995 were $39,178,076 as compared to $24,794,082 a year earlier. The major source of the change is in petroleum and natural gas interest of $33,499,680 (being $43,597,549 in capital costs less $10,097,869 in accumulated depreciation, depletion and write-offs) which increased $11,240,175 in 1995.
During 1995 the Company participated in the drilling of 11 gross wells (2.84 net wells). Additionally, the increase in petroleum and natural gas interests reflects the acquisition of Roxbury and additional interests in Turtle Bayou, Louisiana.
In respect of the liabilities and shareholders' equity, long term debt increased from $1,849,000 as at December 31, 1994 to $7,390,400 as at December 31, 1995. Shareholders' equity as at December 31, 1995 increased to $28,477,535 from $20,837,561. The major change is due to the issuance of 2,137,340 shares for $8,795,036 in cash and assets combined with the loss for the year of $1,155,062.
TWELVE MONTHS ENDED DECEMBER 31, 1994 TO TWELVE MONTHS ENDED DECEMBER 31, 1993. Net loss for the year ended December 31, 1994 was $4,305,090 as compared to a loss of $260,732 for the previous year. The major reason for this difference is a ceiling test write down of petroleum and natural gas interests of $4,000,000.
Loss per share for the year ended December 31, 1994 was $0.56 compared to a loss of $0.05 for the 1993 fiscal year.
Optima reported petroleum and natural gas sales, after royalties and production taxes, of $3,080,903 compared with $2,486,000 in 1993. Interest revenue was $45,628 as compared to $107,975 for the previous year.
Depreciation and depletion expense was $1,719,897 for 1994 as compared to $815,655 for the 1993 fiscal year. The increase in these non-cash expenses is due to the combination of increased production and the 1995 capital expenditures program which was focused on leasehold acquisition, seismic, geological and geophysical expenditures; specifically significant land acquisition at Wildhay, the Texas Meridian Joint Venture and the drilling of the Vermillion State Lease #1-28 well.
LIQUIDITY AND CAPITAL RESOURCES
TWELVE MONTHS ENDED DECEMBER 31, 1996 TO TWELVE MONTHS ENDED DECEMBER 31, 1995. Working capital as at December 31, 1996 was $1,288,511 as compared to $746,860 a year earlier. Cash and cash equivalents increased to $2,055,062 at year end from $1,022,925 at December 31, 1995. In addition, a further $638,142 was held in trust to fund future abandonment and site restoration work in the Valentine field. Restoration work will occur during 1997 in the Valentine field which will release a portion of this cash in-trust.
The increase in working capital of $541,651 over the fiscal year is a result of a combination of increased cash from operations and a reduction in capital requirements. Cash flow from operations was $5,958,272 in 1996 as compared to $2,074,643 in 1995 an improvement of 187%. After utilizing $44,195 of cash flow to fund accounts receivable and $565,717 to reduce accounts payable, the Company had $5,348,360 to finance its capital expenditures, whereas a year earlier the cash flow available for capital program was only $1,829,975.
Net capital requirements for 1996 was $6,045,068 as compared to $15,495,351 in 1995, a reduction of 61%. Petroleum and natural gas expenditures net of proceeds from sale of petroleum and natural interests was $6,779,071 in 1996 as compared to $7,632,770 a year earlier.
In respect of financial activities, the Company issued common shares in the amount of $2,766,320 and increased its bank debt by $289,217. The remainder of convertible debentures of $829,000 was retired in December, 1996.
The Company as at the date of this annual report anticipates that its 1997 capital requirements will be in the range of $4.0 million to $5.0 million. Additional capital may be required if our planned drilling program results in a major discovery which would necessitate a major development program. It is the Company's intention to utilize cash flow from its production base, combined with cash reserves and bank lines to fund the 1997 capital expenditures. In management's opinion, the Company currently has sufficient cash available and financing resources available for it to fund ongoing operations.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian GAAP; reconciliations to U.S. GAAP are contained in note 11 to the financial statements. The value of the U.S. Dollar in relation to the Canadian Dollar was U.S. $1.3700 as at March 17, 1997.
