10-Q 1 o05580e10-q.txt FORM 10-Q 1 Page 1 of 15 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------- -------------------- Commission file number: 1-10216 ------- CHIEFTAIN INTERNATIONAL, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Alberta, Canada None -------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1201 TD Tower, 10088 - 102 Avenue, Edmonton, Alberta, Canada T5J 2Z1 ---------------------------------------- ---------------------- (Address of principal executive offices) (Zip Code/Postal Code) Registrant's telephone number, including area code: (780) 425-1950 Not Applicable --------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date. Title of each class Date Number Outstanding ------------------- -------------- ------------------ Common shares April 30, 2001 16,034,477 2 Page 2 of 15 CHIEFTAIN INTERNATIONAL, INC. MARCH 31, 2001 FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS PART I

Page No. ~~--------~~ Item 1. Financial Statements Consolidated ~~Condensed~~ Balance Sheet -- ~~September~~March 3031, ~~2000~~2001 and December 31, ~~1999~~2000 3 Consolidated ~~Condensed~~ Statement of Income and Retained Earnings (~~Loss~~Deficit) -- ~~Nine~~Three months ended ~~September~~March 3031, ~~2000~~2001 and ~~1999 and Three months ended September 30,~~ 2000 ~~and 1999~~ 4 Consolidated ~~Condensed~~ Statement of Cash Flows -- ~~Nine~~Three months ended ~~September~~March 3031, ~~2000~~2001 and ~~1999~~2000 5 Notes to Consolidated ~~Condensed~~ Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 109 PART II Item 1. Legal Proceedings 2115 Item 2. Changes in Securities 2115 Item 3. Defaults Upon Senior Securities 2115 Item 4. Submission of Matters to a Vote of Security Holders 2115 Item 5. Other Information 2115 Item 6. Exhibits and Reports ofon Form 8-K 2115 Signatures 2115

3 Page 3 of 15 CONSOLIDATED BALANCE SHEET CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES

~~SEPTEMBER~~MARCH 3031, December 31, ~~2000~~(Full ~~1999~~Cost Method of Accounting) 2001 2000 ------------- -------------------------------------------------------------------------------------------- (unaudited) (US $ in thousands) ~~ASSETS~~Assets Current assets: Cash and short-term deposits $ 1020,~~911~~146 $ 198,~~368~~718 Accounts receivable 26,~~757~~366 1832,~~855~~926 Other 1609 754 Marketable securities 3,~~126~~383 ~~750~~3,913 --------- ------------------------------------------------------------------------------------------------ 3850,~~794~~504 3846,~~973~~311 --------------------------------------------------------------------------------------------------------- Capital assets, at cost: Natural resource properties including exploration and development thereon 749,272 710,102 Other capital assets 2,301 2,241 --------------------------------------------------------------------------------------------------------- ~~net~~751,573 ~~311~~712,~~757~~343 ~~277~~Less: Accumulated depletion and amortization 390,~~149~~099 374,940 --------------------------------------------------------------------------------------------------------- 361,474 337,403 Deferred income taxes 1210,~~987~~801 1411,~~636~~746 --------- ------------------------------------------------------------------------------------------------ $ ~~363~~422,~~538~~779 $ ~~330~~395,~~758~~460 ========= ================================================================================================ ~~LIABILITIES~~Liabilities ~~AND~~and ~~SHAREHOLDERS~~Shareholders' ~~EQUITY~~Equity Current liabilities: Accounts payable and accrued $ 2446,~~381~~604 $ 2536,~~369~~349 Long-term debt 2010,000 1020,000 Abandonment cost accrual 910,~~382~~043 89,~~595~~728 Deferred income taxes 2544,~~932~~859 1534,~~693~~237 Shareholders' equity: Preferred shares of a subsidiary 63,403 63,403 Common shares (Note 2) ~~235,646~~Authorized ~~237,076~~-- ~~Contributed~~an ~~surplus~~unlimited number of -- 26First ~~Deficit~~preferred shares Second preferred shares Common shares Issued -- 16,034,477 common shares (15December 31,~~206~~ 2000 - 16,100,827) 234,363 235,295 Retained earnings (29deficit) 13,~~404~~507 (3,552) --------- ------------------------------------------------------------------------------------------------ ~~283~~311,~~843~~273 ~~271~~295,~~101~~146 --------- ------------------------------------------------------------------------------------------------ $ ~~363~~422,~~538~~779 $ ~~330~~395,~~758~~460 ========= ================================================================================================

See accompanying notes to consolidated financial statements. 4 Page 4 of 15 CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT) CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES

~~Nine months~~ Three months ----------------------------- Period ended March 31, 2001 2000 ------------------------- ~~Period ended September 30, 2000 1999 2000 1999~~ -------------------------- ----------- ----------- ----------- --------------------------------- (unaudited) (US $ in thousands except number of shares and per share amounts) ~~Revenue:~~ Production revenue $ ~~92,880 $~~ 64,~~236~~102 $ 3825,~~465~~227 ~~$ 27,391~~ Less: royalties 1612,~~529~~169 ~~11,282 7,010~~ 4,~~822~~453 ----------- ----------- ----------- ------------------------------------------------------------------------------------ Production revenue, after royalties 7651,~~351~~933 5220,~~954~~774 ~~31,455 22,569~~ Interest and other revenue ~~(Note~~446 3)450 ~~2,305 570 1,541 194~~ ----------- ----------- ----------- ------------------------------------------------------------------------------------ 7852,~~656~~379 5321,~~524~~224 ~~32,996 22,763~~ ----------- ----------- ----------- ------------------------------------------------------------------------------------ ~~Expenses:~~ Production costs ~~10,530 10,985~~ 3,~~551~~461 3,~~623~~360 General and administrative 41,~~447~~630 ~~3,354~~ 1,~~253~~793 ~~981~~ Interest ~~749~~258 ~~1,867~~178 ~~343 666~~ Depletion and amortization 3215,~~234~~474 3810,~~711~~517 ~~11,497~~Write-down ~~13,619~~of ~~Additional~~marketable ~~depletion:~~securities ~~Libyan~~530 ~~properties (Note 4)~~ -- ~~11,393~~ -- -- ----------- ----------- ----------- -------------------------------------------------------------------------------- 4721,~~960~~353 6615,~~310~~848 ~~16,644 18,889~~ ----------- ----------- ----------- ------------------------------------------------------------------------------------ Income ~~(loss)~~ before income taxes and dividends on ~~30,696 (12,786) 16,352 3,874~~ preferred shares of a subsidiary 31,026 5,376 Income taxes (Note 53) 12Current 314 3 Deferred 11,~~032~~567 (52,~~408)~~033 6--------------------------------------------------------------------------------------------------------------------- 11,~~176~~881 12,~~356~~036 ----------- ----------- ----------- ------------------------------------------------------------------------------------ Income ~~(loss)~~ before dividends on preferred shares of a subsidiary 1819,~~664~~145 (73,~~378)~~340 ~~10,176 2,518~~ Dividends on preferred shares of a subsidiary ~~3,707 3,707~~ 1,~~236~~235 1,~~236~~235 ----------- ----------- ----------- ------------------------------------------------------------------------------------ Net income ~~(loss)~~ applicable to common shares $17,910 142,~~957~~105 $Deficit, beginning of period (113,~~085~~552) (29,404) Cost of purchase of common shares in excess of stated capital (851) -- --------------------------------------------------------------------------------------------------------------------- Retained earnings (deficit), end of period $ 813,~~940~~507 $ 1(27,~~282~~299) =========== =========== =========== ==================================================================================== Net income ~~(loss)~~ per common share (Note 64) - Basic $ 01.9211 $ (0.~~83)~~13 ~~$ 0.55 $ 0.10~~ =========== =========== =========== ==================================================================================== - ~~Fully~~Diluted ~~diluted~~ $ 0.8897 $ (0.~~83)~~13 ~~$ 0.49 $ 0.10~~ =========== =========== =========== ==================================================================================== Weighted average number of common shares outstanding (in thousands): - Basic 16,~~221,269~~063 ~~13,350,383~~ 16,~~215,756~~224 ~~13,348,645~~ =========== =========== =========== ==================================================================================== - ~~Fully~~Diluted ~~diluted 17~~19,~~411,462~~837 1316,~~350,383~~224 ~~20,954,287 13,348,645~~ =========== =========== =========== ====================================================================================

