TIDMTXP
RNS Number : 9464I
Touchstone Exploration Inc.
14 August 2019
TOUCHSTONE ANNOUNCES RESULTS FOR THE THREE AND SIX MONTHSED JUNE
30, 2019
Calgary, Alberta, August 14, 2019 - Touchstone Exploration Inc.
("Touchstone", "we", "our", "us" or the "Company") (TSX, LSE: TXP)
announces its financial and operational results for the three and
six months ended June 30, 2019. Selected information is outlined
below and should be read in conjunction with Touchstone's June 30,
2019 unaudited interim consolidated financial statements and
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). Unless
otherwise stated, all financial amounts herein are rounded to
thousands of United States dollars.
Highlights
-- Achieved crude oil sales of 1,768 bbls/d and 1,944 bbls/d for the three and six months ended June 30, 2019,
respectively, representing increases of 3% and 19% relative to the prior year comparative periods.
-- Generated an operating netback of $26.85 per barrel in the second quarter of 2019 and $28.20 year to date 2019.
-- Delivered funds flow from operations of $1,310,000 ($0.01 per share) and $3,740,000 ($0.02 per share) during the
second quarter and year to date June 30, 2019, respectively.
-- Exited the quarter with cash of $7,250,000 and net debt of $10,010,000, representing 1.3 times net debt to
trailing twelve-month funds flow from operations.
-- Subsequent to June 30, 2019, spudded the Company's first exploration well on our Ortoire property.
Financial and Operating Results Summary
Three months ended % change Six months ended % change
June 30, June 30,
--------- ---------
2019 2018 2019 2018
------------------------------- ---------- --------- --------- ----------- ----------- ---------
Operating Highlights
Average daily oil
production (bbls/d) 1,768 1,717 3 1,944 1,631 19
Net wells drilled - 3 n/a - 5 n/a
Brent benchmark price
($/bbl) 69.01 74.53 (7) 66.03 70.67 (7)
Operating netback(1)
($/bbl)
Realized sales price 60.33 61.97 (3) 58.91 60.63 (3)
Royalties (17.25) (17.49) (1) (16.19) (17.18) (6)
Operating expenses (16.23) (14.90) 9 (14.52) (15.31) (5)
------------------------------- ---------- --------- --------- ----------- ----------- ---------
26.85 29.58 (9) 28.20 28.14 -
Financial Highlights
($000's except as
indicated)
Petroleum sales 9,708 9,685 - 20,723 17,897 16
Cash flow from operating
activities 1,832 4,711 (61) 4,569 3,690 24
Funds flow from operations(2) 1,310 2,507 (48) 3,740 4,569 (18)
Per share - basic
and diluted(1)(2) 0.01 0.02 (50) 0.02 0.04 (50)
Net loss (833) (523) 59 (1,018) (393) 159
Per share - basic
and diluted (0.01) (0.00) n/a (0.01) (0.00) n/a
Notes:
(1) Non-GAAP financial measure that does not have a standardized
meaning prescribed by International Financial Reporting Standards
("IFRS") and therefore may not be comparable with the calculation
of similar measures presented by other companies. See "Advisories:
Non-GAAP Measures".
(2) Additional GAAP financial measure included in the Company's
consolidated statements of cash flows. See "Advisories: Non-GAAP
Measures".
Three months ended % change Six months ended % change
June 30, June 30,
--------- ---------
2019 2018 2019 2018
------------------------- ---------- --------- --------- ----------- ----------- ---------
Exploration capital
expenditures 681 334 104 1,041 511 104
Development capital
expenditures 315 3,506 (91) 714 6,358 (89)
Net debt(1) - end
of period 10,010 8,576 17
Share Information
(000's)
Weighted average shares
outstanding - basic
and diluted 160,688 129,021 25 150,891 129,021 17
Outstanding shares
- end of period 160,688 129,021 25
Note:
(1) Non-GAAP financial measure that does not have a standardized
meaning prescribed by IFRS and therefore may not be comparable with
the calculation of similar measures presented by other companies.
See "Advisories: Non-GAAP Measures".
Operating results
In the first half of 2019, Touchstone conducted minimal capital
development activities and continued to focus on prudently managing
working capital, maintaining net debt levels and preparing for the
initial Ortoire exploration well that spudded on August 7, 2019.