Report of Independent Auditors Consolidated Balance Sheets as at December 31, 1996 and 1995. Consolidated Statements of Operations and Deficit for the Years Ended December 31, 1996, 1995 and 1994. Consolidated Statement of Change in Financial Position for the Years Ended December 31, 1996, 1995 and 1994. Schedules of Consolidated General and Administrative Expense Notes to Consolidated Financial Statements for the Years Ended December 31, 1996, 1995 and 1994. Consolidated Supplemental Oil and Gas Information
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists as of December 31, 1996, the names of all the Directors of the Registrant, their municipalities of residence, their current positions with the Company and their principal occupations during the past five years. Each Director will serve until the next annual general meeting or until his successor is duly elected, unless his office is vacated in accordance with the Articles of the Registrant. There are no arrangements or understandings pursuant to the selection of any directors of the Registrant.
* Member of the Company's Audit Committee. ** Member of the Company's Executive Committee
WILLIAM C. LEUSCHNER: Director and Chairman of the Company since 1989. Mr. Leuschner is a professional geologist with a Bachelor of Geology from Texas A&M in 1950. In 1982, he founded Leuschner International Resources Ltd., a private hydrocarbon consulting and independent oil and gas producing firm, of which he is President. From 1982 to 1992, he was president of Arenosa Resource Corporation, a private oil and gas company, subsequently sold to the Company. Between 1984 and 1995, he has been a Director of Skyline Natural Resources, a publicly-traded company on the Alberta Stock Exchange. Since 1992, he has been a Director of Pantheon Inc., a public pharmaceutical company listed on the TSE.
ROBERT L. HODGKINSON: Director, President and Chief Executive Officer of the Company since 1989. From 1982 to November 1990, he was Vice President with L.O.M. Western Securities Ltd., a securities firm in Vancouver, British Columbia. From April 1993, to September 1995, Mr. Hodgkinson was a director of Roxbury Capital Corp.
RONALD P. BOURGEOIS: Director and Chief Financial Officer since June 1993 and Secretary since August, 1993. Mr. Bourgeois is a chartered accountant with a Bachelor of Commerce (Hons) from the University of Manitoba in 1973 and achieved his chartered accountant designation in 1976 after articling with Cooper & Lybrand. Prior to his employment with the Company, Mr. Bourgeois served as the President of the General Partner of each limited partnership managed by Lakewood Capital Group Inc. from June, 1989 to June, 1993. He was also President of Q-Vest Petroleum Management Inc. a predecessor of Lakewood from February, 1987 to June, 1989. Both Lakewood Capital Group Inc. and Q-Vest Petroleum Management Inc. are oil and gas investment management companies. From September 1994 to September 1995, Mr. Bourgeois was a director and officer of Roxbury Capital Corp.
EMILE STEHELIN: Director of the Company since 1989. Since 1972 he has been President and Director of E.V.E.M. Limited, a private holding company with interests in real estate, property management, construction and mining.
MARTIN ABBOTT: Director of the Company since December 1994. Mr. Abbott is a lawyer with a Bachelor of Arts from the University of Alberta in 1973 and Bachelor of Law (LLB) from the same university in 1981. Mr. Abbott then articled with the law firm of Fenerty, Robertson, Fraser & Hatch and later became a partner with that firm, practising oil and gas business law, before joining the Calgary office of Blake, Cassels & Graydon in 1991. Mr. Abbott retired from the partnership of Blake, Cassels & Graydon to form TOM Capital Associates, Inc., a merchant banking firm, in 1995, where he is Managing Director. Mr. Abbott has several years of experience in acting for public and private oil and gas companies in all areas of their activities, including acquisitions, mergers, joint ventures and financing. He also has extensive experience in cross-border transactions involving mergers, acquisitions and oil and gas petrochemical transactions. Mr. Abbott is a founder and director of Real Resources Inc., an Alberta Stock Exchange listed company.
The directors of the Company are elected by the shareholders at each annual general meeting and typically hold office until the next annual general meeting at which time they may be re-elected or replaced. Casual vacancies on the board are filled by the remaining directors and the persons filling those vacancies hold office until the next annual general meeting at which time they may be re-elected or replaced. The senior officers are appointed by the board and hold office indefinitely at the pleasure of the board.
COMMITTEES OF THE BOARD: The Executive Committee exercises all of the powers of the Board of Directors whenever the Board is not in session, subject to any restrictions, regulations, limitations or directions which may from time to time be imposed by the Board and save and except such acts as must by law be performed by the directors themselves. Whereas the Company has no Compensation Committee makes recommendations as to the salary, bonuses and other compensation to be paid to the officers. The Committee held three meetings in 1996 and is composed of William C. Leuschner, Robert L. Hodgkinson and Emile D. Stehelin.
