TIDMTXP
RNS Number : 6772X
Touchstone Exploration Inc.
14 August 2018
TOUCHSTONE ANNOUNCES SECOND QUARTER AND SIX MONTHS TO JUNE 30,
2018 RESULTS AND INCREASED 2018 CAPITAL PROGRAM
Calgary, Alberta - August 14, 2018 - Touchstone Exploration Inc.
("Touchstone" or the "Company") (TSX / LSE: TXP) announces its
financial and operating results for the three and six months ended
June 30, 2018. Selected financial and operational information is
outlined below and should be read in conjunction with Touchstone's
June 30, 2018 unaudited interim consolidated financial statements
and the related Management's discussion and analysis, both of which
will be available under the Company's profile on SEDAR
(www.sedar.com) and the Company's website
(www.touchstoneexploration.com). Tabular amounts herein are in
thousands of Canadian dollars, and the amounts in text are rounded
to thousands of Canadian dollars unless otherwise stated.
Highlights
-- Achieved quarterly average crude oil production of 1,717
barrels per day ("bbls/d"), representing increases of 11% and 29%
from the first quarter of 2018 and the second quarter of 2017,
respectively.
-- Continued our 2018 development program with total drilling
and development capital expenditures of $4,520,000, drilling three
wells and performing four well recompletions.
-- Realized $12,508,000 in petroleum sales, a 68% increase from the prior year second quarter.
-- Generated an operating netback of $38.19 per barrel, a 92%
increase relative to the $19.88 per barrel generated in the prior
year comparative quarter.
-- Delivered funds flow from operations of $3,258,000 ($0.03 per
basic share) compared to $438,000 ($0.01 per basic share) in the
second quarter of 2017.
-- Recognized a reduced net loss of $692,000 ($0.01 per basic
share) compared to a net loss of $1,848,000 ($0.02 per basic share)
realized in the equivalent quarter of 2017.
-- Extended our $15 million term loan maturity date and initial
principal repayments by one year.
-- Maintained balance sheet strength with second quarter cash of
$10,556,000 and net debt of $11,266,000, representing 1.0 times net
debt to first half 2018 annualized funds flow from operations.
-- Expanded our 2018 drilling program from ten to fourteen wells.
Financial and Operating Results Summary
Three months ended Six months
ended
June March June June June
30, 2018 31, 2018 30, 2017 30, 2018 30, 2017
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Operating
Average daily
oil
production
(bbls/d) 1,717 1,543 1,334 1,631 1,307
Net wells
drilled 3 2 3 5 3
Net wells
recompleted 4 5 5 9 10
Brent
benchmark
price
(US$/bbl) 74.53 66.86 49.55 70.67 51.57
Operating
netback(1)
($/bbl)
Realized
sales
price 80.04 74.76 61.26 77.55 62.67
Royalties (22.59) (21.27) (16.03) (21.97) (18.46)
Operating
expenses (19.26) (19.96) (25.35) (19.59) (22.49)
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
38.19 33.53 19.88 35.99 21.72
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Financial ($000's except share
and per share amounts)
Petroleum
sales 12,508 10,384 7,436 22,892 14,827
Funds flow
from
operations 3,258 2,601 438 5,859 831
Per share -
basic
and
diluted(1) 0.03 0.02 0.01 0.05 0.01
Net (loss)
earnings (692) 125 (1,848) (567) (3,397)
Per share -
basic
and diluted (0.01) 0.01 (0.02) (0.01) (0.04)
Capital
expenditures
Exploration 434 228 520 662 708
Development 4,520 3,621 4,940 8,141 5,486
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
4,954 3,849 5,460 8,803 6,194
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Net debt(1) -
end of period
Working
capital
surplus (3,734) (4,922) (1,186) (3,734) (1,186)
Principal
long-term
balance of
loan 15,000 14,190 15,000 15,000 15,000
11,266 9,268 13,814 11,266 13,814
-------------- ---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Weighted average shares
outstanding
Basic 129,021,428 129,021,428 84,236,044 129,021,428 83,689,629
Diluted 130,022,267 129,691,693 84,236,044 129,841,928 83,689,629
Outstanding
shares
- end of
period 129,021,428 129,021,428 103,137,143 129,021,428 103,137,143
Note:
(1) See "Advisories: Non-GAAP Measures".
Operating Results
Our operating results in the second quarter were consistent with
our expectations, as we continued with our ten well drilling
campaign by successfully drilling three development wells and
spudding the sixth well of the program on June 15, 2018. Capital
expenditures totaled $4,954,000, of which $4,520,000 related to
drilling and development activities. We recompleted four wells in
the quarter, with an aggregate nine wells recompleted in the first
half of 2018.
Second quarter 2018 crude oil production averaged 1,717 bbls/d,
a 29% increase relative to the 1,334 bbls/d produced in the second
quarter of 2017 and a 11% increase relative to the 1,543 bbls/d
produced in the first quarter of 2018. The five wells drilled to
date in 2018 combined to add 183 bbls/d of incremental production
in the second quarter. Our four well 2017 program continued to
perform above internal expectations, contributing approximately 351
bbls/day of production in the quarter.
Financial Results
Our second quarter operating netback improved 92% to $38.19 per
barrel, as compared to $19.88 per barrel in the second quarter of
2017. Realized second quarter 2018 crude oil pricing was $80.04
(US$61.79) per barrel, 31% greater than the $61.26 (US$45.51) per
barrel received in the equivalent quarter of 2017. In comparison to
the second quarter of 2017, royalty expenses per barrel increased
41% based on the rising scale effect of increased commodity prices
to royalty rates. Second quarter 2018 operating costs per barrel
decreased 24% from the corresponding quarter of 2017, predominantly
from increased production over a fixed operating cost base and
increased operating efficiencies.
We generated funds flow from operations of $3,258,000 ($0.03 per
basic share) in the second quarter of 2018 versus $438,000 ($0.01
per basic share) in the second quarter of 2017. The increase in
funds flow was largely attributed to stronger oil price
realizations and operating netbacks. Excluding realized financial
derivative gains, our second quarter 2018 funds flow was the
highest since the third quarter of 2014. As a result, the Company
decreased its net loss by 63% from the prior year second quarter,
recording a net loss of $692,000 ($0.01 per basic share) during the
three months ended June 30, 2018.
We maintained strong financial liquidity, exiting the quarter
with a cash balance of $10,556,000, a working capital surplus of
$3,734,000 and a $15,000,000 principal term loan balance. Our June
30, 2018 net debt of $11,266,000 represented net debt to trailing
twelve-month funds flow from operations of 1.4 times and net debt
to year to date second quarter 2018 annualized funds flow from
operations of 1.0 times. We expect our liquidity position to be
stable going forward as the new wells drilled in the quarter are
placed onto production and optimized.
