TIDMCOPL
RNS Number : 9289O
Canadian Overseas Petroleum Ltd
11 November 2016
Canadian Overseas Petroleum Limited
Management's Discussion and Analysis
SEPTEMBER 30, 2016
The following is Management's Discussion and Analysis
("MD&A") of the operating and financial results of Canadian
Overseas Petroleum Limited, and its wholly owned subsidiaries COPL
Technical Services Limited, Canadian Overseas Petroleum (UK)
Limited ("COPL UK"), Canadian Overseas Petroleum (Bermuda Holdings)
Limited ("COPL Bermuda Holdings"), Canadian Overseas Petroleum
(Bermuda) Limited ("COPL Bermuda"), and Canadian Overseas Petroleum
(Namibia) Limited ("COPL Namibia"), (collectively "COPL" or the
"Company") as at and for the three and nine months ended September
30, 2016. The information is provided as of November 10, 2016. The
results for the three and nine month period ended September 30,
2016 have been compared to the same periods of 2015. This MD&A
should be read in conjunction with the Company's audited
consolidated financial statements as at and for the years ended
December 31, 2015 and 2014, together with the accompanying notes
and the Annual Information Form of the Company dated March 28, 2016
(the "AIF"). These documents and additional information about COPL
are available on the Company's website at www.canoverseas.com and
on SEDAR at www.sedar.com.
All amounts are presented in United States dollars ("USD")
unless otherwise noted.
Business of the Company - Management
Canadian Overseas Petroleum Limited is a publicly traded oil and
gas company listed on the TSX Venture Exchange (TSX-V) under the
symbol "XOP" and the London Stock Exchange (LSE) under the symbol
"COPL".
COPL is an international oil and gas exploration and development
company focused on sub-Saharan offshore Africa. The Company holds a
17% working interest in Block LB-13, offshore Liberia, with
ExxonMobil Exploration and Production Liberia Limited
("ExxonMobil"), the operator, holding an 83% working interest.
The Company also formed a joint venture company with Shoreline
Energy International Limited ("Shoreline"), in line with the
Company's strategy to diversify and balance its asset portfolio to
generate stable cash flow from secure assets. Both partners hold a
50% interest in the jointly controlled company, Shoreline
Canoverseas Petroleum Development Corporation Limited ("ShoreCan"),
which was incorporated on October 24, 2014. ShoreCan is focused on
acquiring upstream oil and gas exploration, development and
producing assets in sub-Saharan and West African countries.
Senior management and strategic corporate functions are
performed by COPL's head office in Calgary, and geological,
geophysical, engineering, accounting and administrative functions
are performed by COPL Technical Services Limited. Drilling
oversight and some geological functions are provided by COPL UK.
COPL Bermuda Holdings, COPL Bermuda and COPL Namibia were
incorporated for operations offshore Liberia and potential
opportunities elsewhere in Africa.
Forward-Looking Information and Statements
This MD&A contains forward-looking statements relating to
future events or future performance. In some cases, forward-looking
information and forward-looking statements can be identified by
terminology such as "may", "will", "should", "expects", "projects",
"plans", "anticipates", "potential", "intend", "believe" and
similar expressions. These statements represent management's
expectations or beliefs concerning, among other things, future
operating results and various components thereof or the economic
performance of COPL. The projections, estimates and beliefs
contained in such forward-looking statements necessarily involve
known and unknown risks and uncertainties, including the business
risks discussed in AIF dated March 28, 2016, which may cause actual
performance and financial results in future periods to differ
materially from any projections of future performance or results
expressed or implied by such forward-looking statements. Operating
conditions can have a significant effect on the timing of events.
Accordingly, readers are cautioned that events or circumstances
could cause results to differ materially from those predicted.
Forward-Looking Information and Statements (continued)
Forward-looking statements included or incorporated by reference
in this document include statements with respect to:
-- the Company's current strategy to establish and grow an oil
and gas business (the "Overview and Overall Performance", "Outlook"
and "Liquidity and Capital Resources" sections);
-- the Company's ability to raise capital and obtain the
financing necessary to develop profitable oil operations (the
"Overview and Overall Performance", "Outlook" and "Liquidity and
Capital Resources" sections);
-- the Company's assumptions in respect of valuation of Warrants
and Stock Options (as defined herein) (the "Stock-based
Compensation", "Derivative Gain / Loss", "Share Capital" and
"Liquidity and Capital Resources" sections); and
-- the Company's ability to manage its financial and operational
risks (the "Overview and Overall Performance", "Financial
Instruments", "Commitments and Contractual Obligations" and
"Liquidity and Capital Resources" sections).
The Company's MD&A and AIF for the year ended December 31,
2015 describe major risks, material assumptions and other factors
related to forward-looking information and forward-looking
statements that could influence actual results and are incorporated
herein by reference. These risks, assumptions and other factors
have been provided for readers to gain a more complete perspective
on COPL's future operations. However, readers should be cautioned
that the list of factors is not exhaustive and that this
information may not be appropriate for other purposes.
Forward-looking information and forward-looking statements included
or incorporated by reference in this MD&A are valid only as at
the date of this MD&A, and the Company does not intend to
update or revise these forward-looking statements and
forward-looking information except as required by applicable
securities laws. The forward-looking information and
forward-looking statements contained in this MD&A are expressly
qualified by this cautionary statement.
Overview and Overall Performance *
In the third quarter of 2016, the Company continued to identify,
evaluate and pursue exploration and development opportunities in
Nigeria, Equatorial Guinea and other West African countries. The
Company is focused on offshore opportunities that its seasoned
technical team has strength in evaluating and developing.