Second quarter development capital expenditures totaled $315,000
which included continuing recompletion activities.
Second quarter 2019 crude oil production averaged 1,768 bbls/d,
a 3% increase relative to the 1,717 bbls/d produced in the second
quarter of 2018. Second quarter average daily production decreased
by 17% from the first quarter of 2019. First quarter 2019 volumes
were buoyed by flush production from wells drilled in the fourth
quarter of 2018. As this flush production declined, the Company
focused on converting the wells to pump as well as recompleting
initial low rate producing wells. As a result of these initiatives,
various wells and associated production were off-line during the
second quarter. Production from the 2018 development drilling
campaign contributed an average of approximately 413 bbls/d of
incremental production in the second quarter of 2019 versus 692
incremental bbls/d in the first quarter of 2019.
Financial results
Our second quarter operating netback was $26.85 per barrel
compared to $29.58 per barrel in the second quarter of 2018.
Realized second quarter 2019 crude oil pricing was $60.33 per
barrel, 3% less than the $61.97 per barrel received in the
equivalent quarter of 2018. Second quarter 2019 royalty expenses
were consistent with the second quarter of 2018, both on a per
barrel basis and as a percentage of petroleum sales. In comparison
to the second quarter of 2018, operating expenses on a per barrel
basis increased 9%, predominately due to extensive well servicing
activities conducted during the three months ended June 30,
2019.
Touchstone generated second quarter 2019 funds flow from
operations of $1,310,000 ($0.01 per share), representing a decrease
of $1,197,000 or 48% from the prior year comparative period. The
variance was mainly a result of increased current income taxes
recorded in the 2019 second quarter, as increased supplemental
petroleum tax was incurred based on minimal developmental capital
activity in the second quarter of 2019. As a result, we recognized
a net loss of $833,000 ($0.01 per share) in the second quarter of
2019 versus a net loss of $523,000 ($0.00 per share) in the
equivalent prior year quarter.
Touchstone exited the second quarter with a cash balance of
$7,250,000, a working capital surplus of $2,062,000 and a C$15
million principal term loan balance. Our June 30, 2019 net debt
position of $10,010,000 represented net debt to trailing
twelve-month funds flow from operations of 1.3 times. As a result
of an extension executed in the first quarter of 2019, our credit
facility does not require the commencement of principal payments
until January 1, 2021, and we continued to be comfortably within
the financial covenants as at June 30, 2019.
Paul R. Baay, President and Chief Executive Officer,
commented:
"Touchstone continues to operate from a comfortable financial
position, with stable operating netbacks and positive cash flows.
Following the spudding of our Coho-1 well last week, we are fully
focused on progressing our Ortoire block exploration drilling
programme. Last week's announcement represents the start of a
potentially transformational period in the Company's history, and
we look forward to updating the market on the Coho-1 well results
over the course of the next two months."
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".
For Further Information:
Touchstone Exploration Inc.
Mr. Paul Baay, President and Chief Executive Officer Tel: +1
(403) 750-4487
Mr. Scott Budau, Chief Financial Officer
Mr. James Shipka, Chief Operating Officer
www.touchstoneexploration.com
Shore Capital (Nominated Advisor and Joint Broker)
Nominated Advisor: Edward Mansfield / Mark Percy / Daniel Bush Tel: +44 (0) 207 408 4090
Corporate Broking: Jerry Keen
GMP FirstEnergy (Joint Broker)
Jonathan Wright / Hugh Sanderson Tel: +44 (0) 207 448 0200
Camarco (Financial PR)
Nick Hennis / Jane Glover Tel: +44 (0) 203 781 8330
Advisories
Non-GAAP Measures
This announcement contains terms commonly used in the oil and
natural gas industry, including funds flow from operations, funds
flow from operations per share, operating netback and net debt.
These terms do not have a standardized meaning under IFRS 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 flow from operating
activities, net income, total liabilities, or other measures of
financial performance as determined in accordance with Generally
Accepted Accounting Principles ("GAAP"). 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.
Funds flow from operations is an additional GAAP measure
included in the Company's consolidated statements of cash flows.
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
total and 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.
This measurement assists Management and investors with evaluating
operating results on a historical basis.