The AUDIT COMMITTEE recommends to the Board of Directors the selection of independent auditors: reviews with the auditors the scope of the audit: reviews with the auditors and management of the Company the accounting principles, policies and practices; reviews the audited consolidated financial statements of the Company with the auditors prior to submission thereof to the Board of Directors for approval; reviews with the auditors the adequacy of the Company's internal audit program and the results of the internal audit activities: and undertakes other duties that may be delegated to it. The Committee held one meeting in 1996 and is composed of Ronald P. Bourgeois, Emile D. Stehelin and Martin G. Abbott.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION An "executive officer" is defined to mean the Chairman and any Vice-Chairman of the Board of Directors of the Company, when that person performs the functions of such office on a full-time basis, the President, any Vice President in charge of a principal business unit such as sales, finance or production, any officer of the Company or a subsidiary of the Company, or any person who performs a policy-making function in respect of the Company, whether or not such officer is also a director of the Company or of a subsidiary. The following is a discussion of the compensation being paid to the Company's executive officers.
SUMMARY OF COMPENSATION The following table is a summary of compensation paid to the named executive officers and directors as a group for the three most recently completed financial years. Specific aspects of this compensation are dealt with in further detail in the following tables
(1) Directors fees are paid only to non-executive directors at the rate of $500 per meeting and are paid in the form of common shares of the Company.
(2) All securities under options granted prior to the grant of April 3, 1995 were canceled pursuant to the terms and conditions of the current stock option plan.
(3) The Company does not have a long term incentive plan nor a pension plan.
OPTIONS GRANTED DURING THE MOST RECENTLY COMPLETED FISCAL YEAR
During the Company's most recently completed fiscal year, there were the following stock options granted to the Name Executive Officers.
(1) Represents aggregate increases in market capitalization based upon the outstanding shares (11,318,894) of Optima stock as at December 31, 1996.
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets out incentive stock options exercised by the Named Executive Officer, as well as the fiscal year-end options held by a Named Executive Officer.
(1) Based on the difference between the option and exercise price and the closing market price of the Company's shares, on the date of exercise, net of brokerage commission.
(2) In-the-money options are those where the market value of the underlying securities at the fiscal year-end exceeds the exercise price of the options. The closing price of the Company's shares on December 31, 1996 was $3.30. All of these outstanding options have an exercise price in excess of $3.30 per share and are therefore out-of-the-money.
All of the executive officers of the Company are entitled to reimbursement of all reasonable business expenses and to receive incentive stock options as they are granted from time to time by the Company. Reference should be made to "Stock Options" for particulars of stock options granted to Executive Officers.
CDN$150,000 (which included reimbursement of expenses, office costs and GST tax) was paid during fiscal 1996 to Leuschner International Resources Ltd. (Leuschner), a consulting and independent oil and gas producing firm controlled by William C. Leuschner, Chairman and Director of the Company. A February 1, 1995 Agreement between the Company and Leuschner, provides for William C. Leuschner's services as Chairman (and one individual who provides clerical services). The renewable contract calls for consideration of CDN$150,000 per year, a monthly payment of $12,500, to the consulting firm.
CDN$150,000. (which excluded reimbursement of expenses, office costs and GST tax) was paid during fiscal 1996 to Hodgkinson Equities Corporation, a private consulting firm in which Robert L. Hodgkinson, President/CEO and a Director of the Company, holds a 100 percent interest. The renewable contract calls for monthly payments of CDN$12,500 to Hodgkinson Equities Corporation.
CDN$118,000 (which excluded reimbursement of expenses, office costs and GST tax) was paid during fiscal 1996 to Ronald Bourgeois. The renewable contract, dated January 1, 1996, calls for monthly payments of CDN$9,815 to Ronald P. Bourgeois.
STOCK OPTIONS Robert Hodgkinson, Emile Stehelin, William Leuschner, Ronald Bourgeois and Martin Abbott have been granted director incentive stock options which were granted in accordance with the policy of the Toronto Stock Exchange which allows a prescribed discount from the average closing price of the Company's shares for the ten trading days immediately prior to the grant of the option.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The authorized capital of the Registrant consists of 100,000,000 shares of common stock without par value of which 11,318,894 are outstanding as of December 31, 1996. All of the authorized shares of the Registrant are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets.