On June 13, 2018, we extended the maturity of our $15 million
term loan by one year to November 23, 2022, with no mandatory
principal payments until January 1, 2020. In addition, the amended
agreement removed the minimum $5 million quarterly cash reserves
financial covenant. The credit facility is covenant based and does
not require annual or semi-annual reviews. We were well within the
financial covenants as at June 30, 2018. The one-year deferral of
principal payments will allow us to continue our near-term
development strategy into 2019.
On June 21, 2018, we entered an agreement to dispose of our 50%
operating working interest in our non-core Icacos block to our
third-party partner for minimum consideration of US$500,000.
Consideration will be paid based on the Company's working interest
net revenue it would have received had it retained such interest
through December 2021. The property averaged 10 bbls/d of net crude
oil production in the second quarter of 2018. The agreement was
effective April 1, 2018 and remains subject to local regulatory
approvals.
Increase in 2018 Drilling Program
We are increasing our 2018 capital program by US$4.8 million,
which will result in four additional wells drilled prior to
year-end. The Company expects to drill the four additional wells on
our WD-4 and WD-8 properties. The additional fourth quarter capital
is expected to add incremental production volumes in early 2019 and
further improve the Company's growth plans.
For further information, please contact:
Touchstone Exploration Inc.
Mr. Paul Baay, President and Chief Executive Officer Tel: +1
(403) 750-4487
Mr. Scott Budau, Chief Financial Officer
www.touchstoneexploration.com
Shore Capital (Nominated Advisor and Joint Broker)
Nominated Advisor: Edward Mansfield / Mark Percy / Daniel Bush
Tel: +44 (0) 20 7408 4090
Corporate Broking: Jerry Keen
GMP FirstEnergy (Joint Broker)
Jonathan Wright / Hugh Sanderson Tel: +44 (0) 207448 0200
Camarco (Financial PR)
Nick Hennis / Jane Glover / Billy Clegg Tel: +44 (0) 203 757
4980
About Touchstone
Touchstone Exploration Inc. is a Calgary based company engaged
in the business of acquiring interests in petroleum and natural gas
rights, and the exploration, development, production and sale of
petroleum and natural gas. Touchstone is currently active in
onshore properties located in the Republic of Trinidad and Tobago.
The Company's common shares are traded on the Toronto Stock
Exchange and the AIM market of the London Stock Exchange under the
symbol "TXP".
Advisories
Non-GAAP Measures
This announcement contains terms commonly used in the oil and
natural gas industry, including funds flow from operations per
share, operating netback and net debt. These terms do not have a
standardized meaning under International Financial Reporting
Standards and may not be comparable to similar measures presented
by other companies. Shareholders and investors are cautioned that
these measures should not be construed as alternatives to cash
provided by operating activities, net income, total liabilities, or
other measures of financial performance as determined in accordance
with Generally Accepted Accounting Principles. Management uses
these Non-GAAP measures for its own performance measurement and to
provide stakeholders with measures to compare the Company's
operations over time.
The Company calculates funds flow from operations per share by
dividing funds flow from operations by the weighted average number
of common shares outstanding during the applicable period.
The Company uses operating netback as a key performance
indicator of field results. Operating netback is presented on a per
barrel basis and is calculated by deducting royalties and operating
expenses from petroleum sales. If applicable, the Company also
discloses operating netback both prior to realized gains or losses
on derivatives and after the impacts of derivatives are included.
Realized gains or losses represent the portion of risk management
contracts that have settled in cash during the period, and
disclosing this impact provides Management and investors with
transparent measures that reflect how the Company's risk management
program can impact netback metrics. The Company considers operating
netback to be a key measure as it demonstrates Touchstone's
profitability relative to current commodity prices.
Net debt is calculated by summing the Company's working capital
and the principal (undiscounted) amount of long-term debt. Working
capital is calculated as current assets less current liabilities as
they appear on the statements of financial position. The Company
uses this information to assess its true debt and liquidity
position and to manage capital and liquidity risk.
Forward-Looking Statements
Certain information provided in this announcement may constitute
forward-looking statements within the meaning of applicable
securities laws. Forward-looking information in this announcement
may include, but is not limited to, statements relating to the
Company's future liquidity position, the potential undertaking,
timing, locations and costs of future well drilling and
recompletion activities and the sufficiency of resources to fund
future well drilling and recompletion operations. Although the
Company believes that the expectations and assumptions on which the
forward-looking statements are based are reasonable, undue reliance
should not be placed on the forward-looking statements because the
Company can give no assurance that they will prove to be correct.
Since forward-looking statements address future events and
conditions, by their very nature they involve inherent risks and
uncertainties. Actual results could differ materially from those
currently anticipated due to a number of factors and risks. Certain
of these risks are set out in more detail in the Company's December
31, 2017 Annual Information Form dated March 26, 2018 which has
been filed on SEDAR and can be accessed at www.sedar.com. The
forward-looking statements contained in this announcement are made
as of the date hereof, and except as may be required by applicable
securities laws, the Company assumes no obligation to update
publicly or revise any forward-looking statements made herein or
otherwise, whether as a result of new information, future events or
otherwise.
Interim Consolidated Statements of Financial Position
(Unaudited, thousands of Canadian dollars)
June 30, December
31, 2017
Note 2018
-------------------------------------- ----- ---------- ----------
Assets 6
Current assets
Cash $ 10,556 $ 13,920
Accounts receivable 12 11,047 8,544
Crude oil inventory 188 168
Prepaid expenses 573 475
Financial derivatives 12 13 -
Assets held for sale 5 187 -
22,564 23,107
Exploration assets 4 2,631 2,084
Property and equipment 5 71,988 62,851
Restricted cash and cash equivalents 14 393 376
Other assets 1,872 1,869
Abandonment fund 7 1,192 1,049
$ 100,640 $ 91,336
-------------------------------------- ----- ---------- ----------
Liabilities
Current liabilities
Accounts payable and accrued
liabilities $ 14,822 $ 12,972
Income taxes payable 3,643 3,066
Term loan and associated liabilities 6 283 261
Liabilities held for sale 5 82 -
18,830 16,299
Provisions - 68
Term loan and associated liabilities 6 14,549 14,632
Decommissioning obligations 7 12,733 11,853
Deferred income taxes 14,281 10,280
-------------------------------------- ----- ---------- ----------
60,393 53,132
-------------------------------------- ----- ---------- ----------
Shareholders' equity
Shareholders' capital 8 27,143 27,143
Contributed surplus 2,337 2,253
Accumulated other comprehensive
income 9,147 6,621
Accumulated earnings 1,620 2,187
-------------------------------------- ----- ---------- ----------
40,247 38,204
-------------------------------------- ----- ---------- ----------
$ 100,640 $ 91,336
-------------------------------------- ----- ---------- ----------
Commitments (note 14)
See accompanying notes to these unaudited interim consolidated
financial statements.