See accompanying notes to consolidated financial statements. 5 Page 5 of 15 CONSOLIDATED STATEMENT OF CASH FLOWS CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES

~~NINE~~Three ~~MONTHS~~months ~~ENDED~~------------------------------ ~~SEPTEMBER~~Period 30ended March 31, 2001 2000 ~~1999~~ ------------------------------- -------- -------------------------------------------------------------------- (unaudited) (US $ in thousands) Operating activities: Net income ~~(loss)~~ applicable to common shares $ 1417,~~957~~910 $~~(11~~ 2,~~085)~~105 Items not requiring a current cash outlay: 44Depletion and amortization 15,~~122~~474 4410,~~688~~517 Write-down of marketable securities 530 -- Deferred income taxes 11,567 2,033 ----- ------------------------------------------------------------------------------------------------------ Cash flow from operations 5945,~~079~~481 3314,~~603~~655 ~~Net~~Change ~~change~~ in non-cash ~~operating~~ working capital (Note 75) (Accounts receivable 6,~~079~~560 (694) Other current assets 145 101 Accounts payable and accrued (645) (2,~~358~~595) -------- --------------------------------------------------------------------------------------------------- ~~Net cash inflows from operating activities 53~~52,~~000~~141 2711,~~245~~467 ----------------------------------------------------------------------------------------------------------- Financing activities: ~~Increase~~Issue inof ~~long-term~~common ~~debt~~shares ~~10,000~~611 ~~5,000~~-- Purchase of common shares for cancellation (2,~~485~~394) ~~(80)~~-- ~~Issue~~Decrease ofin ~~common~~long-term ~~shares~~debt ~~270~~(10,000) 9-- -------- --------------------------------------------------------------------------------------------------- ~~Net cash inflows from financing activities 7~~(11,~~785~~783) ~~4,929~~-- -------- --------------------------------------------------------------------------------------------------- Net cash ~~inflows~~flows from operating and financing activities 6040,~~785~~358 3211,~~174~~467 ----------------------------------------------------------------------------------------------------------- Investing activities: Lease acquisition, exploration and ~~drilling~~development costs (4739,~~353~~170) (3019,~~270~~436) ~~Pipelines~~Purchase ~~and~~of ~~production~~other ~~equipment~~capital ~~acquired~~assets (~~18,702~~60) (~~6,100~~24) ~~Sale~~Change ofin ~~producing~~investing ~~properties~~accounts --payable ~~155~~and accrued 10,300 (3,912) -------- -------- ~~Natural resource investing activities (66,055) (36,215) Change in investing accounts payable and accrued (3,187) (5,975)~~ -------- ----------------------------------------------------------------------------------- ~~Net cash outflows for investing activities~~ (6928,~~242~~930) (4223,~~190~~372) -------- --------------------------------------------------------------------------------------------------- Change in cash and short-term deposits (811,~~457)~~428 (1011,~~016~~905) ~~Beginning~~Cash ~~cash~~ and short-term deposits, beginning of period 8,718 19,368 ~~10,613~~ -------- --------------------------------------------------------------------------------------------------- ~~Ending~~Cash ~~cash~~ and short-term deposits, end of period $ 1020,~~911~~146 $ ~~597~~7,463 ======== ===================================================================================================

See accompanying notes to consolidated financial statements. 6 Page 6 of 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CHIEFTAIN INTERNATIONAL, INC. AND SUBSIDIARY COMPANIES* March 31, 2001 and 2000 (unaudited) 1. BASIS OF PRESENTATION: In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as at March 31, 2001 and December 31, 2000 and the results of operations for the three month periods ended March 31, 2001 and 2000 and cash flows for the three month periods ended March 31, 2001 and 2000. Certain information and notes normally included in our annual financial statements prepared in conformity with Canadian generally accepted accounting principles have been condensed or omitted for interim reporting. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2000. Preparation of financial statements in conformity with generally accepted accounting principles requires management to make informed judgements and estimates. Actual results may differ from those estimates. The results of operations and cash flows for the three month period ended March 31, 2001 are not necessarily indicative of the results to be expected for the full year. Material differences between Canadian and US accounting principles that affect Chieftain are referred to in Note 6, which describes the effects of such differences on earnings and balance sheet accounts. 2. COMMON SHARES: (a) COMMON SHARES RESERVED At March 31, 2001, 1,355,382 (December 31, 2000 - 1,394,632) of the authorized but unissued common shares of the Company were reserved for issuance under the Share Option Plan. At March 31, 2001, 3,408,375 (December 31, 2000 - 3,408,375) common shares were reserved for issuance pursuant to the conversion provisions of the preferred shares of a subsidiary. See Note 2(b). (b) PREFERRED SHARES OF A SUBSIDIARY Chieftain International Funding Corp. ("Funding"), a subsidiary of Chieftain International (U.S.) Inc., sold 2,726,700 shares of $1.8125 cumulative convertible redeemable preferred shares at $25.00 per share in a 1992 public offering in the US. The preferred shares are redeemable, at the option of Funding, at $25.2014 per share during 2001 and $25.00 per share after December 31, 2001, plus accumulated and unpaid dividends. Each preferred share has a liquidation preference of $25.00 and is convertible at any time into 1.25 common shares of Chieftain International, Inc. at the option of the holder. -------- * Unless the context indicates another meaning, the terms "we", "us" and "our" refer to Chieftain International, Inc., a company organized under the laws of the Province of Alberta, Canada, and its subsidiaries. 7 Page 7 of 15 3. INCOME TAXES: The provision for income taxes differs from the amount of income tax determined by applying the Canadian statutory rate to pre-tax income before dividends paid on preferred shares of a subsidiary as a result of the following:

~~Nine months~~ Three months ------------------------- Period ended March 31, 2001 2000 ------------------ ~~Period ended September 30, 2000 1999 2000 1999~~ -------------------------- ------- ------- ------- ------------------------- (US$ in thousands) Tax at statutory Canadian rate of 43.62% (2000 -- 44.62%) (Combined Canadian Federal and provincial tax rate) $ 13,~~697~~534 $(5 2,~~705~~399 Add (deduct) $the ~~7,297~~effect ~~$1,729~~of: Lower income tax rate on earnings of US subsidiaries (2,~~665~~482) (76463) ~~(1,392)~~Other ~~(407)~~829 ~~Canadian~~100 ~~income tax on exchange loss (gain) which is eliminated upon consolidation 77 634 36 41 Reduction in value of deferred tax assets resulting from reduction in future Canadian rate 329~~ -- -- -- ~~Other 594 (261) 235 (7)~~ ------- ------- ------- --------------------------------------------------------------- Tax at effective rate $~~12,032~~ ~~$(5~~11,~~408)~~881 $ 62,~~176~~036 ~~$1,356~~------------------------------------------------------------------------------------------ ~~======= ======= ======= ======~~ Effective tax rate 3938.~~2% 42.~~3% 37.89% ~~35.0% ======= ======= ======= ======~~------------------------------------------------------------------------------------------

4. PER SHARE AMOUNTS: Basic net income per common share is calculated by dividing net income applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted income per common share is calculated to give effect to share options and shares issuable on conversion of preferred shares.

~~Nine months~~ Three months -------------------------- Period ended March 31, 2001 2000 -------------------------- ~~Period ended September 30, 2000 1999 2000 1999~~ -------------------------- ---------- ---------- ---------- --~~--------~~ (US$ in thousands ~~except number of shares and per share amounts~~) Net income ~~(loss)~~ applicable to common shares, ~~as reported~~ $ 1417,~~957~~910 $ ~~(11~~2,~~085)~~105 $Dividends ~~8,940~~paid $on ~~1,282~~preferred ~~Additional~~shares ~~depletion~~of ~~difference~~a --subsidiary (71,~~104)~~235 -- -- ---------- ---------- ---------- ---------- ~~14,957 (18,189) 8,940 1,282 Reduction in depletion expense 8,054 13,122 2,801 4,926 Decrease (increase) in deferred tax provision (2,569) (1,656) (996) (1,830)~~ ---------- ---------- ---------- ---------- Net income (loss) applicable to common shares under US accounting principles $ 20,442 $ (6,723) $ 10,745 $ 4,378 ========== ========== ========== ========== Net income (loss) per common share under US accounting principles: - ~~Basic $ 1.26 $ (0.50) $ 0.66 $ 0.33 ========== ========== ========== ==========~~ - ~~Fully~~Diluted ~~diluted~~net $income ~~1.22~~ $ ~~(0.50) $ 0.60 $ 0.32 ========== ========== ========== ========== Fully diluted number of common shares outstanding~~ 19,~~846,934~~145 ~~13,350,383~~$ 192,~~844,309~~105 ~~13,493,458 ========== ========== ========== ==========~~------------------------------------------------------------------------------------

ASThree ATmonths ~~SEPTEMBER~~---------------------- ~~30,~~Period ~~2000~~ended ~~December~~March 31, ~~1999~~2001 ~~-----~~2000 ------------------------ ------------------------ ~~(US$ in thousands) Under US Under US Accounting Accounting As reported Principles As reported Principles~~ ----------- ---------- ----------- ---------- ~~Net~~(in ~~capital~~thousands) ~~assets~~Basic ~~$311,757~~weighted ~~$232,163~~average ~~$277,149~~number ~~$189,501~~of ~~Deferred~~common ~~tax~~shares -outstanding ~~asset~~16,063 ~~$ 12~~16,~~987~~224 $Effect ~~15,781~~of $dilutive ~~14,636~~securities $Exercise ~~30,238~~of ~~Deferred~~share ~~tax~~options 366 -- ~~liability~~Conversion $of 25preferred shares 3,~~932~~408 $-- ----------------------------------------------------------------------------------------- $Diluted ~~15,693~~weighted $average --number ~~Deficit~~of ~~$(15,206)~~common ~~$(66,074)~~shares ~~$(29~~outstanding 19,~~404)~~837 ~~$(85~~16,~~757)~~224 -----------------------------------------------------------------------------------------

5. SUPPLEMENTAL CASH FLOW INFORMATION: Net cash inflows from income taxes during the three months ended March 31, 2001 were $NIL (2000 -- $1,000). Cash outflows for interest on long-term debt during the three months ended March 31, 2001 were $326,000 (2000 -- $177,000). 6. UNITED STATES ACCOUNTING PRINCIPLES: (a) FULL COST ACCOUNTING US full cost accounting rules differ materially from the Canadian full cost accounting guidelines we follow. In determining the limitation on carrying values, US rules require the discounting of future net revenues at 10%, and Canadian guidelines require the use of undiscounted future net revenues and the deduction of estimated future administrative and financing costs. 8 Page 8 of 15 (b) EFFECT ON EARNINGS The effect on consolidated earnings of the differences between Canadian and US accounting principles is summarized as follows:

~~Nine months~~ Three months --------------------- Period ended March 31, 2001 2000 ------------------ ~~Period ended September 30, 2000 1999 2000 1999~~ -------------------------- ------- ------- ------- ---------------------------------- (US$ in thousands except per share amounts) ~~Compensation costs, net of tax $ 990 $ 946 $ 363 $ 355~~ Net income ~~(loss)~~ applicable to common shares, - as reported $20 17,~~442~~910 $(6 2,~~723)~~105 ~~$10~~Reduction in depletion expense 2,~~745~~739 $42,~~378~~648 -Increase ~~pro~~in ~~forma~~deferred ~~$19,452~~tax $provision (~~7,669~~941) ~~$10,382~~(962) ~~$4,023~~--------------------------------------------------------------------------------------------------- Net income ~~(loss)~~applicable ~~per~~to common ~~share~~shares ~~Basic~~under -US asaccounting ~~reported~~principles $ ~~1.26~~19,708 $ ~~(0.50)~~3,791 $--------------------------------------------------------------------------------------------------- ~~0.66~~Net $income ~~0.33~~per -common ~~pro~~share ~~forma~~under $US ~~1.20~~accounting $principles: ~~(0.57)~~- Basic $ 01.6423 $ 0.3023 ~~Fully~~--------------------------------------------------------------------------------------------------- ~~diluted~~ - asDiluted ~~reported~~ $ 1.2206 $ (0.~~50)~~23 ~~$ 0.60 $ 0.32~~ --------------------------------------------------------------------------------------------------- ~~pro~~Diluted ~~forma~~number $of ~~1.18~~common $shares (~~0.57~~thousands) $19,837 ~~0.59~~16,224 ~~$ 0.30~~---------------------------------------------------------------------------------------------------