Liberia
On April 5, 2013, following the Liberian Legislature's
ratification of the Production Sharing Contract governing Block
LB-13 offshore Liberia, the closing and completion of previously
announced transactions between the Company's subsidiary COPL
Bermuda and ExxonMobil occurred. The Company holds a 17% working
interest in Block LB-13, with the remaining 83% being held by
ExxonMobil, who is the operator under the license. As previously
announced, the Company's share of all joint interest costs and the
gross drilling costs up to $120 million is carried by ExxonMobil.
Although the Company has not yet received ExxonMobil's latest
estimated costs for the drilling of the first exploration well on
Block LB-13, the Company anticipates that ExxonMobil's obligation
to pay COPL Bermuda's participating interest share of costs,
expenses and liabilities charged to the joint account under the
Block LB-13 joint operating agreement dated March 8, 2013, entered
into between COPL Bermuda and ExxonMobil, will continue for at
least the first exploration well, and may also include a second
exploration well (depending on the costs associated with the first
exploration well).
The Company and ExxonMobil remain committed to completing the
work program and obligations for the Block LB-13 project. In March
2014, an outbreak of "Ebola Haemorrhagic Fever" was reported in
Liberia, the disease having crossed from its initial outbreak in
the adjacent country of Guinea. It quickly spread in various parts
of Liberia and was prevalent in the capital Monrovia and
constituted a major health matter. The World Health Organization
("WHO") described it as an International Public Health Emergency.
On July 23, 2014, the Company announced that the drilling program
in Liberia had been suspended due to the Ebola outbreak in the
region. Commerce and daily life were heavily impacted and
international companies removed personnel and suspended business
operations.
Overview and Overall Performance * (continued)
During the first part of January 2016, the WHO declared the end
of the most recent outbreak of Ebola virus disease in Liberia and
stated that all known chains of transmission had been stopped in
West Africa. Liberia was first declared free of Ebola transmission
in May 2015, but the virus has been re-introduced twice since then,
with the latest flare-up in November 2015. On January 14, 2016, the
most recent WHO announcement about Liberia being "Ebola-free" came
42 days (two 21-day incubation cycles of the virus) after the last
confirmed patient in Liberia tested negative for the disease 2
times. As such, there remains a risk for further flare-ups of the
disease, which have the potential to be as serious.
On February 23, 2016, ExxonMobil informed the Company that the
length of the extension period granted by the National Oil Company
of Liberia ("NOCAL") has been set at a total of 619 days and that
the second exploration period timeframe has been extended until
September 25, 2017. This extension was a result of the "State of
Emergency Agreement" between NOCAL and ExxonMobil due to the Ebola
crisis in Liberia. The exact timing of the well will be dependent
on rig availability and when ExxonMobil can confirm third party
contractors' capability to operate in Liberia. The Company will
provide further information as future events may arise. On
September 23, 2015, the Company announced it had received a work
program and budget for 2016 from ExxonMobil of its best estimate as
to the timing of key activities. The well to be drilled under the
Second Exploration Phase, Mesurado-1, is planned to spud in the
fourth quarter of 2016. Recent communications with ExxonMobil has
confirmed that the latest market guidance (cited above) of the
drilling of the Mesurado-1 well is consistent with upcoming
drilling plans by ExxonMobil, the operator.
Expansion of sub-Saharan Portfolio
As part of the Company's stated strategy to expand its interests
and to generate stable cash flow from secure assets, the Company
continues to assess opportunities in sub-Saharan Africa.
The Company and Shoreline, an unrelated company, incorporated
ShoreCan in October 2014 in Bermuda to focus on acquisitions of
upstream oil and gas exploration, development and producing assets
in sub-Saharan Africa. Both partners hold a 50% interest in the
jointly controlled entity.
On February 20, 2015, ShoreCan entered into a commercial
acquisition, ratified by the Ministry of Energy in Namibia, of an
80% interest in three blocks offshore Namibia. During the third
quarter of 2016, as a results of geological evaluation, ShoreCan
decided to terminate its exploration project in Namibia and to
relinquish its 80% interest in the three offshore blocks in Namibe
basin.
On May 27, 2015, ShoreCan signed a memorandum of understanding
("MOU") on Equatorial Guinea Block EG-18 with the Minister of
Mines, Industry and Energy ("MMIE") in Malabo, Equatorial Guinea. A
meeting to discuss the terms of a production sharing contract with
the MMIE was held on February 10, 2016. Meetings were held between
COPL representatives of ShoreCan and the MMIE on June 29 and June
30, 2016 to discuss and negotiate the term of the production
sharing contract. The Company will provide further information as
future negotiations permit.
On August 17, 2015, ShoreCan agreed to an acquisition in Nigeria
to acquire 80% of the issued share capital of a Nigerian oil
company which holds 100% of the equity and titled interest of an
oil appraisal and development project offering near term oil
production, located in the Niger Delta province, offshore Nigeria.
The transaction also provides that ShoreCan will take over
management and operatorship of the asset.
On September 14, 2016, - COPL announced that its 50% owned
affiliate, ShoreCan had completed the acquisition of 80% of the
share capital of Essar Exploration and Production Limited (Nigeria)
("Essar Nigeria"). Essar Nigeria's sole asset is a 100% interest
and operatorship of OPL 226, located about 50 kilometres offshore
in the central area of the Niger Delta. As a party to a Production
Sharing Contract ("PSC") for OPL 226, Essar Nigeria is required to
seek Nigerian Government ministerial consent for the transaction.
The respective application has been made and the parties to the
transaction are awaiting its approval.