Interim Consolidated Statements of Comprehensive Income
(Loss)
For the three and six months ended 30 June, 2018 and 2017
(Unaudited, thousands of Canadian dollars, except per share
amounts)
Three months ended Six months ended
June 30, June 30,
Note 2018 2017 2018 2017
------------------------------ ----- --------- ---------- --------- ----------
Revenues
Petroleum sales $ 12,508 $ 7,436 $ 22,892 $ 14,827
Royalties (3,531) (1,946) (6,486) (4,368)
------------------------------ ----- --------- ---------- --------- ----------
Petroleum revenue 8,977 5,490 16,406 10,459
Loss on financial
derivatives 12 (111) - (185) -
Other income 9 - - 484 -
8,866 5,490 16,705 10,459
Expenses
Operating 3,010 3,077 5,782 5,321
General and administrative 1,869 1,645 3,601 3,071
Net finance 10 211 390 611 1,162
Foreign exchange
loss (gain) 24 155 (317) 235
Share-based compensation 8 40 44 74 100
Depletion and
depreciation 5 1,364 1,162 2,519 2,290
Impairment 4 111 430 313 516
Accretion on term
loan 6 105 96 198 351
Accretion on decommissioning
obligations 7 85 39 168 79
Loss on decommissioning
obligations 7 11 - 11 -
6,830 7,038 12,960 13,125
------------------------------ ----- --------- ---------- --------- ----------
Earnings (loss) before
income taxes 2,036 (1,548) 3,745 (2,666)
Income taxes
Current tax expense 616 31 991 142
Deferred tax expense 2,112 269 3,321 589
------------------------------ ----- --------- ---------- --------- ----------
2,728 300 4,312 731
------------------------------ ----- --------- ---------- --------- ----------
Net loss (692) (1,848) (567) (3,397)
Currency translation
adjustments 1,083 (904) 2,526 (1,171)
------------------------------ ----- --------- ---------- --------- ----------
Comprehensive
income (loss) $ 391 $ (2,752) $ 1,959 $ (4,568)
------------------------------ ----- --------- ---------- --------- ----------
Net loss per common
share
Basic and diluted 11 $ (0.01) $ (0.02) $ (0.01) $ (0.04)
------------------------------ ----- --------- ---------- --------- ----------
See accompanying notes to these unaudited interim consolidated
financial statements.
Interim Consolidated Statements of Changes in Shareholders'
Equity
(Unaudited, thousands of Canadian dollars)
Accumulated
other Accumulated
Shareholders' Contributed comprehensive (deficit) Shareholders'
Note capital surplus income earnings equity
------------------------- ------- -------------- ------------ --------------- ----------------- ----------------
Balance as at January
1, 2017 $ 169,995 $ 2,144 $ 9,231 $ (145,136) $ 36,234
Net loss - - - (947) (947)
Other comprehensive
loss - - (2,610) - (2,610)
Issued pursuant to
private placements 8 5,329 - - - 5,329
Share-based settlements 8 89 (84) - - 5
Share-based compensation
expense 8 - 165 - - 165
Share-based compensation
capitalized 5 - 28 - - 28
Accumulated deficit
elimination 8 (148,270) - - 148,270 -
Balance as at December
31, 2017 $ 27,143 $ 2,253 $ 6,621 $ 2,187 $ 38,204
------------------------- ------- -------------- ------------ --------------- ----------------- ----------------
Net loss - - - (567) (567)
Other comprehensive
income - - 2,526 - 2,526
Share-based compensation
expense 8 - 74 - - 74
Share-based compensation
capitalized 5 - 10 - - 10
Balance as at June
30, 2018 $ 27,143 $ 2,337 $ 9,147 $ 1,620 $ 40,247
------------------------- ------- -------------- ------------ --------------- ----------------- ----------------
See accompanying notes to these unaudited interim consolidated
financial statements.
Interim Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2018 and 2017
(Unaudited, thousands of Canadian dollars)
Three months Six months
ended June ended
30, June 30,
Note 2018 2017 2018 2017
------------------------------- ----- --------- ---------- --------- ----------
Cash provided by (used in) the
following activities:
Operating activities
Net loss for the period $ (692) $ (1,848) $ (567) $ (3,397)
Items not involving
cash from operations:
Unrealized loss on
financial derivatives 12 111 - 185 -
Unrealized foreign
exchange loss (gain) 35 325 (307) 447
Share-based compensation 8 40 44 74 100
Depletion and depreciation 5 1,364 1,162 2,519 2,290
Impairment 4 111 430 313 516
Accretion on term
loan 6 105 96 198 351
Accretion on decommissioning
obligations 7 85 39 168 79
Loss on decommissioning
obligations 7 11 - 11 -
Other (33) (79) 40 (144)
Deferred income tax
expense 2,112 269 3,321 589
Decommissioning expenditures 9 - (96) -
------------------------------- ----- --------- ---------- --------- ----------
Funds flow from operations 3,258 438 5,859 831
Change in non-cash
working capital 2,965 (1,422) (530) (1,731)
Costs related to financial
derivatives 12 - - (190) -
------------------------------- ----- --------- ---------- --------- ----------
6,223 (984) 5,139 (900)
------------------------------- ----- --------- ---------- --------- ----------
Investing activities
Changes in restricted
cash - - - 5,144
Exploration asset
expenditures 4 (434) (520) (662) (708)
Property and equipment
expenditures 5 (4,520) (4,940) (8,141) (5,486)
Abandonment fund expenditures 7 (44) (34) (82) (65)
Change in non-cash
working capital (565) 2,803 491 2,959
(5,563) (2,691) (8,394) 1,844
------------------------------- ----- --------- ---------- --------- ----------
Financing activities
Payment of loan production
obligation 6 (125) (74) (229) (148)
Term loan amendment
fees 6 (156) - (156) -
Finance lease receipts 75 16 149 16
Issuance of common
shares 8 - 777 - 777
Change in non-cash
working capital (229) - (218) 27
(435) 719 (454) 672
------------------------------- ----- --------- ---------- --------- ----------
Change in cash 225 (2,956) (3,709) 1,616
Cash, beginning of
period 10,353 13,006 13,920 8,433
Impact of foreign
exchange in foreign
denominated cash balances (22) (125) 345 (124)
Cash, end of period $ 10,556 $ 9,925 $ 10,556 $ 9,925
------------------------------- ----- --------- ---------- --------- ----------
Supplemental information:
Cash interest paid 296 296 598 424
Cash income taxes
paid 325 143 574 173
------------------------------- ----- --------- ---------- --------- ----------
See accompanying notes to these unaudited interim consolidated
financial statements.