(c) EFFECT ON BALANCE SHEET The effect on the Consolidated Balance Sheet of the differences between Canadian and US accounting principles is as follows:

~~PRODUCTION~~As ~~SUMMARY~~at ~~Before~~MARCH ~~royalties~~31, ~~After~~2001 ~~royalties~~December 31, 2000 ---------------- --------------- ~~Nine months ended September 30, 2000 1999 2000 1999~~ ------------------------------- ----- ----- ----- ------- ~~Natural gas~~ (~~MMcf~~US$ ~~per~~in ~~day~~thousands) UNDER US ~~68.9~~Under ~~75.7~~US ~~55.4~~ACCOUNTING ~~60.3~~Accounting UKAS ~~4.9~~REPORTED ~~9.7~~PRINCIPLES ~~4.9~~As ~~9.7~~reported Principles ----------- ---------- ----------- --------- ~~Total~~Net ~~73.8~~capital ~~85.4~~assets ~~60.3~~$ ~~70.0~~361,474 ~~=====~~$ ~~=====~~287,607 ~~=====~~$ ~~=====~~337,403 ~~Oil~~$ ~~and~~260,797 ~~ngls~~Deferred ~~(barrels~~tax ~~per~~-- ~~day)~~asset ~~4,099~~$ 410,~~706~~801 ~~3,459~~$ 312,~~995~~719 ~~=====~~$ ~~=====~~11,746 ~~=====~~$ ~~=====~~13,675 ~~Total~~Deferred ~~natural~~tax ~~gas~~-- ~~equivalent~~liability ~~(MMcfe~~$ ~~per~~44,859 ~~day)~~$ ~~98.4~~19,080 ~~113.7~~$ ~~81.1~~34,237 ~~93.9~~$ ~~=====~~7,528 ~~=====~~Retained ~~=====~~earnings ~~=====~~(deficit) ~~Total~~$ ~~period~~13,507 ~~equivalent~~$ (~~Bcfe~~32,663) ~~27.0~~$ ~~31.0~~(3,552) ~~22.2~~$ ~~25.6 ===== ===== ===== =====~~(51,520)

Additionally, for US reporting purposes, the preferred shares shown as shareholders' equity in these consolidated financial statements would be shown outside the equity section. (d) STOCK-BASED COMPENSATION We apply the intrinsic value method prescribed by APB Opinion 25 and related interpretations in accounting for share option transactions. Accordingly, no compensation costs have been recognized in the accounts. US accounting principles require disclosure of the impact on earnings and earnings per share of the value of options granted after 1994, calculated in accordance with FAS 123. Such impact would approximate the following pro forma amounts:

~~NET~~Three ~~REVENUE~~months ~~Nine~~-------------------- ~~months~~Period ended ~~September~~March 3031, 2001 2000 ~~1999~~ ------------------------------- ------- --------------------------------- (US$ in thousands except per share amounts) ~~Natural~~Compensation ~~gas~~costs, ~~after~~net ~~royalties~~of tax $~~50,972~~ 358 $~~35,922~~ ~~Oil~~350 ~~and~~Net ~~ngls,~~income ~~after~~applicable ~~royalties~~to ~~25,379~~common ~~17,032~~shares -~~------~~ ~~-------~~as ~~Production~~reported ~~revenue~~$ 19,708 ~~after~~$ ~~royalties~~3,791 76- pro forma $ 19,~~351~~350 52$ 3,~~954~~441 ~~Interest~~Net ~~and~~income ~~other~~per ~~revenue~~common ~~2,305~~share ~~570~~Basic - as reported $ 1.23 $ 0.23 -~~-----~~ pro forma $ 1.21 $ 0.21 Diluted -~~------~~ ~~Total~~as ~~net~~reported ~~revenue~~$ 1.06 $~~78,656~~ 0.23 - pro forma $~~53,524~~ ~~=======~~1.04 ~~=======~~$ 0.21

9 Page 9 of 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- You should read the following discussion and analysis in conjunction with our accompanying unaudited consolidated condensed financial statements. The information contains forward-looking statements that are subject to risk factors associated with the oil and gas business. Forward-looking statements typically contain words such as "anticipate", "believe", "expect", "plan" or similar words suggesting future outcomes. We believe that the expectations reflected in these statements are reasonable, but may be affected by a variety of factors including, but not limited to: price fluctuations, currency fluctuations, drilling and production results, imprecision of reserve estimates, loss of market, industry competition, environmental risks and capital restrictions. Our financial statements and information are reported in US dollars and are prepared based upon Canadian generally accepted accounting principles. Substantially all of our revenues and a significant portion of our operating expenses are realized or incurred in US dollars. For a discussion of the effect of differences in generally accepted accounting principles in Canada and the US on our financial statements, see Note 12 to our 2000 consolidated financial statements and Note 6 to our accompanying unaudited consolidated financial statements. OVERVIEW Production in the first quarter of 2001 averaged a record 127.0 mmcfe per day (104.1 mmcfe per day after royalties), a 19% increase from the fourth quarter of 2000 and a 28% increase from the first quarter of 2000. Strong natural gas and oil prices contributed to our record first three months revenues of $64.5 million ($52.4 million after royalties), net income applicable to common shares of $17.9 million and cash flow from operations of $45.5 million. Capital expenditures during the quarter were $39.2 million, of which $9.6 million was for capital field development. We participated in high bids for 17 offshore blocks, 12 as operator, at the Federal US Central Gulf of Mexico Lease Sale held on March 28, 2001. FIRST THREE MONTHS 2001 COMPARED TO FIRST THREE MONTHS 2000 PRODUCTION