Overview and Overall Performance * (continued)
OPL 226 has an area of 1530 km(2) and is situated in water
depths ranging from 40 to 80 meters. It offers oil appraisal and
development opportunities having near term oil production potential
and significant exploration upside. Historically, five wells have
been drilled, with the first oil discovery on the Block made in
2001 in the fifth well (Noa-1) after earlier drilling encountered
predominantly gas-bearing sands. ShoreCan, in the last year, has
completed additional seismic processing to the most recent 568
km(2) 3D seismic survey acquired by Essar Nigeria in 2012. The
advanced seismic processing techniques, applied to this data set by
ShoreCan, were successfully completed to differentiate oil-bearing
sands from gas and water-bearing sands. At the request of COPL,
Netherland, Sewell & Associates, Inc. ("NSAI") has prepared an
independent report (the "Report") in accordance with Canadian
National Instrument 51-101 evaluating the Contingent and
Prospective Resources attributed to OPL 226, as of March 2016. In
the Report, the Gross Unrisked Contingent Oil Resources recoverable
for the primary Noa West oil discovery are estimated to be the
following: Low Estimate (1C), 11.5 million Bbls; Best Estimate
(2C), 16.1 million Bbls; and High Estimate (3C), 20.7 million Bbls.
The Gross Unrisked Prospective Oil Resources recoverable for 15
additional undrilled areas on the Noa Complex in the Report are
estimated to be the following: Low Estimate, 259 million Bbls; Best
Estimate, 461 million Bbls; and High Estimate, 461 million Bbls. In
addition to the oil resources identified, NSAI's Report has
estimated significant volumes of Unrisked Prospective Gas Resources
on the Block totalling on a Best Estimate over 1.6 TCF.
As more developments occur, the Company intends to update the
market on its activities.
* This section contains forward-looking information. Please see
the "Forward-looking Information and Statements" section (at the
beginning of this document) for a discussion of risks and
uncertainties relating to such information.
Financial Summary
General and administrative costs were $1.4 million and $3.8
million for the three and nine months ended September 30, 2016 (net
of $56,000 and $161,000 of costs allocated to exploration projects,
respectively) compared to $1.8 million and $4.9 million for the
same periods in 2015 (net of $33,000 and $114,000 of costs
allocated to exploration projects, respectively). Stock-based
compensation expense of $0.3 million and $1.5 million was recorded
for the three and nine months ended September 30, 2016 in relation
to stock options granted in May and August of 2016; there was no
stock-based compensation recorded in comparable periods of 2015.
The Company recognized interest income of approximately $9,000 and
$19,000 for the three and nine months ended September 30, 2016,
compared to $9,000 and $20,000 in the same periods in 2015
respectively. A derivative loss of $4.8 million and $5.1 million
was recognized for the three and nine months ended September 30,
2016, compared to a derivative gain of $1.1 million in the same
periods in 2015 respectively. A foreign exchange gain of $2,000 and
a loss of $0.3 million was recognized for the three and nine months
ended September 30, 2016, compared to a foreign exchange loss of
$0.2 million and $0.4 million in the same periods in 2015
respectively. There was a loss on the Company's investment in
ShoreCan of $77,000 and $79,000 for the three and nine months ended
September 30, 2016, compared to $29,000 and $0.4 million in the
same periods in 2015 respectively. As a result, the Company's loss
amounted to $6.5 million and $10.7 million for the three and nine
months ended September 30, 2016, compared to a loss of $1.0 million
and $4.7 million for the three and nine months ended September 30,
2015.
As at September 30, 2016, the Company's cash and cash
equivalents amounted to $3.7 million. Cash used in investing
activities amounted $0.2 million for the nine months ended
September 30, 2016 compared to $0.8 million for the same period in
2015. Cash used in operating activities amounted to $4.3 million
for the nine months ended September 30, 2016 compared to $4.9
million for the same period in 2015. Cash provided by financing
activities amounts to $6.3 million for the nine months ended
September 30, 2016 compared to $5.0 for the same period in
2015.
FINANCIAL SUMMARY (continued)
Outlook *
The Company's strategy is to grow its international oil and gas
business offshore sub-Saharan Africa and elsewhere in the world by
farming into, and/or acquiring interests in, exploration,
unappraised and/or undeveloped assets as well as in producing
assets using the expertise and experience of its senior management
team.
The Company's short-term operations will focus on:
-- working with ExxonMobil to progress the planning of future drill locations in Liberia;
-- working to progress the planning of future drill locations in Nigeria on OPL 226; and
-- working to successfully conclude the variety of new
opportunities available in sub-Saharan Africa.
Currently the Company does not have material cash inflows and/or
adequate financing to develop profitable operations. The Company is
pursuing exploration projects and contracts that will require
substantial additional financing before they are able to generate
positive cash flows. Accordingly, the Company's continued
successful operation is dependent on its ability to obtain
additional financing. There is no assurance that the Company will
be able to obtain adequate financing in the future or that such
financing will be obtained on terms advantageous to the Company.
With no assurance such financing will be obtained in future, there
may be significant doubt the Company will be able to continue as a
going concern. All of these factors represent events, risks or
uncertainties that management believes will materially affect the
Company's future performance.
* This section contains forward-looking information. Please see
the "Forward-looking Information and Statements" section (at the
beginning of this document) for a discussion of risks and
uncertainties relating to such information.