The Company closely monitors its capital structure with a goal
of maintaining a strong financial position in order to fund current
operations and the future growth of the Company. The Company
monitors working capital and net debt as part of its capital
structure to assess its true debt and liquidity position and to
manage capital and liquidity risk. Working capital is calculated as
current assets minus current liabilities as they appear on the
consolidated statements of financial position. Net debt is
calculated by summing the Company's working capital, long-term
lease liabilities and the principal (undiscounted) amount of
long-term debt.
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
potential undertaking, timing, locations, production rates and
costs of future exploration well drilling, and the sufficiency of
resources and available financing to fund future exploration,
drilling and completion 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, 2018
Annual Information Form dated March 26, 2019 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)
(US$ thousands) June 30, December January
Note 2019 31, 2018 1, 2018
-------------------------------------- ----- --------- ---------- ---------
(note 3) (note 3)
Assets 10
Current assets
Cash $7,250 $3,554 $11,089
Accounts receivable 5 9,398 11,893 6,803
Crude oil inventory 123 150 134
Prepaid expenses 551 257 378
Financial derivatives 14 196 - -
-------------------------------------- ----- --------- ---------- ---------
17,518 15,854 18,404
Exploration assets 6 4,543 3,644 1,659
Property and equipment 3,7 62,119 63,041 50,045
Restricted cash 16 271 271 299
Other assets 1,199 1,330 1,486
Abandonment fund 11 1,050 966 835
Total assets $86,700 $85,106 $72,728
-------------------------------------- ----- --------- ---------- ---------
Liabilities
Current liabilities
Accounts payable and accrued
liabilities 8 $11,585 $16,262 $10,330
Income taxes payable 8 3,678 2,730 2,441
Term loan and associated liabilities 10 193 180 208
-------------------------------------- ----- --------- ---------- ---------
15,456 19,172 12,979
Provisions 3 - 125 53
Lease liabilities 3,9 613 - -
Term loan and associated liabilities 10 10,878 10,683 11,657
Decommissioning liabilities 11 8,644 8,915 9,438
Deferred income taxes 16,544 14,994 8,185
-------------------------------------- ----- --------- ---------- ---------
Total liabilities 52,135 53,889 42,312
-------------------------------------- ----- --------- ---------- ---------
Shareholders' equity
Shareholders' capital 12 61,483 56,987 56,987
Contributed surplus 2,263 2,172 2,035
Accumulated other comprehensive
loss (14,648) (14,427) (14,733)
Accumulated deficit (14,533) (13,515) (13,873)
-------------------------------------- ----- --------- ---------- ---------
Total shareholders' equity 34,565 31,217 30,416
-------------------------------------- ----- --------- ---------- ---------
Total liabilities and shareholders'
equity $86,700 $85,106 $72,728
-------------------------------------- ----- --------- ---------- ---------
Commitments and contingencies (Note 16)
See accompanying notes to these unaudited interim consolidated
financial statements.
Interim Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(US$ thousands, except Three months ended Six months ended
per share amounts) June 30, June 30,
---------------------------------- -----
Note 2019 2018 2019 2018
---------------------------------- ----- ---------- --------- --------- ---------
(note (note
3) 3)
Revenues
Petroleum sales $9,708 $ 9,685 $20,723 $17,897
Royalties (2,776) (2,734) (5,695) (5,071)
---------------------------------- ----- ---------- --------- --------- ---------
Petroleum revenue 6,932 6,951 15,028 12,826
Gain (loss) on financial
derivatives 14 25 (87) 25 (143)
Other income 3 - 11 375
---------------------------------- ----- ---------- --------- --------- ---------
6,960 6,864 15,064 13,058
---------------------------------- ----- ---------- --------- --------- ---------
Expenses
Operating 2,612 2,329 5,107 4,520
General and administrative 1,487 1,449 2,802 2,822
Net finance 13 251 308 572 755
Foreign exchange loss (gain) 14 91 20 129 (249)
Share-based compensation 12 49 31 80 56
Depletion and depreciation 7 1,249 1,041 2,700 1,935
Impairment 6 63 85 141 241
Loss on decommissioning
liabilities - 9 - 9
5,802 5,272 11,531 10,089
---------------------------------- ----- ---------- --------- --------- ---------
Earnings before income
taxes 1,158 1,592 3,533 2,969
Income taxes
Current tax expense 1,435 470 3,053 761
Deferred tax expense 556 1,645 1,498 2,601
---------------------------------- ----- ---------- --------- --------- ---------
1,991 2,115 4,551 3,362
---------------------------------- ----- ---------- --------- --------- ---------
Net loss (833) (523) (1,018) (393)
Currency translation adjustments (188) 267 (221) 542
---------------------------------- ----- ---------- --------- --------- ---------
Comprehensive (loss) income $(1,021) $ (256) $(1,239) $ 149
---------------------------------- ----- ---------- --------- --------- ---------
Net loss per common share
Basic and diluted 12 $(0.01) $ (0.00) $(0.01) $ (0.00)
---------------------------------- ----- ---------- --------- --------- ---------
See accompanying notes to these unaudited interim consolidated
financial statements.