~~PRICE/VOLUME~~PRODUCTION ~~VARIANCES~~SUMMARY ~~Natural~~Before ~~gas~~royalties After royalties ---------------- --------------- ~~Nine~~Three months ended ~~September~~March 3031, US2001 UK2000 ~~Total~~2001 ~~Oil~~2000 ~~and ngls Total~~ ------------------------------- ------- -------- -------- ------------ ---------------------- ~~(in~~Natural ~~thousands)~~gas ~~1999~~(mmcf ~~production~~per ~~revenue,~~day) ~~after~~US ~~royalties $33,452 $~~ 99.2~~,470~~ ~~$35,922~~66.1 ~~$17,032~~79.7 $52~~,954~~.9 ~~Price~~UK ~~variance 18,119 702 18,821 10,579 29,400 Volume variance (2,549) (~~6.1~~,222)~~ ~~(3,771)~~8.5 ~~(2,232) (~~6~~,003)~~.1 8.5 ------- ------- ------- ------- ------------------------------------------------------------ ~~2000~~Total ~~production~~105.3 ~~revenue,~~74.6 ~~after~~85.8 ~~royalties~~61.4 ~~$49,022~~======================================================================================== $Oil 1and ngls (barrels per day) 3,~~950~~617 ~~$50~~4,~~972~~154 ~~$25~~3,~~379~~043 ~~$76~~3,~~351~~494 ======= ======= ========================================================================== Total natural gas equivalent (mmcfe per day) 127.0 99.5 104.1 82.4 ======================================================================================== Total equivalent (bcfe) 11.4 9.1 9.4 7.5 ========================================================================================

On an energy equivalent basis our average production rate for the first three months of 2001 increased 28% to 127.0 mmcfe per day (104.1 mmcfe per day after royalties) from 99.5 mmcfe per day (82.4 mmcfe per day after royalties) for the corresponding period in 2000. Natural gas comprised 83% (82% after royalties) of our production for the first three months of 2001, compared to 75% (before and after royalties) in the corresponding period in 2000. For the first three months of 2001, our natural gas production increased 40% to 9.5 bcf (7.7 bcf after royalties) compared to 6.8 bcf (5.6 bcf after royalties) for the corresponding period in 2000. Oil and natural gas liquids production for the same period decreased 14% to 326 mbbls (274 mbbls after royalties) compared to 378 mbbls (318 mbbls after royalties) for the corresponding period in 2000. -------------------------------------------------------------------------------- Unless the context indicates another meaning, the terms "Chieftain", "the Company", "we", "us" and "our" refer to Chieftain International, Inc., a company organized under the laws of the Province of Alberta, Canada, and its subsidiaries. As used in this Form 10-Q, "BCF" means 1,000,000,000 cubic feet of natural gas, "BCFE" means 1,000,000,000 cubic feet of natural gas equivalent, "MBBLS" means 1,000 barrels of crude oil, condensate and natural gas liquids, "MCF" means 1,000 cubic feet of natural gas, "MCFE" means 1,000 cubic feet of natural gas equivalent using a ratio of 1 barrel = 6,000 cubic feet of natural gas, "MMCF" means 1,000,000 cubic feet and "MMCFE" means 1,000,000 cubic feet of natural gas equivalent. 10 Page 10 of 15 Ninety-four percent of our natural gas production for the first three months of 2001 came from the US Gulf of Mexico region compared to 88% in the corresponding period in 2000. Our interests in this region accounted for 54% of our oil and ngls production compared to 46% in the 2000 period. Substantially all of the remainder of our oil and ngls production was from our interests in the Aneth and Ratherford Units in southeast Utah. NATURAL GAS AND OIL MARKETING NATURAL GAS. Natural gas prices averaged $5.83 per mcf for the first three months of 2001 compared to $2.38 per mcf for the corresponding period in 2000. For the first three months of 2001, we received average natural gas prices of $5.98 per mcf in the US and $3.40 per mcf in the UK compared to $2.51 and $1.35, respectively, for the corresponding period in 2000. We believe that these prices, in both markets, reflect continuing tight supply-demand equations. The Energy Information Administration ("EIA") of the U.S. Department of Energy has forecast that US natural gas demand will increase 1.9% and that domestic natural gas production will increase 2.7% in the current year. As at March 31, 2001, we had entered into second and third quarter natural gas forward sales for the physical delivery of volumes totaling approximately 22.6 mmcf per day at an average price of $4.83 per mcf, net of transportation. OIL AND NGLS. Oil and natural gas liquids prices averaged $27.22 per barrel for the first three months of 2001 compared to $24.06 per barrel in the 2000 period. Oil prices in both periods benefited from supply constrictions arising from the Organization of Petroleum Exporting Countries' ("OPEC") production quotas. REVENUE PRODUCTION REVENUE. For the first three months of 2001, a 145% increase in natural gas prices and a 13% increase in oil prices were complemented by a 28% increase in equivalent production volumes. Higher prices and production volumes resulted in production revenues for the first three months of 2001 increasing 154% or $38.9 million to $64.1 million or $51.9 million after royalties from the corresponding period in 2000.

~~ROYALTIES~~NET ~~Nine~~REVENUE Three months ended ~~September~~March 3031, 2001 2000 ~~1999~~ ------------------------------- ------- -------------------------------- (in thousands ~~except per unit amounts and percentages~~) Natural gas, after royalties $11 44,~~673~~496 $ 813,~~195~~119 Oil and ngls, 4after royalties 7,~~856~~437 37,~~087~~655 ---------------------------------------------------------------------- Production revenue, after royalties 51,933 20,774 Interest and other revenue 446 450 ---------------------------------------------------------------------- Total net revenue $16 52,~~529~~379 $11 21,~~282~~224 ======= ======= ~~Royalties per Mcfe $ 0.61 $ 0.36 Composite royalty rate 17.8% 17.6%~~========================================================

~~PRODUCTION~~PRICE/VOLUME ~~COSTS~~VARIANCES, ~~Nine~~AFTER Natural gas ROYALTIES ----------------------------- Oil and Three months ended ~~September~~March 3031, ~~2000~~US ~~1999~~UK Total ngls Total ------------------------------- ------- --------------------------------------------------------------- (in thousands) ~~except~~2000 ~~per~~production ~~unit~~revenue, ~~amounts)~~after ~~Lifting~~royalties ~~costs~~ $ 912,~~169~~072 $ 91,~~783~~047 ~~Production~~$ ~~taxes~~13,119 1$ 7,~~361~~655 1$ 20,~~202~~774 ------- ---------------------------------------------------------------------------------------------- ~~Production~~Price ~~costs~~variance ~~$10~~24,~~530~~658 ~~$10~~1,~~985~~124 ~~=======~~25,782 ~~=======~~850 ~~Production~~26,632 ~~costs~~Volume variance 5,900 ($305) ~~per~~5,595 ~~Mcfe~~(1,068) ~~Before~~4,527 ~~royalty~~----------------------------------------------------------------------------------------------------- ~~volumes~~2001 $production ~~0.39~~revenue, after royalties $ ~~0.35~~42,630 ~~After~~$ ~~royalty~~1,866 ~~volumes~~$ 44,496 $ ~~0.47~~7,437 $ ~~0.43~~51,933 =====================================================================================================