SELECTED QUARTERLY INFORMATION
Discussion of Operations
The Company has not had significant revenue from operations in
any of its last two financial periods. The following table
summarizes the Company's financial results for the three and nine
months ended September 30, 2016 and 2015:
Three Three
months months Nine months Nine months
ended ended ended ended
($ 000's) except September September September September
per share 30, 2016 30, 2015 30, 2016 30, 2015
Pre-license (recovery)/costs $ - $ (26) $ - $ 114
Administrative expenses 1,363 1,795 3,791 4,856
Stock-based compensation 261 - 1,529 -
Interest income (9) (9) (19) (20)
Derivative loss
/ (gain) 4,814 (1060) 5,073 (1074)
Foreign exchange
(gain) / loss (2) 236 246 447
Loss on investment
in joint venture 77 29 79 373
Net loss 6,511 980 10,733 4,741
Per share loss $ 0.01 $ 0.00 $ 0.02 $ 0.01
Outstanding common
shares at September
30 609,737,493 482,339,196 609,737,493 482,339,196
Weighted average
common shares
- basic 607,114,077 474,484,867 550,883,602 426,460,614
Cash used in operating
activities $ 1,700 $ 1,835 $ 4,284 $ 4,846
SELECTED QUARTERLY INFORMATION (continued)
Administrative Expenses
A breakdown of administrative expenses is as follows:
Three Three
months months Nine months Nine months
ended ended ended ended
September September September September
($ 000's) 30, 2016 30, 2015 30, 2016 30, 2015
Administrative:
Payroll and related
costs $ 549 $ 627 $ 1,663 $ 1,894
External directors'
fees and related
costs 115 149 460 412
Consulting services 46 287 272 557
Professional services 48 126 106 413
Travel expenses 127 145 335 526
Office expenses 164 173 492 578
Stock exchanges,
transfer agent and
UK agents fees 101 41 240 160
Other general and
administrative 269 280 384 430
Costs allocated
to exploration projects (56) (33) (161) (114)
----------- ----------- ------------ ------------
Total administrative $ 1,363 $ 1,795 $ 3,791 $ 4,856
---------------------------- ----------- ----------- ------------ ------------
Administrative expenses amounted to $1.4 million for the three
months ended September 30, 2016, compared to $1.8 million for the
same period in 2015, and are presented net of costs allocated to
exploration projects, which amounted to $56,000 for the three
months ended September 30, 2016 and $33,000 in the same period in
2015.
Administrative expenses amounted to $3.8 million for the nine
months ended September 30, 2016, compared to $4.9 million for the
same period in 2015, and are presented net of costs allocated to
exploration projects, which amounted to $161,000 for the nine
months ended September 30, 2016 and $114,000 in the same period in
2015.
The decrease in administrative expenses is mainly due to a
decrease in expenses related to professional services (including
legal services) consulting services, payroll and travel costs,
partially compensated by an increase in fees in respect of stock
exchanges, transfer agent and UK regulatory agents.
Stock-based Compensation Expense *
The Company has a stock option plan where the number of Common
Shares reserved under the plan shall not exceed 10% of the issued
and outstanding Common Shares and the number reserved for any one
individual may not exceed 5% of the issued and outstanding shares.
Exercise prices for stock options granted are determined by the
closing market price on the day before the date of grant.
On May 12, 2016, the Company granted to its directors, officers,
employees and consultants 40,780,000 stock options to acquire the
Company's common shares at an exercise price of CAD 0.10 ($0.08)
and on August 12, 2016, the Company granted to its directors,
officers and employees 4,400,000 stock options to acquire the
Company's common shares at an exercise price of CAD 0.115 ($0.088).
The options vest immediately and expire five years from the date of
grant. The related stock-based compensation expense of $0.3 million
and $1.5 million has been recognized in the statement of
comprehensive loss for the three and nine months ended September
30, 2016. No stock-based compensation expense was recognized for
the comparable periods of 2015. The fair value of each option
granted was estimated on the date of grant using a Black-Scholes
option pricing model (the assumptions used for the model are
discussed in the notes accompanying the Company's unaudited
condensed interim consolidated financial statements as at September
30, 2016).
During the nine months ended September 30, 2016, 9,490,000 stock
options expired unexercised and 1,100,000 stock options were
forfeited. No stock options were exercised during the nine months
ended September 30, 2016 and 2015.
SELECTED QUARTERLY INFORMATION (continued)
Stock-based Compensation Expense* (continued)
As at September 30, 2016, a total of 53,905,000 stock options to
purchase Common Shares are outstanding, having a weighted average
exercise price of $0.10 per share and a remaining weighted average
contractual life of 4.23 years.
* This section contains forward-looking information. Please see
the "Forward-looking Information" section (at the beginning of this
document) for a discussion of risks and uncertainties relating to
such information.
Interest Income
Interest income earned was $9,000 for the three months ended
September 30, 2016, and three months ended September 30, 2015.
Interest income earned was $19,000 for the nine months ended
September 30, 2016, compared to $20,000 for the same period in
2015. The interest income relates to interest earned on cash held
at banks.
Derivative Gain / Loss*
The Company issued following Common Share purchase warrants
("Warrants") with an exercise price denominated in currencies other
than its functional currency:
-- On July 9, 2015, the Company issued 80,288,699 Warrants,
which entitle the holder to purchase one Common Share until July 9,
2017, at an exercise price of CAD $0.12 ($0.09). On July 9, 2015,
the Company also issued 4,548,380 Warrants to its agents, which
entitle the holder to purchase one Common Share until July 9, 2017,
at an exercise price of CAD $0.09 ($0.07);
-- On April 28, 2016, the Company issued 22,857,143 Warrants
which entitle the holder to purchase one Common Share until April
28, 2018, at an exercise price of GBP 0.0475 ($0.0695). On April
28, 2016, the Company also issued 1,177,114 Warrants as finder's
compensation which entitle the holder to purchase one Common Share
until April 28, 2018, at an exercise price of GBP $0.035
($0.051).
-- On May 3, 2016, the Company issued 101,066,868 Warrants which
entitle the holder to purchase one Common Share until May 3, 2018,
at an exercise price of CAD 0.095 ($0.075). On May 3, 2016, the
Company also issued 5,233,206 Warrants to its agents which entitle
the holder to purchase one Common Share until May 3, 2018, at an
exercise price of CAD 0.07 ($0.055).
The Warrants' exercise price is in CAD or GBP and stocks are
traded in CAD or GBP, however, the Company's functional currency is
USD. As there is variability in the exchange rates, the Warrants
are classified as derivative financial instruments and a derivative
liability was recognized as at the date of grant in relation to
those Warrants issued.
As at September 30, 2016, the Warrants outstanding as at that
date and recognized as derivative financial instruments were
revalued and a derivative loss of $4.8 million and $5.1 million was
recognized for the three and nine months ended September 30, 2016,
compared to a derivative gain of $1.1 million for the same periods
of 2015.