Notes to the Interim Consolidated Financial Statements
(unaudited)
As at June 30, 2018 and for the three and six months ended June
30, 2018 and 2017
1. Reporting Entity
Touchstone Exploration Inc. (the "Company") is incorporated
under the laws of Alberta, Canada with its head office located in
Calgary, Alberta. The Company is an oil and gas exploration and
production company active in the Republic of Trinidad and Tobago
("Trinidad"). The Company's common shares are listed on the Toronto
Stock Exchange ("TSX") and on the AIM market of the London Stock
Exchange ("AIM") under the symbol "TXP".
The principal address of the Company is 4100, 350 7(th) Avenue
SW, Calgary, Alberta, T2P 3N9.
2. Basis of Preparation and Statement of Compliance
These unaudited interim consolidated financial statements (the
"financial statements") 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"). These financial
statements are condensed as they do not include all the information
required by IFRS for annual financial statements and should be read
in conjunction with the Company's audited consolidated financial
statements for the year ended December 31, 2017. Unless otherwise
stated, amounts presented in these financial statements are rounded
to thousands of Canadian dollars, and tabular amounts are stated in
thousands of Canadian dollars. Certain reclassification adjustments
have been made to these financial statements to conform to the
current presentation.
These financial statements have been prepared on a historical
cost basis, except as detailed in the accounting policies disclosed
in Note 3 "Summary of Significant Accounting Policies" of the
Company's audited consolidated financial statements for the year
ended December 31, 2017. All accounting policies and methods of
computation followed in the preparation of these financial
statements are consistent with those of the previous financial
year, except as noted in Note 3 "Changes to Accounting Policies".
There have been no significant changes to the use of estimates or
judgments since December 31, 2017.
These financial statements were authorized for issue by the
Board of Directors on August 13, 2018.
3. Changes to Accounting Policies
(a) Adoption of IFRS 9 Financial Instruments
Effective January 1, 2018, the Company adopted IFRS 9 Financial
Instruments ("IFRS 9"), which replaced IAS 39 Financial
Instruments: Recognition and Measurement. The adoption of IFRS 9
did not result in any adjustments to the measurement of financial
instruments, and no adjustment to retained earnings was
required.
As a result of the adoption of IFRS 9, the Company has revised
the description of its financial instrument accounting policies to
reflect the new classification approach as follows:
Financial instruments
Financial assets and financial liabilities are measured at fair
value on initial recognition. Measurement in subsequent periods
depends on the financial instrument's classification, as described
below.
-- Fair value through profit or loss: Financial instruments
designated at fair value through profit or loss are initially
recognized and subsequently measured at fair value with changes in
those fair values charged immediately to net earnings. Financial
instruments under this classification include derivative assets and
liabilities.
-- Amortized costs: Financial instruments designated as
amortized costs are initially recognized at fair value, net of
directly attributable transaction costs, and are subsequently
measured at amortized cost using the effective interest method.
Financial instruments under this classification include cash,
restricted cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities, income taxes payable and term loan
and associated liabilities.
-- Fair value through other comprehensive income: Financial
instruments designated as fair value through other comprehensive
income are initially recognized at fair value, net of directly
attributable transaction costs, and are subsequently measured at
fair value with changes in fair value recognized in other
comprehensive income, net of tax.
Derivatives may be used by the Company to manage exposure to
market risk relating to commodity prices, foreign exchange rates
and interest rates. The Company does not designate its financial
derivatives contracts as hedges. As a result, all financial
derivative contracts are classified as fair value through profit or
loss and are recorded and carried on the consolidated statement of
financial position at fair value with actual amounts received or
paid on the settlement of the financial derivative instrument
recorded in net earnings. Forward crude oil derivative contracts
are recorded at their estimated fair value based on the difference
between the contracted price and the period end forward price,
using quoted market prices.
Impairment of financial assets
The Company recognizes loss allowances for expected credit
losses on its financial assets measured at amortized cost. Expected
credit losses exist if one or more loss events occur after initial
recognition of the financial asset which has an impact on the
estimated future cash flows of the financial asset and that impact
can be reliably measured. The Company uses a combination of
historical and forward-looking information to determine the
appropriate expected credit loss. The carrying amount of the asset
is reduced through the use of an allowance account, and the loss is
recognized in general and administrative expenses.
(b) Adoption of IFRS 15 Revenue Recognition
Effective January 1, 2018, the Company adopted IFRS 15 Revenue
from Contracts with Customers ("IFRS 15"). IFRS 15 established a
comprehensive framework for determining whether, how much, and when
revenue from contracts with customers is recognized.
The Company's revenue relates to the sale of crude oil solely to
the Petroleum Company of Trinidad and Tobago Limited ("Petrotrin")
at various sales batteries at specified prices referenced to
benchmark pricing. The Company's sales batteries are tied into
Petrotrin sales pipelines. The Company considers its performance
obligations to be satisfied and control to be transferred when
crude oil is delivered to the Petrotrin pipeline, as all risks and
rewards of ownership have been transferred and the Company has the
present right to payment.
The Company adopted IFRS 15 using the modified retrospective
approach. Under this transitional provision, the cumulative effect
of initially applying IFRS 15 is recognized on the date of initial
application as an adjustment to retained earnings. The adoption of
IFRS 15 did not impact the timing or measurement of revenue, and no
adjustment to retained earnings was required.
As a result of the adoption of IFRS 15, the Company has revised
the description of its accounting policy for revenue recognition as
follows:
Revenue associated with the sale of crude oil is measured based
on the consideration specified in contracts with customers. Revenue
from contracts with customers is recognized when or as the Company
satisfies a performance obligation by transferring a promised good
or service to a customer. A good or service is transferred when the
customer obtains control of that good or service. The transfer of
control of crude oil coincides with title passing to the customer
and the customer taking physical possession.
(c) Standards issued but not yet adopted
IFRS 16 Leases
IFRS 16 Leases replaces IAS 17 Leases and requires entities to
recognize lease assets and lease obligations on the statement of
financial position. For lessees, IFRS 16 removes the classification
of leases as either operating leases or finance leases, effectively
treating all leases as finance leases. Certain short-term leases
(less than 12 months) and leases of low-value assets are exempt
from the requirements and may continue to be treated as operating
leases. Lessors will continue with a dual lease classification
model. Classification will determine how and when a lessor will
recognize lease revenue, and what assets would be recorded. The
standard will come into effect for annual periods beginning on or
after January 1, 2019, with earlier adoption permitted if the
entity is also applying IFRS 15. The standard may be applied
retrospectively or using a modified retrospective approach. The
modified retrospective approach does not require restatement of
prior period financial information as it recognizes the cumulative
effect as an adjustment to opening retained earnings and applies
the standard prospectively.