Holders of common stock are entitled to one vote for each share held of record on all matters to be acted upon by the shareholders. Holders of common stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available therefore.
Upon liquidation, dissolution or winding up of the Registrant, holders of common stock are entitled to receive pro rata the assets of the Registrant, if any, remaining after payments of all debts and liabilities. No shares have been issued subject to call or assessment. There are no preemptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the CBCA. Under the CBCA, the Company's Articles of Incorporation otherwise provide, any action to be taken by a resolution of the members may be taken by an ordinary resolution by a vote of a majority or more of the shares represented at the shareholders' meeting. Roxbury shareholders received a share purchase warrants exercisable until February 28, 1997 on a one for one basis at a price of $5.10 per common shares. As a result there are 1,387,727 share purchase warrants outstanding as at December 31, 1996, all of which subsequently expired unexercised.
Debt Securities to be Registered. Not applicable. ---------------------------------- American Depository Receipts. Not applicable. ---------------------------------- Other Securities to be Registered. Not applicable. ----------------------------------
The Registrant is a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries. The Registrant is not owned or controlled directly or indirectly by another corporation or any foreign government.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth the beneficial ownership of the Company as at December 31, 1996 to the extent that each beneficial owner owns more than five percent of the common shares of the Company:
SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth the beneficial ownership as at December 31, 1996 of the Company's common shares by each of the Company's directors, certain of its executive officers and by all of its directors and executive officers as a group:
NOTES: (1) Excludes 200,000 exercisable stock options; (2) Excludes 153,000 exercisable stock options; (3) Excludes 90,000 exercisable stock options. (4) Excludes 75,000 exercisable stock options. * Less than 1%
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into the following material transactions with directors, senior officers or principal holders of its securities: (a) 7804 Yukon Inc. is a private company owned indirectly as to 47.619048% by Robert L. Hodgkinson, president of the Company and 52.380952% by Emile D. Stehelin, Director of the Company. 7804 Yukon Inc. has acquired interests in the following prospects in which the Company has participated or is participating: Valentine and Vermilion, Louisiana. Each of these transactions were on terms as favourable as the Company obtained from unaffiliated parties. (b) Colima Oil Company, a company wholly owned by William C. Leuschner, Chairman and director of the Company, has acquired interests in the following prospects in which the Company has participated or is participating; Valentine and East Haynesville, Louisiana. Additionally, Leuschner International Resources Ltd, another company wholly owned by William C. Leuschner acquired an interest in Morinville, Alberta, a prospect in which the Company has a working interest position. Each of these transactions were on terms as
favourable as the Company obtained from unaffiliated parties. (c) Hodgkinson Equities Corporation, a company wholly owned by Robert L. Hodgkinson, President and Director of the Company, acquired an interest at Morinville, Alberta, a prospect in which the Company has a working interest position, on terms as favourable as the Company obtained from an unaffiliated party. (d) Ronald P. Bourgeois, Chief Financial Officer and director of the Company acquired an interest in the Morinville, Alberta prospect on terms as favourable as the Company obtained from an unaffiliated party. (e) During October, 1995, Robert L. Hodgkinson acquired 115,000 shares of the Company at $3.35 per share pursuant to a private placement. This transaction was approved by the Toronto Stock Exchange. (f) During October, 1995, William C. Leuschner through Colima Oil Company acquired 34,500 shares of the Company at $3.35 per share pursuant to a private placement. This transaction was approved by the Toronto Stock Exchange. (g) Various loans to Optima were made in 1995 by companies controlled by Robert L. Hodgkinson, Emile D. Stehelin and William C. Leuschner. In May, 1995, Messieurs Hodgkinson, Leuschner and Stehelin advanced to the Company $116,500 each for a total of $349,500. These loans were unsecured and non-interest bearing. Mr. Hodgkinson was repaid in July, 1995 and Messieurs Leuschner and Stehelin were repaid the 19th of October, 1995. There are no loans outstanding as at December 31, 1996.
