These condensed interim financial statements have been prepared
on a going concern basis which presumes that the Company will be
able to discharge its obligations and realize its assets in the
normal course of business. The Company had a loss and comprehensive
loss of $3.9 million for the nine month period ended December 31,
2014. As at December 31, 2014, the Company had a working capital
deficiency of $7.4 million (March 31, 2014 - $6.9 million) that
includes $5.8 million (March 31, 2014 - $5.7 million) in bank debt
(excluding derivative assets/liabilities).
As per note 6, the Company has a revolving credit facility with
a $17.0 million limit, and as of December 31, 2014, there was $11.2
million available for use. However, given the amount available for
use under the facility is also limited by the "senior debt to cash
flow" ratio, the actual limit will vary on a period by period
basis. The calculations of the applicable ratios as of December 31,
2014 are presented in note 17. Management actively forecasts
applicable cash flows and will conduct an appropriate capital
program based on estimated future credit facility availability.
Management believes with its current credit facility, positive
expected operating cash flows in the near future despite the recent
significant decline in world oil prices and cash flows generated
from its hedging program, that the Company will generate sufficient
cash flows to meet its foreseeable obligations in the normal course
of operations. Management has significantly delayed the Company's
capital programs until the pricing environment improves and has and
continues to work on strategies to reduce general and
administrative and operating costs subsequent to December 31,
2014.
Management has been and continues to be active in seeking
alternative sources of funding to help accelerate its planned
capital expenditure program, and to ultimately reduce its total
debt. The Company cannot provide any assurance that sufficient cash
flows will be generated from operating activities to reduce its
working capital deficiency and to carry out its planned capital
expenditure program.
The above-noted factors describe matters and conditions that
indicate the existence of a material uncertainty that may cast
significant doubt about the Company's ability to continue as a
going concern. The Company's ability to continue as a going concern
is dependent upon its ability to attain profitable operations,
generate sufficient funds to continue its exploration and
development activities, to repay its debts as they come due, and
continue to obtain sufficient capital from investors or other
sources of financing to meet its current and future
obligations.
Management considers the Company is a going concern and has
prepared the condensed interim financial statements on a going
concern basis.
2. Basis of preparation
(a) Statement of compliance
These condensed interim financial statements are unaudited and
have been prepared in accordance with International Accounting
Standard ("IAS") 34, "Interim Financial Reporting" using accounting
policies consistent with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB"). Certain information and disclosures
normally included in the annual financial statements prepared in
accordance with IFRS have been condensed or omitted.
The condensed interim financial statements should be read in
conjunction with the Company's audited annual financial statements
as at and for the year ended March 31, 2014 and the notes thereto.
All accounting policies and methods of computation followed in the
preparation of these condensed interim financial statements are
consistent with those of the previous financial year, except as
detailed in note 2 (c) "Changes in accounting policies" in these
condensed interim financial statements.
3. Property, plant and equipment
Oil and
natural Corporate
gas interests and other Total
Cost
Balance at March 31, 2013 $ 42,244,490 $ 57,198 $ 42,301,688
Capital expenditures 3,634,251 13,607 3,647,858
Transfers from exploration
and evaluation assets 589,255 - 589,255
Disposition (1) (60,000) - (60,000)
Change in decommissioning
provisions (128,000) - (128,000)
Balance at March 31, 2014 $ 46,279,996 $ 70,805 $ 46,350,801
Capital expenditures 2,115,818 4,006 2,119,824
Change in decommissioning
provisions (note 8) 1,945,000 - 1,945,000
-------------------------------- --------------- ----------- -------------
Balance at December 31, 2014 $ 50,340,814 $ 74,811 $ 50,415,625
-------------------------------- --------------- ----------- -------------
Accumulated depletion and
depreciation and impairment
losses
Balance at March 31, 2013 $ 6,588,000 $ 28,264 $ 6,616,264
Depletion and depreciation
expense 1,962,000 9,500 1,971,500
Disposition(1) (5,000) - (5,000)
-------------------------------- --------------- ----------- -------------
Balance at March 31, 2014 $ 8,545,000 $ 37,764 $ 8,582,764
Depletion and depreciation
expense 1,357,000 7,600 1,364,600
Impairment loss (2) 4,400,000 - 4,400,000
Balance at December 31, 2014 $ 14,302,000 $ 45,364 $ 14,347,364
-------------------------------- --------------- ----------- -------------
Oil and
natural Corporate
gas interests and other Total
Net carrying value:
------------------------- --------------- ----------- -------------
At March 31, 2014 $ 37,734,996 $ 33,041 $ 37,768,037
------------------------- --------------- ----------- -------------
At December 31, 2014 $ 36,038,814 $ 29,447 $ 36,068,261
------------------------- --------------- ----------- -------------
(1) On May 15, 2013, the Company completed an asset swap
transaction with an unrelated third party such that $200,000 of oil
and natural gas interests were swapped for $200,000 of undeveloped
lands. The carrying amount of the oil and natural gas interests was
$15,000, including a decommissioning provision of $40,000,
resulting in a gain on sale of $185,000 for the nine month period
ended December 31, 2013.
(2) Due to continued weak commodity prices, the Company
performed an impairment test at December 31, 2014 which resulted in
recording an impairment loss of $4,400,000 based on an estimated
recoverable value of $8,100,000 for the Willesden Green CGU. The
impairment was a result of a change to the future cash flow
estimates due to a significant decline in the forecast commodity
prices at December 31, 2014 compared to March 31, 2014. The
recoverable amounts of the Company's CGUs were estimated at the
fair value less costs of disposal based on the net present value of
the before tax cashflows from oil and natural gas proved plus
probable reserves estimated by the Company's management team and
calculated at a 10% discount rate for oil interests and a 20%
discount rate for natural gas interests. The following represents
the forecast prices used to determine fair value in the December
31, 2014 impairment test:
4. Bank debt
In July 2014, the Company replaced its bank debt lender with
another Canadian chartered bank. In conjunction with this
replacement, the previous bank debt lender was repaid in full and
those lending facilities cancelled.
As at December 31, 2014, the Company had lending facilities with
a Canadian chartered bank, consisting of a $17 million revolving
demand operating credit facility of which $5.8 million was drawn
under guaranteed notes. The revolving facility is a borrowing base
facility that is determined based on, among other things, the
Company's current reserve report, results of operations, current
and forecasted commodity prices and the current economic
environment. The revolving credit facility contains standard
commercial covenants for facilities of this nature. The Company
also has available a risk management facility which allows the
Company to conduct certain financial risk management options. The
interest rate on the facility is bank prime plus 1.75% per annum.
Guaranteed notes are subject to a 2.75% acceptance fee plus an
applicable market interest rate. The facilities are secured by a
general security agreement covering all assets of the Company
including a subordination agreement with the lender in note 7, and
repayments are interest only, subject to the bank's right of
demand. The revolving credit facility provides that advances may be
made by way of direct advances, guaranteed notes, or standby
letters of credit/guarantee.
The revolving facility has the following financial covenant
requirements (calculations are presented in note 17):
-- The working capital ratio must be maintained above 1.0:1. The
working capital ratio is defined as current assets (excluding
derivative assets if any) plus the undrawn availability of the
revolving facility to current liabilities (excluding the current
portion of bank debt and derivative liabilities if any).
-- The senior debt to cash flow ratio must not exceed 3.0:1
(3.5:1 for the period ended December 31, 2014 only). The senior
debt to cash flow ratio is defined as the amount drawn under the
bank facility to net income for the trailing one year period from
the balance sheet date adjusted for non-cash items, and less
dividends declared and repayments of shareholder loans.
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