The Company plans to apply IFRS 16 on January 1, 2019 and is
currently evaluating the impact of the standard on its financial
statements. Although the transition approach on adoption has not
yet been determined, it is anticipated that the adoption of IFRS 16
will have a material impact on the Company's consolidated
statements of financial position.
4. Exploration Assets
Exploration assets consist of the Company's projects in the
exploration and evaluation stage which are pending determination of
technical and commercial feasibility. The following table is a
continuity schedule of the Company's exploration assets at the end
of the respective periods:
Six months Year ended
ended December
June 30, 31, 2017
2018
----------------------------- ---------------------- ----------------------
Balance, beginning of
period $ 2,084 $ 1,858
Additions 662 1,240
Impairments (236) (871)
Effect of change in foreign
exchange rates 121 (143)
------------------------------ ---------------------- ----------------------
Balance, end of period $ 2,631 $ 2,084
------------------------------ ---------------------- ----------------------
During the three and six months ended June 30, 2018, $23,000 and
$31,000 of general and administrative expenses were capitalized to
exploration assets, respectively (2017 - $11,000 and $31,000).
During the three and six months ended June 30, 2018, the Company
incurred $119,000 and $236,000 in lease expenses and letter of
credit holding costs relating to its East Brighton property,
respectively (2017 - $391,000 and $477,000). These costs were
impaired given the property's estimated recoverable value was
$nil.
5. Property and Equipment
The following table is a continuity schedule of the Company's
property and equipment at the end of the respective periods:
Petroleum Corporate Total
assets assets
----------------------------- --------------------- ------------------------- ---------------------
Cost:
Balance, January 1, 2017 $ 158,920 $ 2,348 $ 161,268
Additions 7,011 112 7,123
Dispositions (2,897) - (2,897)
Effect of change in foreign
exchange rates (11,298) - (11,298)
Balance, December 31,
2017 $ 151,736 $ 2,460 $ 154,196
Additions 8,270 8 8,278
Transfer to held for
sale (187) - (187)
Effect of change in foreign
exchange rates 8,547 - 8,547
Balance, June 30, 2018 $ 168,366 $ 2,468 $ 170,834
----------------------------- --------------------- ------------------------- ---------------------
Accumulated depletion, depreciation
and impairments:
Balance, January 1, 2017 $ 99,841 $ 1,766 $ 101,607
Depletion and depreciation 4,235 180 4,415
Impairment recoveries (8,557) - (8,557)
Dispositions (1,912) - (1,912)
Decommissioning obligation
change in estimate 2,736 - 2,736
Effect of change in foreign
exchange rates (6,944) - (6,944)
Balance, December 31,
2017 $ 89,399 $ 1,946 $ 91,345
Depletion and depreciation 2,437 82 2,519
Effect of change in foreign
exchange rates 4,982 - 4,982
Balance, June 30, 2018 $ 96,818 $ 2,028 $ 98,846
----------------------------- --------------------- ------------------------- ---------------------
Net book value:
Balance, December 31,
2017 $ 62,337 $ 514 $ 62,851
Balance, June 30, 2018 71,548 440 71,988
----------------------------- --------------------- ------------------------- ---------------------
As at June 30, 2018, $82,036,000 in future development costs
were included in petroleum asset cost bases for depletion
calculation purposes (December 31, 2017 - $85,287,000). During the
three and six months ended June 30, 2018, $292,000 and $551,000 in
general and administrative expenses were capitalized to property
and equipment, respectively (2017 - $207,000 and $403,000). During
the three and six months ended June 30, 2018, $5,000 and $10,000 in
share-based compensation expenses were capitalized to property and
equipment, respectively (2017 - $9,000 and $18,000).
At June 30, 2018, the Company evaluated its petroleum assets for
indicators of any potential impairment or related reversal. As a
result of this assessment, no indicators were identified, and no
impairment or related reversal was recorded except as disclosed
below.
(a) Property disposition
On June 21, 2018 the Company entered an agreement to dispose of
its 50% operating working interest in the Icacos property to the
current third-party partner for minimum consideration of
US$500,000. The consideration will be paid based on the Company's
working interest net revenue it would have received had it retained
such interest through December 2021. Should these cumulative
payments not exceed the minimum consideration, the Company will
receive the difference prior to the end of February 2021. The
Company shall retain all cumulative payments should such payments
exceed the US$500,000 minimum consideration through December 31,
2021. The agreement was effective April 1, 2018 and remains subject
to local regulatory approvals.
The Company reclassified the $187,000 net carrying value of the
related assets from property and equipment to assets held for sale.
In addition, $82,000 of associated decommissioning obligations were
classified as liabilities held for sale as at June 30, 2018.
(b) Exploration and production licences
The Company's Fyzabad and Palo Seco exploration and production
agreements with the Trinidad and Tobago Minister of Energy and
Energy Industries ("MEEI") expired on August 19, 2013. The Company
is currently negotiating licence renewals and has permission from
the MEEI to operate in the interim period. The Company has no
indication that the two licences will not be renewed. During the
three and six months ended June 30, 2018, production volumes
produced under expired MEEI production licences represented 3.6%
and 3.6% of total production, respectively (2017 - 4.6% and 5.0%).
As at June 30, 2018, the estimated net book value of the properties
operating under expired MEEI production licences was approximately
$1,891,000, representing 2.6% of the Company's property and
equipment balance (December 31, 2017 - $1,866,000 and 3.0%).
(c) Private lease agreements
The Company is operating under a number of private lease
agreements which have expired and are currently being renewed.
Based on legal opinions received, the Company is continuing to
recognize revenue on the producing properties because the Company
is the operator, is paying all associated royalties and taxes, and
no title to the revenue has been disputed. The Company currently
has no indication that any of the producing expired leases will not
be renewed. The continuation of production from expired private
leases during the renegotiation process is common in Trinidad.
During the three and six months ended June 30, 2018, production
volumes produced under expired private lease agreements represented
2.4% and 2.5% of total production, respectively (2017 - 3.2% and
3.0%).
6. Term Loan and Associated Liabilities
On November 23, 2016, the Company completed an arrangement for a
$15,000,000, five-year term credit facility from a Canadian
investment fund. The term loan bears a fixed interest rate of 8%
per annum, compounded and payable quarterly.
Effective June 15, 2018, the Company and the lender entered into
a Second Amending Agreement to the Credit Agreement (the
"Amendment"). The Amendment extended the term loan maturity date to
November 23, 2022 and extended all principal payments by one year.