ROYALTIES. As expected, our composite royalty rate increased on a period over period basis due to the UK production, which carries no royalty obligations, having a lesser significance in our production mix. Our US Gulf of Mexico properties in federal waters generally carry a fixed one-sixth (16-2/3%) royalty rate. Some of these offshore properties carry overriding royalties ranging from 1.1% to 10%. WE PAY NO OVERRIDING ROYALTIES TO MANAGEMENT OR STAFF. 11 Page 11 of 15

~~GENERAL~~ROYALTIES ~~AND~~Three ~~ADMINISTRATIVE Nine~~ months ended ~~September~~March 3031, 2001 2000 ~~1999~~ ------------------------------- ------- ------------------------------------- (in thousands except per unit amounts and percentages) ~~Gross~~Natural ~~general~~gas ~~and administrative expenses~~ $ 810,~~611~~743 $ 63,~~431~~052 ~~Capitalized~~Oil ~~expenses~~and (4ngls 1,~~134)~~426 (31,~~077)~~401 ------- -------------------------------------------------------------------- ~~General~~Total ~~and administrative expenses~~ $ 412,~~477~~169 $ 34,~~354~~453 ======= ==================================================================== ~~General~~Royalties ~~and administrative expenses ($~~ per ~~Mcfe)~~mcfe ~~Before royalty volumes~~ $ 01.1606 $ 0.1149 ~~After~~Composite royalty ~~volumes~~rate ~~$ 0~~19.~~20 $~~ 0~~.13 Capitalization ratio 48~~% 4817.7%

EXPENSES PRODUCTION COSTS. Our aggregate production costs for the first three months of 2001 increased 3% compared to the corresponding period in 2000. On a per unit basis production costs decreased as a result of the increased proportion of our production from the Gulf of Mexico region, which has lower per unit production costs than our interests in the Aneth and Ratherford Units in Utah. Also contributing to the decrease in per unit production costs is the increased proportion of our production which is natural gas, which generally has lower production costs than oil and ngls. Production taxes, which increased 34% on a per unit basis, are levied primarily on Utah oil production, the amount of such taxes being dependent upon prices of natural gas and oil.

~~NETBACK~~PRODUCTION ~~ANALYSIS~~COSTS ($Three ~~per~~months ~~Mcfe)~~ended ~~Before~~March ~~royalties~~31, ~~After~~2001 ~~royalties~~2000 ---------------- ---------------- ~~Nine months ended September 30, 2000 1999 2000 1999~~ ------------------------------- ------ ------ ~~------~~(in ~~------~~thousands ~~Gross~~except ~~production~~per ~~revenue~~unit ~~$ 3.45 $ 2.07 Royalties (0.61~~amounts) ~~(0.36)~~Lifting ~~------~~costs ~~------~~$ ~~Production revenue~~2,714 ~~after royalties 2.84 1.71~~ $ ~~3.44 $~~ 2~~.07~~,917 Production ~~costs~~taxes ~~(0.39)~~747 ~~(0.35)~~443 ~~(0.47) (0.43)~~ ------ ------ ------ ------ ~~Gross margin 2.45 1.36 2.97 1.64 General and administrative expenses (0.16) (0.11) (0.20) (0.13)~~ ------ ------ ------ ------ ~~Gross profit 2.29 1.25 2.77 1.51 Interest and other 0.04 (0.05) 0.06 (0.06) Preferred share dividends (0.14) (0.12) (0.17) (0.14)~~ ------ ------ ------ --------- ~~Cash~~Production ~~flow~~costs ~~from operations~~ $ ~~2.19~~3,461 $ ~~1.08~~3,360 ~~$ 2.66 $ 1.31~~ ====== ====== ====== ====== ~~Total production volume (Bcfe) 27.0 31.0 22.2 25.6~~ ====== ====== ====== ================================= Production costs ($ per mcfe) Before royalty volumes $ 0.30 $ 0.37 After royalty volumes $ 0.37 $ 0.45

GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative expenses for the first three months of 2001 decreased 9% from the corresponding period in 2000. This decrease is primarily the result of performance-based compensation costs which were lower during the first quarter of 2001 than during the corresponding 2000 period.

~~PRODUCTION~~GENERAL ~~SUMMARY~~AND ~~Before~~ADMINISTRATIVE ~~royalties~~Three ~~After~~months ~~royalties~~ended March 31, 2001 2000 ---------------- --------------- ~~Three months ended September 30, 2000 1999 2000 1999~~ -------------------------------- ----- ----- --~~---~~ ~~-----~~(in ~~Natural~~thousands ~~gas~~except ~~(MMcf~~ per ~~day)~~unit USamounts ~~77.2~~and ~~76.7~~percentages ~~62.4~~Gross ~~61.4~~general UKand 0.administrative expenses $ 3,255 ~~10.5~~$ 0.3,553 ~~10.5~~Capitalized expenses (1,625) (1,760) ----- ----- ----- ------------------------------------------------------------ ~~Total~~General ~~77.5~~and ~~87.2~~administrative ~~62.7~~expenses ~~71.9~~$ 1,630 $ 1,793 ===== ===== ===== ===== ~~Oil and ngls (barrels per day) 3,964 5,200 3,351 4,394~~ ===== ===== ===== ===== ~~Total natural gas equivalent (MMcfe per day) 101.3 118.4 82.8 98.3~~ ===== ===== ===== ==================== ~~Total~~General ~~period~~and ~~equivalent~~administrative expenses (~~Bcfe~~$ per mcfe) ~~9.3~~Before 10royalty volumes $ 0.914 7$ 0.620 9After royalty volumes $ 0.17 $ 0.24 ~~=====~~Capitalization ~~=====~~ratio ~~=====~~50% ~~=====~~50%

INTEREST EXPENSE. Our interest expense for the first three months of 2001 increased compared to the corresponding 2000 period due to increased credit facility utilization. Our weighted average debt outstanding for the three months ended March 31, 2001 was $15.1 million compared to $10.0 million for the corresponding period in 2000. The effective interest rate on our outstanding debt for the three months ended March 31, 2001 was 6.82% compared to 7.00% for the corresponding period in 2000. The weighted-average interest rate on our debt at March 31, 2001 was 6.09%. DEPLETION AND AMORTIZATION. Our depletion and amortization expense for the first three months of 2001 increased 47% from the corresponding period in 2000 as a result of a 28% increase in our production and the previously expected increase in our average depletion rate, 16%, to $1.35 per mcfe ($1.65 per mcfe after royalties). 12 Page 12 of 15 NET INCOME APPLICABLE TO COMMON SHARES After provision of $1.2 million for dividends on preferred shares of a subsidiary in both periods, net income applicable to common shares for the first three months of 2001 was $17.9 million, an improvement of $15.8 million compared to the year earlier period. The most significant factors responsible for the improvement were the increased production volumes and the improvement in natural gas prices in the current year. CAPITAL EXPENDITURES Our capital expenditures during the first three months of 2001 totaled $39.2 million compared to $19.5 million for the corresponding period in 2000.