The significant derivative losses recorded for the three and
nine months ended September 30, 2016 relate to a general increase
in Warrants' fair values during 2016, mainly due to an increase in
the Company's stock price from CAD $0.04 ($0.03) as at December 31,
2015 to CAD $0.07 ($0.05) as at March 31 and June 30 of 2016, and
to CAD $0.13 ($0.10) as at September 30, 2016.
* This section contains forward-looking information. Please see
the "Forward-looking Information and Statements" section (at the
beginning of this document) for a discussion of risks and
uncertainties relating to such information.
SELECTED QUARTERLY INFORMATION (continued)
Foreign Exchange Gain
A foreign exchange gain of $2,000 and a loss of $0.3 million was
recognized for the three and nine months ended September 30, 2016,
and related mainly to a loss on translation of cash, cash
equivalents and accounts payable denominated in currencies other
than USD, compensated with an unrealized foreign exchange gain
recognized upon revaluation of derivate liability as at September
30, 2016.
A foreign exchange loss of $0.2 million and $0.4 million for the
three and nine months ended September 30, 2015 related mainly to a
loss on translation of cash, cash equivalents and accounts payable
denominated in currencies other than USD.
Loss on investment in joint venture
The Company currently holds a 50% interest in a jointly
controlled entity, ShoreCan. For the three and nine months ended
September 30, 2016, the Company charged ShoreCan $0.7 million and
$1.4 million of management and technical services which were
included in ShoreCan's general and administration expenses for the
same period. These amounts of revenue were reversed from the
Company's revenue and investment in joint venture.
For the three and nine months ended September 30, 2016, the
Company's share in ShoreCan's losses of $0.7 million and $1.9
million respectively ($29,000 and $0.4 million for comparable
periods of 2015) exceed the Company's net investment in ShoreCan of
$77,000 and $79,000 for these periods ($0.1 million and $0.3
million for comparable periods of 2015). Accordingly, under the
equity method, the loss on investment recognized by the Company
amounted to $77,000 and $79,000 for the three and nine months ended
September 30, 2016 ($29,000 and $0.4 million for comparable periods
of 2015).
Comparative Financial Position Items
The following table summarizes the Company's financial position
as at September 30, 2016 and December 31, 2015:
September December
30, 31,
($ 000's) except
per share 2016 2015
Cash and cash
equivalents $ 3,712 $ 2,015
Exploration and
evaluation assets 16,615 16,455
Total assets 21,033 18,998
Non-current financial
liabilities 8,176 367
Share capital (123,991) (120,730)
Shareholders'
equity $ (11,593) $ (17,207)
Economic and industry factors and their respective impact on the
Company for the quarter ended September 30, 2016, are substantially
unchanged since the year ended December 31, 2015.
Cash and Cash Equivalents
The increase in cash and cash equivalents of $1.7 million during
the first nine months of 2016 relates mainly to proceeds from
financing obtained during second quarter of 2016, offset by cash
utilized in operating activities.
Comparative Financial Position Items (continued)
Investment in joint venture
The Company's investment in joint venture, relates to 50% share
of ShoreCan, the jointly controlled entity and represents 50% share
in ShoreCan's assets and liabilities. As the Company's share of
ShoreCan's net liabilities exceeded the Company's net interest in
ShoreCan as at September 30, 2016, under the equity method, the
Company discontinued recognizing its share of future losses and the
carrying amount of the investment in the jointly controlled entity
was $nil as at September 30, 2016 ($nil as at December 31,
2015).
Exploration and Evaluation Assets
Exploration and evaluation assets ("E&E Assets") of $16.6
million as at September 30, 2016 ($16.4 million as at December 31,
2015) relate to the Liberia project. The increase in E&E Assets
for the first nine months of 2016 relates to capitalized geological
evaluation work in respect of this project in Liberia.
Total Assets
Total assets increased by $2.0 million from $19.0 million as at
December 31, 2015 to $21.0 million as at September 30, 2016. This
increase is a result of the $1.7 million increase in cash and cash
equivalents, an increase in accounts receivable, prepaid expenses
and E&E Assets.
Non-current Financial Liability
Non-current financial liability of $8.2 million as at September
30, 2016 and $0.4 million as at December 31, 2015 represents
entirely valuation of Warrants issued by the Company in currencies
other than USD. As there is variability in the exchange rates,
these Warrants are classified as derivative financial instruments
and a derivative liability is recognized as at the date of issue;
subsequently, the derivative liability is revalued at each balance
sheet date until Warrants are exercised or expired.
The significant increase of $7.8 million in derivative liability
relates to a valuation of new warrants issued during the second
quarter of 2016 (as discussed in "Derivative Gain/Loss" section) as
well as to a general increase in Warrants' fair values during 2016,
mainly due to an increase in the Company's stock price from CAD
$0.04 ($0.03) as at December 31, 2015 to CAD $0.07 ($0.05) as at
March 31 and June 30 of 2016, and to CAD $0.13 ($0.10) as at
September 30, 2016.
The fair value of Warrants is estimated using a Black-Scholes
option pricing model (the assumptions used for the model are
discussed in the notes accompanying the Company's unaudited
condensed interim consolidated financial statements as at September
30, 2016).
Shareholders' Equity
The decrease in shareholders' equity of $5.6 million from $17.2
million as at December 31, 2015 to $11.6 million as at September
30, 2016 relates to:
-- an increase in share capital of $3.3 million as a result of
common shares issued further to a private placement closed in the
second quarter of 2016 and further to warrants exercised during
September 2016, net of valuation of related warrants that are
recognized as a derivative liability and net of issue costs.
-- an increase in contributed capital reserve of $1.5 million
that relates to a valuation of stock options granted in May and
August of 2016 (as discussed in "Stock-based Compensation"
section);
-- $0.3 million decrease in accumulated other comprehensive loss
relates to an unrealized foreign exchange gain on translation of
foreign subsidiary;
-- offset by the net loss of $10.7 million for the nine months ended September 30, 2016.