The Company pursuant to the nature of the business from time to time is offered the opportunity to participate in oil and gas prospects. Directors, senior officers and their associate and affiliates are allowed to participate in these prospects only if it is determined by the Board of Directors that their interests is over and above the level of participation that is prudent for the Company in respects of its financial resources. Additionally, the terms of the transactions must be similar to the terms of the participation by the Company. Other than the above referenced situations, no Directors or Executive Officers and no associate or affiliate of the foregoing persons has or had any material interest, direct or indirect, in any transaction, or in any proposed transaction, which in either such case has materially affected or will materially affect the Company.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS:
ANNUAL FINANCIAL STATEMENTS INCLUDED IN ITEM 8. (i) Independent Auditor's Report (ii) Consolidated Balance Sheets as at December 31, 1996 and 1995. (iii) Consolidated Statements of Operations and Deficit for the Years Ended December 31, 1996, 1995 and 1994. (iv) Consolidated Statement of Change in Financial Position for the Years Ended December 31, 1996, 1995 and 1994. (v) Schedules of Consolidated General and Administrative Expense (vi) Notes to Consolidated Financial Statements for the Years Ended December 31, 1996, 1995, and 1994. (vii) Consolidated Supplemental Oil and Gas Information
SCHEDULES TO CONSOLIDATED FINANCIAL STATEMENTS:
No financial statement schedules have been presented as they are not applicable, not required or the required information is included in the Consolidated Financial Statements or Notes thereto.
(B) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed by the Registrant.
(C) INDEX TO EXHIBITS
ITEM 15.

ITEM 15. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OPTIMA PETROLEUM CORPORATION
BY: /S/ Robert L. Hodgkinson ------------------------------------- ROBERT L. HODGKINSON President Chief Executive Officer and Director
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
OPTIMA PETROLEUM CORPORATION
Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Optima Petroleum Corporation as at December 31, 1996 and 1995 and the consolidated statements of operations and deficit and changes in financial position for each of the years in the three year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1996 and 1995 and the results of its operations and the changes in its financial position for each of the years in the three year period ended December 31, 1996 in accordance with generally accepted accounting principles in Canada.
/s/ KPMG Chartered Accountants
Vancouver, Canada March 14, 1997
OPTIMA PETROLEUM CORPORATION Consolidated Balance Sheets December 31, 1996 and 1995
See accompanying notes to consolidated financial statements.
ON BEHALF OF THE BOARD
/s/ Robert L. Hodgkinson, Director /s/ Ronald P. Bourgeois, Director
OPTIMA PETROLEUM CORPORATION
Consolidated Statements of Operations and Deficit Years ended December 31, 1996, 1995 and 1994
See accompanying notes to consolidated financial statements.
OPTIMA PETROLEUM CORPORATION
Consolidated Statements of Changes In Financial Position Years ended December 31, 1996, 1995 and 1994
See accompanying notes to consolidated financial statements.
OPTIMA PETROLEUM CORPORATION
Schedules of Consolidated General and Administrative Expense
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19941
1. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
The consolidated financial statements are presented in accordance with generally accepted accounting principles applicable in Canada and expressed in Canadian dollars. Except as disclosed in Note 11, these financial statements conform, in all material respects, with generally accepted accounting principles in the United States.
(b) Basis of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Optima Energy (U.S.) Corporation. All intercompany transactions and balances have been eliminated.
(c) Cash and cash equivalents
Cash and cash equivalents include short-term investments with a maturity of ninety days or less at the time of issue.
(d) Petroleum and natural gas interests
The Company follows the full cost method of accounting for petroleum and natural gas interests whereby all costs of exploring and developing petroleum and natural gas reserves, net of government grants, are capitalized by individual country cost centre. Such costs include land acquisition costs, geological and geophysical expenses, costs of drilling both productive and non-productive wells and overhead charges directly related to acquisition, exploration and development activities.
The total carrying value of the Company's petroleum and natural gas interests, less accumulated depletion, is limited to the estimated future net revenue from production of proved reserves, based on unescalated prices and costs plus the lower of cost and net realizable value of unproved properties, less estimated future development costs, general and administrative expenses, financing costs and income taxes. The carrying value of unproved properties is reviewed periodically to ascertain whether impairment has occurred. Where impairment has occurred, the costs have been written down to their net realizable value.
For each cost centre, the costs associated with proved reserves are depleted on the unit-of-production method based on an independent engineering estimate of proved reserves, after royalties, with natural gas converted to its energy equivalent at a ratio of six thousand cubic feet of natural gas to one barrel of oil.
Site restoration and abandonment costs, net of expected recoveries for production equipment and facilities, at the end of their useful life, are provided for on a unit-of-production basis.