The Company is required to repay $810,000 per quarter commencing on
January 1, 2020 through October 1, 2022, and the then outstanding
principal balance is repayable on the maturity date. In addition,
the Amendment removed the minimum $5,000,000 quarterly cash
reserves financial covenant. As consideration for the Amendment,
the Company paid the lender a financing fee of $150,000.
In connection with the term loan, the Company has granted the
lender a production payment equal to 1% of total petroleum sales
from then current Company land holdings in Trinidad. In addition to
the Amendment, the Company and the lender extended the production
payment agreement to mature on October 31, 2022 regardless of any
repayment or prepayment of the term loan. The Company may prepay
any principal portion of the term loan after May 23, 2018 and has
the option to negotiate a buyout of the future production payment
obligations if the term loan balance is prepaid in full. The term
loan and the Company's obligations in respect of the production
payment are principally secured by fixed and floating security
interests over all present and after acquired assets of the Company
and its subsidiaries.
The debt instrument is comprised of two components: the term
loan and the production payment obligation.
At inception the term loan was measured at fair value, net of
all transaction fees, using a discount rate of 12%. The term loan
balance less transaction costs is unwound using the effective
interest rate method to the principal value at maturity with a
corresponding non-cash accretion charge to net earnings. The term
loan was revalued based on the Amendment, resulting in a
revaluation gain of $283,000 recognized during the three and six
months ended June 30, 2018 (2017 - $nil and $nil).
The production payment obligation was initially measured at fair
value, based on internally estimated future production and pricing
at the inception of the loan and a discount rate of 15%. The
obligation is revalued at each reporting period based on updated
future production estimates and forward crude oil pricing. As a
result of the Amendment and changes in future production and
forward crude pricing estimates, revaluation losses of $250,000 and
$409,000 were recognized during the three and six months ended June
30, 2018, respectively (2017 - $nil and $nil).
The following is a continuity schedule of the term loan and
associated liabilities balance at the end of the respective
periods:
Term loan Production Total
liability payment
liability
-------------------------- ------------------------- ------------------------- ----------------------
Balance, January 1,
2017 $ 13,296 $ 1,200 $ 14,496
Revaluation loss - 166 166
Accretion 550 - 550
Payments / transfers
to accounts payable - (319) (319)
Balance, December 31,
2017 $ 13,846 $ 1,047 $ 14,893
Revaluation (gain) loss (283) 409 126
Accretion 198 - 198
Payments / transfers
to accounts payable (156) (229) (385)
-------------------------- ------------------------- ------------------------- ----------------------
Balance, June 30, 2018 $ 13,605 $ 1,227 $ 14,832
-------------------------- ------------------------- ------------------------- ----------------------
Current - 283 283
Non-current 13,605 944 14,549
-------------------------- ------------------------- ------------------------- ----------------------
Term loan and associated
liabilities $ 13,605 $ 1,227 $ 14,832
-------------------------- ------------------------- ------------------------- ----------------------
The term loan arrangement contains industry standard
representations and warranties, positive and negative covenants and
events of default. The financial covenants and the Company's
estimated position as at June 30, 2018 were as follows:
Covenant Covenant Six months
threshold ended
June 30,
2018
----------------------------------- ----------- --------------
Net funded debt to equity ratio(2) < 0.50 0.16 times(1)
times
Net funded debt to EBITDA ratio(3) < 2.50 0.41 times(1)
times
Notes:
(1) Estimated position subject to final approval by the lender.
(2) Net funded debt is defined as interest-bearing debt less
cash balances. Equity is defined as book value of shareholders'
equity less accumulated other comprehensive income (loss).
(3) Means the ratio of net funded debt to EBITDA for the
trailing twelve-month period. EBITDA is defined as net earnings
before interest, income taxes and non-cash items.
7. Decommissioning Obligations and Abandonment Fund
The Company's decommissioning obligations relate to future site
restoration and abandonment costs including the costs of production
equipment removal and land reclamation based on current
environmental regulations. The total decommissioning obligation is
estimated by Management based on the Company's net ownership
interest in all wells and facilities, estimated costs to reclaim
and abandon these wells and facilities, and the estimated timing of
the costs to be incurred in future periods.
Pursuant to certain production and exploration licences, the
Company is obligated to remit payments into an abandonment fund
based on production. The Company remits US$0.25 per barrel of crude
oil sold, and the funds will be used for the future abandonment of
wells in the related licensed area. As at June 30, 2018, the
Company classified $1,192,000 of accrued or paid fund contributions
as long-term abandonment fund assets (December 31, 2017 -
$1,049,000).
The Company estimated the net present value of the cash flows
required to settle its decommissioning obligations to be
$12,733,000 at June 30, 2018 based on an inflation adjusted future
liability of $41,097,000 (December 31, 2017 - $11,853,000 and
$39,193,000). At June 30, 2018 and December 31, 2017,
decommissioning obligations were valued using a long-term risk-free
rate of 6.1% and a long-term inflation rate of 3.3%. During the
three and six months ended June 30, 2018, the Company abandoned two
wells resulting in a loss on decommissioning of $11,000 (2017 -
$nil).
Payments to settle the obligations occur over the operating
lives of the underlying assets, estimated to be from four to 45
years, with the majority of the costs to be incurred subsequent to
2042. The obligations are expected to be funded from the
abandonment fund and the Company's internal resources available at
the time of settlement. The following table summarizes the
Company's decommissioning obligation provision at the end of the
respective periods:
Six months Year ended
ended December
June 30, 31, 2017
2018
------------------------- --------------------- -----------
Balance, beginning of
period $ 11,853 $ 16,783
Liabilities incurred 127 148
Liabilities settled (85) -
Accretion expense 168 154
Revision to estimates 85 (4,133)
Transfer to liabilities (82) -
held for sale (note
5)
Effect of change in
foreign exchange rates 667 (1,099)
Balance, end of period $ 12,733 $ 11,853
-------------------------- --------------------- -----------
8. Shareholders' Capital
(a) Issued and outstanding common shares
The Company has authorized an unlimited number of voting common
shares without nominal or par value. The following table is a
continuity schedule of the Company's common shares outstanding and
shareholders' capital:
Number Amount
of shares ($000's)
--------------------------------- --------------- ------------------------
Balance, January 1, 2017 83,137,143 $ 169,995
Issued pursuant to June 26,
2017 private placement 20,000,000 777
Issued pursuant to December
22, 2017 private placement 25,784,285 4,552
Share-based settlements 100,000 89
Accumulated deficit elimination - (148,270)
Balance, December 31,
2017 and June 30, 2018 129,021,428 $ 27,143
----------------------------------- --------------- ------------------------
(b) Share options and incentive share options
The Company has a share option plan pursuant to which options to
purchase common shares of the Company may be granted by the Board
of Directors to directors, officers, employees and consultants of
the Company. The exercise price of each option may not be less than
the closing price of the common shares prior to the date of grant.