As at November 9, 2016, the Company has 615,355,350 Common
Shares issued and outstanding.
SUMMARY OF QUARTERLY RESULTS
Eight Most Recent Quarters:
September June 30, March 31, December
($ 000's) 30, 2016 2016 2016 31, 2015
-------------------- ---------- --------- ---------- ----------
Revenue 9 7 3 21
-------------------- ---------- --------- ---------- ----------
Loss (6,511) (2,472) (1,750) (1,943)
-------------------- ---------- --------- ---------- ----------
Loss per share
- basic & diluted (0.01) (0.00) (0.00) (0.00)
-------------------- ---------- --------- ---------- ----------
September June 30, March 31, December
($ 000's) 30, 2015 2015 2015 31, 2014
-------------------- ---------- --------- ---------- ----------
Revenue 9 3 8 16
-------------------- ---------- --------- ---------- ----------
Loss (980) (1,629) (2,132) (1,848)
-------------------- ---------- --------- ---------- ----------
Loss per share
- basic & diluted (0.00) (0.00) (0.01) (0.00)
-------------------- ---------- --------- ---------- ----------
The revenue in all quarters consists of interest income earned
on cash balances held at banks.
The loss in the third quarter of 2016 is significantly higher
than in other quarters mainly due to a loss on derivatives of $4.8
million recorded in third quarter of 2016, as opposed to a
derivative gain of $0.4 million recognized in the second quarter
and a loss of $0.7 million recognized in the first quarter of 2016.
In addition, a stock-based compensation expense amounted to $0.3
million in the third quarter of 2016, compared to $1.3 million in
the second quarter of 2016 (no stock options were granted during
other quarters under review).
The 2015 quarterly losses mainly represent the Company's
administrative costs, pre-licence costs, foreign exchange losses,
as well as a loss on investment in ShoreCan, all of which are
offset by a gain on the derivative liabilities. The third quarter
2015 loss is lower mainly due to a significantly higher derivative
gain. In addition, the net loss on investment in ShoreCan was only
$29,000 in the third quarter of 2015, compared to a net loss of
$0.7 million in the fourth quarter, $0.1 million in the second
quarter and $0.2 million in the first quarter of 2015.
The loss in the fourth quarter of 2014 represents mainly the
Company's administrative and pre-license costs partially offset by
a foreign exchange gain.
FINANCIAL INSTRUMENTS*
The Company's financial instruments consist of cash, short-term
deposits, credit card and other deposits, loans, accounts
receivable, as well as accounts payable, accrued liabilities and
derivative liability. It is management's opinion that the Company
is not currently exposed to significant interest and/or credit
risks arising from these financial instruments and that the fair
value of these financial instruments approximates their carrying
value.
To mitigate a portion of foreign exchange risk exposure and to
the extent it is feasible, the Company keeps its funds in
currencies applicable to its known short-term commitments. No
assurance can be given that such management of risk exposure will
offset and/or eliminate the foreign exchange loss/gain
fluctuations.
* This section contains forward-looking information. Please see
the "Forward-looking Information and Statements" section (at the
beginning of this document) for a discussion of risks and
uncertainties relating to such information.
SHARE CAPITAL
The Company is authorized to issue an unlimited number of common
and preferred shares. As at September 30, 2016, there were
609,737,493 Common Shares issued and outstanding.
As at September 30, 2016, the Company had the following
outstanding securities other than Common Shares:
-- 262,252,124 share purchase warrants issued and outstanding to
purchase Common Shares with a weighted average exercise price of
$0.13 per share and a remaining contractual life of 9 months to 19
months; and
-- 53,905,000 stock options issued and outstanding to purchase
Common Shares with a weighted average exercise price of $0.10 per
Common Share and a remaining contractual life of two years and
three months to four years and ten months.
Subsequent to September 30, 2016, 5,617,857 Common Shares were
issued pursuant to exercise of Warrants. Accordingly, a total
number of Common Shares issued and outstanding amounted to
615,355,350 as at November 9, 2016.
During the nine months ended September 30, 2016 the Company had
following transactions that affected its share capital.
On April 28, 2016, further to a first tranche of the private
placement to investors in the United Kingdom and on a non-brokered
basis ("Non-Brokered Offering"), the Company issued 22,857,143
units at a price of GBP 0.035 ($0.051) for gross proceeds of GBP
0.8 million ($1.2 million). Each unit consists of one common share
in the capital of the Company ("Common Share") and one share
purchase warrant ("Non-Brokered Offering Warrant"). Each
Non-Brokered Offering Warrant entitles the holder thereof to
purchase one Common Share at an exercise price of GBP 0.0475
($0.0695) per Common Share on or before the date that is 24 months
following the closing date.
The fair value of the Non-Brokered Offering Warrants estimated
at $0.6 million (using a Black-Scholes option pricing model) was
netted against proceeds from share capital and a derivative
liability of $0.6 million was recognized as at April 28, 2016. The
Non-Brokered Offering Warrants' exercise price is in GBP, and the
Company's functional currency is in USD. As there is variability in
these exchange rates, the Non-Brokered Offering Warrants are
classified as a derivative financial instrument.
During September 2016, further to an exercise of Non-Brokered
Offering Warrants, the Company issued 2,774,286 Common Shares for a
proceeds of $176,000. The fair value of the exercised Warrants
estimated at $120,000 (using a Black-Scholes option pricing model)
was recognized as an addition to the share capital and respective
decrease in the derivative liability.
As at September 30, 2016, the derivative liability of the
Non-Brokered Offering Warrants outstanding as at that date was
revalued and a derivative loss of $0.5 million on the derivative
liability was recognized for the nine months ended September 30,
2016. The derivative liability in respect of the Non-Brokered
Offering Warrants as at September 30, 2016, was estimated at $0.9
million, using a Black-Scholes option pricing model.