The resource expenditure deductions for income tax purposes related to exploration and development activities funded by flow-through share arrangements are renounced to investors in accordance with income tax legislation. Petroleum and natural gas interests are reduced by the estimated renounced income tax benefits when the expenditures are incurred.
Equipment is depreciated on a straight-line basis over five years.
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19942
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Deferred charges
Debt financing costs are amortized on a straight line basis over the terms of the related loans.
(f) Foreign currency translation
The operations of the Company's U.S. subsidiary are considered integrated with the operations of the Company, and thus, are translated under the temporal method. Under this method, transactions of the Company and its subsidiaries that are denominated in foreign currencies are recorded in Canadian dollars at exchange rates in effect at the related transaction dates. Monetary assets and liabilities denominated in foreign currencies are adjusted to reflect exchange rates at the balance sheet date. Exchange gains and losses arising on the translation of monetary assets and liabilities, except as they relate to long-term debt, are included in the determination of income for the year. Unrealized foreign exchange gains and losses related to long-term debt are deferred and amortized over the remaining term of the related debt.
(g) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to the determination of rates for depreciation, depletion and amortization and the impairment of petroleum and natural gas interests. Actual results could differ from these estimates.
(h) Fair value of financial instruments
Financial instruments include cash and cash equivalents, accounts receivable, note receivable, accounts payable and accrued liabilities and the current and long term portions of long term debt. Fair values approximate carrying values for these financial instruments since they are short term in nature, receivable or payable on demand, or bear interest at floating rates.
(i) Comparative figures
Certain comparative figures have been reclassified to conform to the presentation adopted in the current year.
2. PURCHASE OF ROXBURY CAPITAL CORP.
On September 8, 1995 the Company acquired Roxbury Capital Corp. ("Roxbury") under a plan of arrangement whereby Roxbury shareholders exchanged all of the issued and outstanding common shares of Roxbury for newly issued common shares of the Company, at a ratio of seven Roxbury shares to one Company share.
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19942
2. PURCHASE OF ROXBURY CAPITAL CORP. (CONTINUED)
Net assets acquired, using the purchase method of accounting:
In addition, Roxbury shareholders received a warrant for every seven Roxbury shares exchanged, exercisable until February 28, 1997, for a Company common share at a price of $5.10 per share. The warrants were not exercised and expired on February 28, 1997.
The purchase price of the Company's interest exceeded the net book value of the assets acquired by $1,389,355, and this amount has been allocated to the Company's depletable petroleum and natural gas interests.
The operating results of Roxbury are included in the Company's consolidated results of operations from the date of acquisition. The following unaudited proforma summary presents the consolidated results of operations as if the acquisition had occurred at the beginning of 1994:
These unaudited pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made as of these dates or of results which may occur in the future.
3. Note receivable
The note is due on June 18, 2000, bears no interest, is repayable in four equal installments of $90,780 U.S. commencing June 18, 1997 and is secured by a mortgage on certain U.S. oil and gas properties.
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19943
4. CASH HELD IN TRUST
As a condition of a U.S. oil and gas property acquisition, the Company is obliged to keep cash on deposit to fund future abandonment costs.
5. ADVANCES TO OPERATORS
The Company maintains joint accounts with operators engaged by the Company to perform exploration and development work on its petroleum and natural gas interests.
6. PETROLEUM AND NATURAL GAS INTERESTS
As at December 31, 1996, unproved properties with capitalized costs of $4,441,055 (1995 - $1,997,208) were not subject to depletion. It is expected that these properties will be evaluated over the next one to three years.
In calculating estimated future net revenue at December 31, 1995, the Company used forward sale gas prices received in February 1996. Had the Company used actual gas prices received at December 31, 1995, a write-down of $3,400,000 would have been required in the Company's petroleum and natural gas interests.
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19944
7. LONG TERM DEBT
Effective January 31, 1997 the borrowing base on the Company's United States credit line will be reduced by $148,482 ($108,333 U.S.) per month.
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19945
8. SHARE CAPITAL
(a) Authorized
The authorized share capital consists of 100,000,000 common shares without par value.
(b) Issued
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19946
8. SHARE CAPITAL (CONTINUED)
(c) Reserved in respect of options
On February 28, 1997 all 1,374,727 warrants expired unexercised.