~~NET~~CAPITAL ~~REVENUE~~EXPENDITURES SUMMARY Three months ended ~~September~~March 3031, 2001 2000 ~~1999~~ -------------------------------- ------- ------------------------------------ (in thousands) ~~Natural~~Property ~~gas,~~acquisition ~~after~~costs: ~~royalties~~US $~~22,131~~ 812 $14 1,~~960~~435 ~~Oil~~UK ~~and~~17 ~~ngls~~22 --------------------------------------------------------------------------- 829 1,457 ~~after~~--------------------------------------------------------------------------- ~~royalties~~Exploration 9costs: US 27,~~324~~034 710,~~609~~295 UK 5 (7) ------- -------------------------------------------------------------------- ~~Production~~27,039 ~~revenue~~10,288 ~~after~~--------------------------------------------------------------------------- ~~royalties~~Development 31costs: US 11,~~455~~302 227,~~569~~689 ~~Interest~~UK ~~and~~-- ~~other~~2 ~~revenue~~--------------------------------------------------------------------------- 111,~~541~~302 ~~194~~7,691 ------- -------------------------------------------------------------------- ~~Total net revenue~~ $32 39,~~996~~170 $22 19,~~763~~436 ~~======= =======~~---------------------------------------------------------------------------

LEASE AND LAND HOLDINGS. At the March 28, 2001 Federal US Gulf of Mexico Lease Sale, Chieftain and its partners submitted high bids for 17 offshore lease blocks, 14 on the Continental Shelf and 3 in the deep water. The lease blocks cover 87,000 gross (62,000 net) acres and Chieftain is designated operator of 12 of the blocks. Subject to US Minerals Management Service acceptance of these bids Chieftain's cost will be $6.3 million. DRILLING RESULTS. For the first three months of 2001, our exploratory drilling success rate in the US Gulf of Mexico region was 60%, unchanged from the corresponding period in 2000. No development wells were drilled in either period.

~~PRICE/VOLUME~~DRILLING ~~VARIANCES~~RESULTS ~~Natural~~(wells) ~~gas~~Three months ended March 31, 2001 2000 ------------- ------------- ~~Three~~GROSS ~~months~~NET ~~ended~~Gross ~~September~~Net ~~30, US UK Total Oil and ngls Total~~ -------------------------------- ------- ----- ------- ------------ ------------ ~~(in~~US ~~thousands)~~- ~~1999~~Gulf ~~production~~of ~~revenue,~~Mexico ~~after~~region ~~royalties~~Successful ~~$14,177~~3 $1.10 ~~783 $14,960 $ 7,609 $22,569 Price variance 7,696 29 7,725~~ 3~~,569~~ ~~11,294~~1.10 ~~Volume~~Dry ~~variance~~2 ~~207 (761) (554) (~~1~~,854)~~.67 (2~~,408)~~ 0.65 ------- ----- ------- ------- ------------------------------------------------- ~~2000~~5 ~~production~~2.77 ~~revenue,~~5 ~~after~~1.75 ~~royalties $22,080 $ 51 $22,131 $ 9,324 $31,455 ======= ===== ======= ======= =======~~---------------------------------------------------------------------------

In addition to the wells described above, at March 31, 2001 we had interests in 2 (0.87 net) wells which were drilling compared to 6 (1.71 net) at March 31, 2000. CAPITAL FIELD DEVELOPMENT ACTIVITY. During the first quarter of 2001, design, construction and/or installation of production facilities and pipelines totaled $9.6 million and were conducted at East Cameron 83, Eugene Island 189, High Island A-467, High Island A-510/A-531, South Timbalier 250, West Cameron 300 and West Cameron 370. 13 Page 13 of 15 CAPITAL RESOURCES AND LIQUIDITY Our primary sources of funds are operations and financing activities. Our primary cash outflows are for exploration and development activities. Cash flow from operations, a frequently used measure of performance for exploration and production companies, is derived by adjusting net income attributable to common shares to eliminate the effects of depletion and amortization, write-down of marketable securities and deferred income taxes. We generated cash flow from operations of $45.5 million during the first three months of 2001 compared to $14.7 million for the corresponding period in 2000. The variance is primarily a function of increased production and commodity prices in the first three months of 2001.

~~ROYALTIES~~NETBACK ANALYSIS Before royalties After royalties ------------------- ------------------- Three months ended ~~September~~March 3031, 2001 2000 ~~1999~~2001 2000 -------------------------------- ------ ----------------------------------------------------- (in$ ~~thousands~~per ~~except~~mcfe) ~~per~~Gross ~~unit~~production ~~amounts~~revenue ~~and~~$ ~~percentages~~5.61 $ 2.78 Royalties (1.06) ~~Natural~~(0.49) ~~gas~~------------------------------------------------------------------------------------------- Production revenue, after royalties 4.55 2.29 $ 5~~,197~~.54 $~~3,373~~ ~~Oil~~2.77 ~~and~~Production ~~ngls~~costs ~~1,813~~(0.30) (0.37) (0.37) (0.45) ------------------------------------------------------------------------------------------- Gross margin 4.25 1~~,449~~.92 5.17 2.32 General and administrative expenses (0.14) (0.20) (0.17) (0.24) ------------------------------------------------------------------------------------------- Gross profit 4.11 1.72 5.00 2.08 Interest and other (0.02) 0.04 (0.01) 0.03 Preferred share dividends (0.11) (0.14) (0.13) (0.16) ------------------------------------------------------------------------------------------- ~~Total~~Cash flow from operations $~~7,010~~ 3.98 $ 1.62 $ 4~~,822~~.86 $ 1.95 ====== ===================================================================================== ~~Royalties~~Total ~~per~~production ~~Mcfe~~volume $(bcfe) 011.754 ~~$ 0~~9.441 ~~Composite royalty rate 18~~9.2%4 177.6%5 ===========================================================================================

In 1997, a third party sold its interests in producing properties that we currently operate and since that time neither the vendor nor the purchaser has reimbursed us on a timely basis for expenditures made by us, as operator, for their account. In 1999 we commenced an action in the Louisiana courts against both the vendor and the purchaser to recover the amounts currently owing to us, approximately $4.7 million, plus interest and costs. There have been no material developments in respect of this matter since December 31, 2000. Financing activities during the first three months of 2001 used $11.8 million of cash, the net result of: o the repayment of $10 million of our revolving bank credit facility; o the exercise of employee stock options for $0.6 million; and o the purchase for cancellation of 101,300 common shares at the cost of $2.4 million under a share repurchase program, announced August 11, 2000; such purchases were suspended on March 8, 2001. We engaged in no financing activities during the first three months of 2000. Cash used in investing activities increased 102% to $39.2 million for the first three months of 2001 from $19.4 million for the corresponding period in 2000.