In connection with the Non-Brokered Offering, the Company paid a
cash finder's fee of GBP 0.1 million ($0.2 million) and issued
1,177,114 warrants (the Finder's Warrants") as compensation
warrants. Each Finder's Warrant entitles the holder thereof to
purchase one Common Share of the Company at an exercise price of
GBP 0.035 ($0.051) per Common Share on or before the date that is
24 months following the closing date. Other expenses related to the
Non-Brokered Offering of Units amounted to $0.2 million.
The fair value of the Finder's Warrants estimated at $35,000
(using a Black-Scholes option pricing model) was netted against
proceeds from share capital (as share issue costs) and a derivative
liability of $35,000 was recognized as at April 28, 2016.
SHARE CAPITAL (continued)
As at September 30, 2016, the derivative liability was revalued
and a derivative loss of $33,000 on the derivative liability was
recognized for the nine months ended September 30, 2016. The
derivative liability in respect of the Finder's Warrants as at
September 30, 2016, was estimated at $65,000, using a Black-Scholes
option pricing model.
On May 3, 2016, further to a brokered portion of the private
placement in Canada ("Brokered Offering"), the Company issued
101,066,868 units at a price of CAD 0.07 ($0.055) for gross
proceeds of CAD 7.1 million ($5.6 million). Each unit consists of
one common share in the capital of the Company ("Common Share") and
one share purchase warrant ("Brokered Offering Warrant"). Each
Brokered Offering Warrant entitles the holder thereof to purchase
one Common Share at an exercise price of CAD 0.095 ($0.075) per
Common Share on or before the date that is 24 months following the
closing date.
The fair value of the Brokered Offering Warrants estimated at
$2.2 million (using a Black-Scholes option pricing model) was
netted against proceeds from share capital and a derivative
liability of $2.2 million was recognized as at May 3, 2016. The
Brokered Offering Warrants' exercise price is in CAD, and the
Company's functional currency is in USD. As there is variability in
these exchange rates, the Brokered Offering Warrants are classified
as a derivative financial instrument.
During September 2016, further to an exercise of Brokered
Offering Warrants, the Company issued 700,000 Common Shares for a
proceeds of $50,000. The fair value of the exercised Warrants
estimated at $26,000 (using a Black-Scholes option pricing model)
was recognized as an addition to the share capital and respective
decrease in the derivative liability.
As at September 30, 2016, the derivative liability of the
Brokered Offering Warrants outstanding as at that date was revalued
and a derivative loss of $2.2 million on the derivative liability
was recognized for the nine months ended September 30, 2016. The
derivative liability in respect of the Brokered Offering Warrants
as at September 30, 2016, was estimated at $4.3 million, using a
Black-Scholes option pricing model.
In connection with the Brokered Offering, the Company paid a
cash commission to its Agents of CAD 0.4 million ($0.3 million) and
issued 5,233,206 warrants (the "Agents' Warrants") as compensation
warrants. Each Agents' Warrant entitles the holder thereof to
purchase one Common Share of the Company at an exercise price of
CAD 0.07 ($0.055) per Common Share on or before the date that is 24
months following the closing date. Other expenses related to the
Brokered Offering of units amounted to $0.2 million.
The fair value of the Agents' Warrants estimated at $138,000
(using a Black-Scholes option pricing model) was netted against
proceeds from share capital (as share issue costs) and a derivative
liability of $138,000 million was recognized as at May 3, 2016.
As at September 30, 2016, the derivative liability was revalued
and a derivative loss of $131,000 on the derivative liability was
recognized for the nine months ended September 30, 2016. The
derivative liability in respect of the Agents' Warrants as at
September 30, 2016, was estimated at $265,000 using a Black-Scholes
option pricing model.
The assumptions used for Black-Scholes option pricing model to
estimate a fair value of the Non-Brokered Offering Warrants,
Finder's Warrants, Brokered Offering Warrants and the Agents'
Warrants as at the date of issue and as at September 30, 2016 are
discussed in the notes accompanying the Company's unaudited
condensed interim consolidated financial statements as at September
30, 2016.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS*
As at September 30, 2016, the Company has the following
commitments:
Total Less One to Four After
In $ 000's than Three to Five Five
One Years Years Years
Year
-------------- ------- ------ ------- --------- -------
Office lease 1,593 503 1,006 84 -
-------------- ------- ------ ------- --------- -------
The Company is committed under an operating lease agreement for
the rental of office space in Calgary, Canada. The approximate
lease payments total $1.6 million and are payable over the next
four years.
ShoreCan's Commitments
The Company currently holds a 50% interest in a jointly
controlled entity, ShoreCan, focusing on acquisitions of upstream
oil and gas exploration, development and producing assets in
sub-Saharan Africa. The determination of ShoreCan as a joint
venture was based on ShoreCan's structure through a separate legal
entity whereby neither the legal form nor the contractual
arrangement give the owners rights to the assets and obligations
for the liabilities within the normal course of business, nor does
it give the rights to the economic benefits of the assets or
responsibility for settling liabilities associated with the
arrangement.
The Company and its joint venture partner signed a funding
agreement, effective October 24, 2014 (the "Funding Agreement")
providing financial support as needed in proportion to its interest
(50% each) in ShoreCan for ShoreCan's expenses and obligations.
Amounts advanced to ShoreCan under the terms of the Funding
Agreement are unsecured and payable on or before October 24, 2017
contingent upon ShoreCan generating its own cashflows. Interest is
charged monthly at an annual rate of 3.0% above 12 month USD LIBOR.
The Funding Agreement does not impose any obligation on the Company
and/or its joint venture partner to contribute financially to
ShoreCan.