(d) Net income (loss) per share
Net income (loss) per share has been calculated based on the following weighted average numbers of shares outstanding:
(e) Cash flow per share
Cash flow per share has been calculated, based on the weighted average number of shares outstanding, as follows:
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19947
8. SHARE CAPITAL (CONTINUED)
(f) Reduction of share capital
On June 22, 1995, the shareholders of the Company passed a special resolution to reduce the stated capital of the Company's common shares by $10,602,526 which represents the Company's deficit at December 31, 1994.
9. RELATED PARTY TRANSACTIONS
During 1996, the Company was charged consulting expenses of $395,463 (1995 - $404,017, 1994 - 153,500) by companies related by virtue of common directors. Office expense includes $115,962 (1995 - $115,416, 1994 - $86,000 ) paid to a related company. General and administrative recoveries of $62,018 were received from a company with a common director and were used to reduce consulting, rent and office expenses.
10. INCOME TAXES
Income taxes consist of Canadian large corporations tax. The benefit of the Company's losses for income tax purposes has not been recognized in the accounts. The amount of these losses and their expiry dates are as follows:
The Company's effective tax rate differs from the expected statutory rate due to the application of tax losses carried forward, the tax benefits of which were not previously recorded.
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19948
11. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(a) Accounting for income taxes
Under the asset and liability method of Statement of Financial Accounting Standards No. 109 ("SFAS 109"), deferred income tax assets and liabilities, reduced by a valuation allowance to an amount more likely than not to be recovered, are measured using enacted tax rates for the future income tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. The approximate effect of each component of deferred income tax assets and liabilities at December 31, 1996 is as follows:
The valuation allowance equals the entire amount of the net deferred tax assets as the recognition criteria for deferred tax assets has not been met. Therefore, there is no effect of applying the provisions of SFAS 109 on the Company's financial statements.
(b) Consolidated statements of changes in financial position
Under United States accounting principles, the following items are not considered to be cash items and would not appear in the consolidated statements of changes in financial position:
(i) the conversion of debentures (ii) the acquisition of subsidiary in exchange for the issuance of shares; and (iii) the issuance of shares on settlement of consulting fees and directors fees payable.
As a result, cash flows from operating, financing and investing activities would be presented as follows under United States accounting principles:
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 19949
11. RECONCILIATION BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES (CONTINUED)
(b) Consolidated statements of changes in financial position (continued)
Under United States accounting principles, the following supplementary cash flow information would be disclosed:
(c) Cash flow per share
Disclosure of cash flow per share information is prohibited under United States generally accepted accounting principles.
(d) Full cost method of accounting
Under the United States full cost method of accounting for petroleum and natural gas interests, the Company, using sales prices at the balance sheet date, would have been required to write-down the Canadian petroleum and natural gas interests by approximately $800,000 in 1995. Accordingly, loss and loss per share for the year ended December 31, 1995 under United States accounting principles would be $1,955,062 and $0.22, respectively.
12. SEGMENTED INFORMATION
All of the Company's activities are in one business segment, petroleum and natural gas exploration, development and production.
Note 6 discloses the Company's petroleum and natural gas interests by geographic segment, and these interests comprise the majority of identifiable assets as at December 31, 1996 and 1995. The Company's operations by geographic segment for the years ended December 31, 1996, 1995 and 1994 were as follows:
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 199410
12. SEGMENTED INFORMATION (CONTINUED)
OPTIMA PETROLEUM CORPORATION
Notes to Consolidated Financial Statements Years ended December 31, 1996, 1995 and 199411
12. SEGMENTED INFORMATION (CONTINUED)
OPTIMA PETROLEUM CORPORATION
Reserve Quantity Information As at December 31, 1996, 1995, and 1994 (unaudited)
OPTIMA PETROLEUM CORPORATION
Changes in the Standardized Measure of Discounted Future Cash Flows As at December 31, 1996, 1995, and 1994 (unaudited)
OPTIMA PETROLEUM CORPORATION
Standardized Measure of Discounted Future Net Cash Flows And Changes Therein Relating to Proved Oil and Gas Reserves As at December 31, 1996, 1995, and 1994 (unaudited)
OPTIMA PETROLEUM CORPORATION
Costs Incurred in Oil and Gas Property Acquisition, Exploration and Development Activities As at December 31, 1996, 1995, and 1994 (unaudited)
OPTIMA PETROLEUM CORPORATION Capitalized Costs Relating to Oil and Gas Producing Activities As at December 31, 1996, 1995, and 1994 (unaudited)