Compensation expense is recognized as the options vest. Unless
otherwise determined by the Board of Directors, vesting typically
occurs one third on each of the next three anniversaries of the
date of the grant as recipients render continuous service to the
Company, and the share options typically expire five years from the
date of the grant. The maximum number of common shares issuable on
the exercise of outstanding share options and incentive share
options at any time is limited to 10% of the issued and outstanding
common shares. The following table summarizes the share options
outstanding at the end of the respective periods:
Number Weighted
of share average
options exercise
price
----------------------- -------------------- ----------------------
Outstanding, January
1, 2017 5,642,040 $ 0.61
Granted 1,558,800 0.15
Forfeited (330,000) 0.72
------------------------- -------------------- ----------------------
Outstanding, December
31, 2017 6,870,840 $ 0.50
Granted 1,688,800 0.23
Expired (25,000) 2.10
Outstanding, June 30,
2018 8,534,640 $ 0.44
Exercisable, June 30,
2018 5,308,046 0.58
------------------------- -------------------- ----------------------
During the three and six months ended June 30, 2018, the Company
granted 1,688,800 share options to directors, officers and
employees (year ended December 31, 2017 - 1,558,800). The weighted
average fair value of options granted during the three and six
months ended June 30, 2018 was $0.13 per option as estimated on the
date of each grant using the Black-Scholes option pricing model
(year ended December 31, 2017 - $0.08 per option).
The Company has an incentive share option plan which provides
for the grant of incentive share options to purchase common shares
of the Company at a $0.05 exercise price. A maximum of one million
common shares have been approved for issuance under this plan.
Unless otherwise determined by the Board of Directors, vesting
typically occurs one third on each of the next three anniversaries
of the date of the grant, and the incentive share options typically
expire five years from the date of the grant. The following table
summarizes the incentive share options outstanding at the end of
the respective periods:
Number Weighted
of incentive average
share exercise
options price
------------------------------ -------------------- ----------------------
Outstanding, January
1, 2017 127,500 $ 0.06
Exercised (100,000) 0.05
Forfeited (12,500) 0.10
-------------------------------- -------------------- ----------------------
Outstanding and exercisable,
December 31, 2017
and June 30, 2018 15,000 $ 0.10
------------------------------- -------------------- ----------------------
During the three and six months ended June 30, 2018, the Company
recorded share-based compensation expenses of $40,000 and $74,000,
respectively (2017 - $44,000 and $100,000).
9. Other Income
During the six months ended June 30, 2018, the Company sold a
licensed copy of 3D seismic data to a third-party broker for
proceeds of $484,000 (2017 - $nil).
10. Net Finance Expenses
The following table summarizes net finance expenses recorded
during the three and six months ended June 30, 2018 and 2017:
Three months Six months ended
ended June 30, June 30,
2018 2017 2018 2017
---------------- ----------------------- ------------------------ ----------------------- ------------------------
Interest income $ (60) $ (17) $ (115) $ (34)
Interest
expense
on term loan
(note
6) 299 299 595 595
Term loan
revaluation
gain (note 6) (283) - (283) -
Production
payment
liability
revaluation
loss (note 6) 250 - 409 -
Interest
expense
on taxes /
other 5 108 5 601
Net finance
expenses $ 211 $ 390 $ 611 $ 1,162
---------------- ----------------------- ------------------------ ----------------------- ------------------------
11. Net Loss per Common Share
Three months Six months ended
ended June 30, June 30,
2018 2017 2018 2017
------------------- ------------ -------------- ------------ -------------
Net loss ($000's) $ (692) $ (1,848) $ (567) $ (3,397)
------------------- ------------ -------------- ------------ -------------
Weighted number of average common
shares outstanding:
Basic and diluted 129,021,428 84,236,044 129,021,428 83,689,629
Basic and diluted
earnings (loss)
per share $ (0.01) $ (0.02) $ (0.01) $ (0.04)
------------------- ------------ -------------- ------------ -------------
There was no dilutive impact to the weighted average number of
common shares for the three and six months ended June 30, 2018, as
all share options and incentive share options were excluded from
the weighted average dilutive share calculation because their
effect would be anti-dilutive.
12. Risk Management
(a) Credit risk
Credit risk arises from the potential that the Company may incur
a loss if a counterparty to a financial instrument fails to meet
its obligation in accordance with agreed terms. The Company's crude
oil production is sold, as determined by market based prices
adjusted for quality differentials, to Petrotrin. Typically, the
Company's maximum credit exposure to Petrotrin is revenue for one
month's petroleum sales, of which $3,167,000 was included in
accounts receivable as at June 30, 2018 (December 31, 2017 -
$2,196,000). The Company's carrying values of accounts receivable
represented the Company's maximum credit exposure. The aging of
accounts receivable as at June 30, 2018 and December 31, 2017 were
as follows:
June 30, December
31, 2017
2018
-------------------------- ---- --------------------- ---------------------
Not past due $ 4,829 $ 3,388
Past due greater than 90
days 6,218 5,156
-------------------------------- --------------------- ---------------------
Accounts receivable $ 11,047 $ 8,544
-------------------------------- --------------------- ---------------------
As at June 30, 2018, the Company determined that the average
expected credit loss on the Company's accounts receivables was nil.
The Company believes that the accounts receivable balances that are
past due are ultimately collectible, as the majority are due from
Trinidad government agencies.
(b) Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they become due. Liquidity risk
also includes the risk of not being able to liquidate assets in a
timely manner at a reasonable price. The Company's approach to
managing liquidity is to ensure that it will have sufficient
liquidity to meet liabilities when due, under both normal and
unusual conditions without incurring unacceptable losses or
jeopardizing the Company's business objectives. The Company manages
this risk by preparing cash flow forecasts to assess whether
additional funds are required. The Company's liquidity is dependent
on the Company's expected business growth and changes in its
business environment.
To manage its capital structure in a period of low commodity
prices, the Company may further reduce its fixed cost structure,
adjust capital spending, issue new equity or seek additional
sources of debt financing. The Company will continue to manage its
expenditures to reflect current financial resources in the interest
of sustaining long-term viability. Undiscounted cash outflows
relating to financial liabilities as at June 30, 2018 were as
follows:
Undiscounted Less 1 - 3 4 - 5
amount than 1 years years
year
----------------- -------------------- ------------------------- ------------------------ ------------------------
Accounts payable
and accrued
liabilities $ 14,822 $ 14,822 $ - $ -
Income taxes
payable 3,643 3,643 - -
Term loan
principal 15,000 - 4,860 10,140
Term loan
production
payment
liability 1,779 409 760 610
Financial
liabilities $ 35,244 $ 18,874 $ 5,620 $ 10,750
----------------- -------------------- ------------------------- ------------------------ ------------------------
(c) Commodity price risk
The Company is exposed to commodity price movements as part of
its operations, particularly in relation to prices received for its
oil production. Commodity prices for oil are impacted by the world
and continental/regional economy and other events that dictate the
levels of supply and demand. Consequently, these changes could also
affect the value of the Company's properties, the level of spending
for exploration and development and the ability to meet obligations
as they come due.