On September 13, 2016, ShoreCan closed an acquisition of 80% of
the issued share capital of Essar Exploration and Production
Limited (Nigeria) ("Essar Nigeria"), a company which sole asset is
a 100% interest in exploration license OPL 226 offshore Nigeria. As
part of the shareholder agreement, ShoreCan has agreed to cover the
funding of Essar Nigeria's operations. As a party to a Production
Sharing Contract ("PSC") for OPL 226, Essar Nigeria is required to
seek Nigerian Government ministerial consent for the transaction.
The respective application has been made and the parties to the
transaction are awaiting its approval.
ShoreCan has assessed that the transaction does not meet
criteria of a business acquisition as Essar Nigeria is in
exploration/development stage and as at September 30, 2016,
ShoreCan did not have an effective control over Essar Nigeria. The
$0.25 million representing the cash consideration paid, was
recognized as an investment in ShoreCan's books as at September 30,
2016. In addition, ShoreCan has committed to invest up to a maximum
of $80 million into Essar Nigeria in the form of an interest-free
shareholder loan. The funds will be used for Essar Nigeria
operations and in particular, to cover work program obligations,
including the costs of drilling one well under Phase-1 of the PSC;
the Phase-1 period was recently extended to November 30, 2017. Upon
receiving final approval, Shorecan will finalize the recording of
this investment based on the fair values of Essar Nigeria's assets
and liabilities. As at December 31, 2015, as per Essar Nigeria's
audited financial statements, Essar Nigeria had total assets of
$69.8 million and total liabilities of $69.7 million, including a
loan to its parent of $64.7 million. The agreement provides for the
repayment of this amount from future production.
As at the date of filing this Management's Discussion &
Analysis, COPL did not provide any guarantee in respect of
obligations, commitments and/or losses of either ShoreCan or Essar
Nigeria.
* This section contains forward-looking information. Please see
the "Forward-looking Information and Statements" section (at the
beginning of this document) for a discussion of risks and
uncertainties relating to such information.
LIQUIDITY AND CAPITAL RESOURCES*
As of September 30, 2016, the Company had a working capital of
approximately $3.0 million, shareholders' equity of $11.6 million
and cash and cash equivalents of $3.7 million.
For the nine months ended September 30, 2016, the Company's cash
used in operating activities amounted to $4.3 million compared to
$4.9 million for the nine months ended September 30, 2015, and
related mainly to administrative costs.
Cash used in investing activities amounted $0.2 million for the
nine months ended September 30, 2016 compared to $0.8 million for
the same period in 2015.
Cash provided by financing activities amounted to $6.3 million
for the nine months ended September 30, 2016 (compared to $5.0
million for the same period in 2015) and related mainly to proceeds
from the financing closed on April 28, 2016 and May 3, 2016
(discussed in "Share Capital" section).
Currently, the Company does not have material cash inflows
and/or adequate financing to develop profitable operations. The
Company is pursuing exploration projects that, if successful, will
require substantial additional financing before they are able to
generate positive cash flows. Accordingly, the Company's planned
growth and future development activities are dependent on its
ability to obtain additional financing. There is no assurance that
the Company will be able to obtain adequate financing in the future
or that such financing will be obtained on terms advantageous to
the Company.
* This section contains forward-looking information. Please see
the "Forward-looking Information and Statements" section (at the
beginning of this document) for a discussion of risks and
uncertainties relating to such information.
ACCOUNTING PRONOUNCEMENTS
Critical Accounting Estimates
The preparation of the financial statements requires the Company
to make estimates, assumptions and judgements in applying the
Company's accounting policies and practices, which may have a
significant impact on the financial results reported by the
Company. Actual results could differ from estimated amounts, and
those differences may be material. A comprehensive discussion of
the Company's significant critical accounting estimates is
contained in the audited consolidated financial statements for the
years ended December 31, 2015 and 2014.
DISCLOSURE CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial
Officer have designed disclosure controls and procedures
("DC&P"), or caused it to be designed under their supervision,
to provide reasonable assurance that material information relating
to the Company is made known to them by others, particularly during
the period in which the annual filings are being prepared, and
information required to be disclosed by the Company in its annual
filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities
legislation. Management of COPL, including the Chief Executive
Officer and Chief Financial Officer, evaluate the effectiveness of
the Company's DC&P annually.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Company's Chief Executive Officer and Chief Financial
Officer are responsible for establishing and maintaining internal
control over financial reporting ("ICFR"). They have designed ICFR,
or caused it to be designed under their supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with IFRS.
No material changes in the Company's ICFR were identified during
the nine month period ended September 30, 2016, that have
materially affected, or are reasonably likely to materially affect
the Company's ICFR.
It should be noted that a control system, including the
Company's disclosure and internal controls procedures, no matter
how well conceived, can provide only reasonable, but not absolute,
assurance that the objectives of the control system will be met and
it should not be expected the disclosure and internal control
procedures will prevent all errors or fraud. In reaching a
reasonable level of assurance, management necessarily is required
to apply its judgment in evaluating the cost/benefit relationship
of possible controls and procedures.
DIRECTORS
Arthur S. Millholland - President and Chief Executive
Officer
Harald Ludwig
Massimo Carello
Viscount William Astor
John Cowan
OFFICERS
Arthur S. Millholland, P.Geol. - President and Chief Executive
Officer
Aleksandra Owad, CPA, CGA, FCCA (UK) - Chief Financial
Officer
Rod Christensen, P.Geol. - Vice President, Exploration and
Exploitation
Richard Mays, LL.B. (Hons), LL.M., Ph.D - Vice President,
Business Development and General Counsel
Norman Deans, BEng. - Vice President, Operations
Faralee A. Chanin, LL.B., M.B.A. - Corporate Secretary
This information is provided by RNS
The company news service from the London Stock Exchange
END
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(END) Dow Jones Newswires
November 11, 2016 02:00 ET (07:00 GMT)
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