~~PRODUCTION~~COMPOSITION ~~COSTS~~OF NATURAL RESOURCE INVESTING ACTIVITIES Three months ended ~~September~~March 3031, 2001 2000 ~~1999~~ -------------------------------- ------ ------------------------------------ (in thousands) ~~except~~Leasehold ~~per~~and ~~unit~~seismic ~~amounts)~~$ ~~Lifting~~1,163 ~~costs~~ $3 2,~~103~~310 $3Exploratory drilling 26,~~167~~706 ~~Production~~9,435 ~~taxes~~Development ~~448~~drilling ~~456~~1,668 2,202 Capital field development 9,633 5,489 ------ -------------------------------------------------------------------- ~~Production~~Total ~~costs~~ $3 39,~~551~~170 $3 19,~~623~~436 ====== ====== ~~Production costs ($ per Mcfe) Before royalty volumes $ 0.38 $ 0.33 After royalty volumes $ 0.47 $ 0.40~~==============================================================

14 Page 14 of 15 Our March 31, 2001 cash balance of $20.1 million was up $12.7 million from the balance at March 31, 2000. At March 31, 2001, $10 million was outstanding on our unsecured revolving bank credit facility of $70 million. The weighted-average interest rate for our borrowings during the first three months was 6.82%. OUTLOOK Increased levels of drilling and development activity during the past year brought our first quarter production to 127 mmcfe per day. Our 2001 capital expenditure program, substantially all in the Gulf of Mexico region, will include the drilling of approximately 36 wells and the start up of production from 10 natural gas and oil fields. During the second quarter of 2001, drilling is expected to commence on approximately 9-12 wells and production is forecast to commence at 6 new fields. Our estimated 2001 capital expenditure budget remains at $105 million. We expect to fund these capital expenditures from operating cash flow. Capital expenditures can vary significantly as a result of exploration success, availability of equipment and services and opportunities. As an active explorer of internally generated natural gas and oil prospects, we are in a strong position to compete in the current environment. On March 8, 2001, our Board of Directors announced that it had authorized CIBC World Markets, Inc., our financial adviser, to examine strategic alternatives to enhance shareholder value, including a possible merger or sale of the Company. As part of this process, data rooms have been opened in Dallas and Edmonton. 15 Page 15 of 15 PART II ITEM 1. LEGAL PROCEEDINGS We are, in the ordinary course of business, party to various legal proceedings. In the opinion of our management, none of these proceedings, either individually or in the aggregate, is material. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES There have been no defaults upon senior securities of Chieftain. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters have been submitted to a vote of the security holders of the Company during the first quarter of 2001. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None SIGNATURES Pursuant to the requirements 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. Chieftain International, Inc. (Registrant) /s/ STANLEY A. MILNER ----------------------------------- Stanley A. Milner, A.O.E., LL.D. President and Chief Executive Officer Principal Executive and Financial Officer Dated: April 30, 2001

GENERAL AND ADMINISTRATIVE Three months ended September 30, 2000 1999 -------------------------------- ------ ------ (in thousands except per unit amounts and percentages) Gross general and administrative expenses $ 2,564 $1,868 Capitalized expenses (1,311) (887) ------- ------ General and administrative expenses $ 1,253 $ 981 ======= ====== General and administrative expenses ($ per Mcfe) Before royalty volumes $ 0.13 $ 0.09 After royalty volumes $ 0.16 $ 0.11 Capitalization ratio 51% 47%

NETBACK ANALYSIS ($ per Mcfe) Before royalties After royalties ---------------- ---------------- Three months ended September 30, 2000 1999 2000 1999 -------------------------------- ------ ------ ------ ------ Gross production revenue $ 4.13 $ 2.52 Royalties (0.75) (0.44) ------ ------ Production revenue, after royalties 3.38 2.08 $ 4.13 $ 2.50 Production costs (0.38) (0.33) (0.47) (0.40) ------ ------ ------ ------ Gross margin 3.00 1.75 3.66 2.10 General and administrative expenses (0.13) (0.09) (0.16) (0.11) ------ ------ ------ ------ Gross profit 2.87 1.66 3.50 1.99 Interest and other 0.10 (0.06) 0.14 (0.05) Preferred share dividends (0.13) (0.11) (0.16) (0.14) ------ ------ ------ ------ Cash flow from operations $ 2.84 $ 1.49 $ 3.48 $ 1.80 ====== ====== ====== ====== Total production volume (Bcfe) 9.3 10.9 7.6 9.0 ====== ====== ====== ======

DRILLING RESULTS (WELLS) Nine months ended September 30, 2000 1999 ------------------------------- ------------- ------------- Gross Net Gross Net ----- --- ----- --- US - Gulf of Mexico region Successful 10 4.07 8 3.54 Dry 8 2.54 1 0.20 -- ---- -- ---- 18 6.61 9 3.74 -- ---- -- ---- Foreign Dry -- -- 2 0.25 -- ---- -- ---- Total wells drilled Successful 10 4.07 8 3.54 Dry 8 2.54 3 0.45 -- ---- -- ---- 18 6.61 11 3.99 == ==== == ==== Chieftain operated wells 4 2.00 2 1.00 == ==== == ====

CAPITAL EXPENDITURES SUMMARY Nine months ended September 30, 2000 1999 ------------------------------- ------- ------- (in thousands) Property acquisition costs: US $ 6,636 $ 2,519 UK 32 28 ------- ------- 6,668 2,547 ------- ------- Sale of producing properties: US -- (155) ------- ------- Exploration costs: US 30,996 18,615 UK (2) (6) Foreign -- 1,531 ------- ------- 30,994 20,140 ------- ------- Development costs: US 28,391 13,689 UK 2 (6) ------- ------- 28,393 13,683 ------- ------- $66,055 $36,215 ======= =======

COMPOSITION OF NATURAL RESOURCE INVESTING ACTIVITIES Nine months ended September 30, 2000 1999 ------------------------------- ------- ------- (in thousands) Leasehold and seismic $ 8,982 $ 4,551 Sale of producing properties -- (155) Exploratory drilling 28,681 18,136 Development drilling 8,830 6,984 Capital field development 19,562 6,699 ------- ------- Total $66,055 $36,215 ======= =======

FORECAST DRILLING (wells) All operated Chieftain operated --------------- ------------------ Gross Net Gross Net ----- --- ----- --- Forecast 2000 wells Nine months ended September 30 18 6.61 4 2.00 Fourth quarter 15 5.75 5 2.40 -- ----- -- ----- Total 33 12.36 9 4.40 == ===== == ===== Forecast 2001 wells 40 16.98 20 10.27 == ===== == =====

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