In January 2018, the Company entered into the following crude
oil financial derivative contracts to mitigate its future exposure
to fluctuations in commodity prices:
Oil contract Volume Pricing Strike price Term
point
------------- ------------ -------- ------------- ----------
Put options 500 barrels Brent US$55.00 March 1,
per day ICE per barrel 2018 to
December
31, 2018
The put options were purchased from a financial institution for
an upfront cash premium of US$153,000 ($190,000). The options may
be settled monthly during the option exercise period.
The Company has recognized the premium for the put options as a
derivative financial asset. The derivatives are subsequently
recorded at their estimated fair value based on the difference
between the contracted price and the period-end forward price using
quoted market prices. The Company recognized a financial derivative
asset of $13,000 as at June 30, 2018 (December 31, 2017 - $nil) and
unrealized derivative losses of $111,000 and $185,000 during the
three and six months ended June 30, 2018 related to the put options
(2017 - $nil and $nil).
(d) Foreign currency risk
Foreign exchange risk arises from changes in foreign exchange
rates that may affect the fair value or future cash flows of the
Company's financial assets or liabilities. As the Company primarily
operates in Trinidad, fluctuations in the exchange rate between the
Canadian dollar and the TT$ can have a significant effect on
reported results. Given that the TT$ is loosely pegged to the US$,
the underlying risk is based on movements between the Canadian
dollar and the US$.
The Company's revenues are subject to foreign exchange exposure
as the sales prices of crude oil are determined by reference to US$
denominated benchmark prices. An increase in the value of the
Canadian dollar compared with the US$ has a negative impact on the
Company's reported results. Likewise, as the Canadian dollar
weakens, the Company's reported results are higher. The Company's
foreign exchange gain or losses primarily include unrealized gains
or losses on the translation of the Company's US$ and UK pounds
sterling denominated working capital balances. The Company's
foreign currency policy is to monitor foreign currency risk
exposure in its areas of operations and mitigate that risk where
possible by matching foreign currency denominated expenses with
revenues denominated in foreign currencies. The Company attempts to
limit its exposure to foreign currency through collecting and
paying foreign currency denominated balances in a timely fashion.
The Company had no contracts in place to manage foreign currency
risk as at or during the three and six months ended June 30,
2018.
13. Capital Management
The basis for the Company's capital structure is dependent on
the Company's expected business growth and any changes in the
business and commodity price environment. Stewardship of the
Company's capital structure is managed through its financial and
operating forecast process. The forecast of the Company's future
cash flows is based on estimates of production, crude oil prices,
royalty expenses, operating expenses, general and administrative
expenses, capital expenditures and other investing and financing
activities. The forecast is regularly updated based on changes in
commodity prices, production expectations and other factors that in
the Company's view would impact cash flow.
The Company's objective is to maintain net debt to trailing
twelve-month funds flow from operations at or below a level of 3.0
to 1. While the Company may exceed this ratio from time to time,
efforts are made after a period of variation to bring the measure
back in line. Net debt is a Non-IFRS measure calculated by summing
working capital and the principal (undiscounted) amount of
long-term debt. Working capital is a Non-IFRS measure calculated as
current assets less current liabilities as they appear on the
consolidated statements of financial position. Net debt is used by
management as a key measure to assess the Company's liquidity.
The Company also monitors its capital management through the net
debt to net debt plus equity ratio. The Company's strategy is to
utilize more equity than debt, thereby targeting net debt to net
debt plus shareholders' equity at a ratio of less than 0.4 to
1.
Target June 30, December
measure 31, 2017
2018
----------------------------- ---------- --------------------- ---------------------
Working capital surplus $ (3,734) $ (6,808)
Principal long-term
portion of term loan 15,000 15,000
Net debt $ 11,266 $ 8,192
Shareholders' equity 40,247 38,204
----------------------------------------- --------------------- ---------------------
Net debt plus equity $ 51,513 $ 46,396
----------------------------------------- --------------------- ---------------------
Trailing twelve-month
funds flow from operations $ 8,138 $ 3,110
----------------------------------------- --------------------- ---------------------
Net debt to funds flow < 3.0
from operations times 1.4 2.6
----------------------------- ---------- --------------------- ---------------------
Net debt to net debt < 0.4
plus equity times 0.2 0.2
----------------------------- ---------- --------------------- ---------------------
14. Commitments
The Company has minimum work obligations under various operating
agreements with Petrotrin, exploration commitments under
exploration licence and production agreements with the MEEI and
various lease commitments for office space and equipment.
As at June 30, 2018, the Company's estimated contractual capital
requirements over the next three years and thereafter were as
follows:
Total 2018 2019 2020 Thereafter
------------------------ --------------- --------------- --------------- --------------- -------------------
Operating agreements $ 2,954 $ 1,816 $ 610 $ 344 $ 184
Exploration agreements 14,360 381 9,993 3,986 -
Office leases 1,130 222 320 306 282
Equipment leases 541 120 226 192 3
------------------------ --------------- --------------- --------------- --------------- -------------------
Minimum payments $ 18,985 $ 2,539 $ 11,149 $ 4,828 $ 469
------------------------ --------------- --------------- --------------- --------------- -------------------
Under the terms of its operating agreements, the Company must
fulfill minimum work obligations on an annual basis over the
specific licence term. In aggregate, the Company is obligated to
drill 12 wells and perform 18 well recompletions prior to the end
of 2021. As of June 30, 2018, nine wells and 13 well recompletions
were completed with respect to these obligations.
The Company has provided US$299,000 ($393,000) in cash
collateralized guarantees to Petrotrin to support its operating
agreement work commitments which was classified as long-term
restricted cash and cash equivalents at June 30, 2018 (December 31,
2017 - US$299,000 and $376,000).
Under the terms of its exploration licences, the Company must
drill five wells prior to the end of December 31, 2020; none of
which have been completed as of June 30, 2018. The Company has
provided a US$2,150,000 letter of credit to the MEEI to support
exploration work commitments on its East Brighton offshore
concession. This letter of credit has been secured by a facility
with Export Development Canada.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR KMGMRGFZGRZZ
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