Interim Consolidated Statements of Changes in Shareholders'
Equity (unaudited)
(US$ thousands) Accumulated
Shareholders' Contributed other comprehensive Accumulated Shareholders'
capital surplus loss deficit equity
-------------------------- -------------- ------------ --------------------- ------------------ ----------------
January 1, 2018
(note 3) $56,987 $2,035 $(14,733) $(13,873) $30,416
Net loss - - - (393) (393)
Other comprehensive
income - - 542 - 542
Share-based compensation
expense (note 12) - 56 - - 56
Share-based compensation
capitalized (note
7) - 10 - - 10
June 30, 2018 $56,987 $2,101 $(14,191) $(14,266) $30,631
-------------------------- -------------- ------------ --------------------- ------------------ ----------------
January 1, 2019
(note 3) $56,987 $2,172 $(14,427) $(13,515) $31,217
Net loss - - - (1,018) (1,018)
Other comprehensive
loss - - (221) - (221)
Private placement
(note 12) 4,496 - - - 4,496
Share-based compensation
expense (note 12) - 80 - - 80
Share-based compensation
capitalized (note
7) - 11 - - 11
June 30, 2019 $61,483 $2,263 $(14,648) $(14,533) $34,565
-------------------------- -------------- ------------ --------------------- ------------------ ----------------
See accompanying notes to these unaudited interim consolidated
financial statements.
Interim Consolidated Statements of Cash Flows (unaudited)
(US$ thousands) Three months ended Six months ended
June 30, June 30,
--------------------------------- -----
Note 2019 2018 2019 2018
--------------------------------- ----- --------- ---------- --------- ---------
(note 3) (note 3)
Cash provided by (used
in) the following activities:
Operating activities
Net loss for the period $(833) $(523) $(1,018) $(393)
Items not involving cash from
operations:
Non-cash (gain) loss on
financial derivatives 14 (25) 87 (25) 143
Unrealized foreign exchange
loss (gain) 14 70 5 128 (276)
Share-based compensation 12 49 31 80 56
Depletion and depreciation 7 1,249 1,041 2,700 1,935
Impairment 6 63 85 141 241
Other 165 116 236 328
Loss on decommissioning
liabilities - 9 - 9
Deferred income tax expense 556 1,645 1,498 2,601
Decommissioning expenditures 11 16 11 - (75)
--------------------------------- ----- --------- ---------- --------- ---------
Funds flow from operations 1,310 2,507 3,740 4,569
Change in non-cash working
capital 693 2,204 1,000 (726)
Costs related to financial
derivatives 14 (171) - (171) (153)
--------------------------------- ----- --------- ---------- --------- ---------
Cash flow from operating
activities 1,832 4,711 4,569 3,690
--------------------------------- ----- --------- ---------- --------- ---------
Investing activities
Exploration asset expenditures 6 (681) (334) (1,041) (511)
Property and equipment
expenditures 7 (315) (3,506) (714) (6,358)
Abandonment fund expenditures 11 (37) (34) (81) (64)
Change in non-cash working
capital (873) (490) (2,982) 261
--------------------------------- ----- --------- ---------- --------- ---------
Cash flow used in investing
activities (1,906) (4,364) (4,818) (6,672)
---------------------------------------- --------- ---------- --------- ---------
Financing activities
Payment of term loan production
obligation 10 (97) (97) (207) (179)
Term loan amendment fees 10 - (119) (112) (119)
Finance lease (payments)
receipts (80) 58 (112) 117
Issuance of common shares 12 - - 4,496 -
Change in non-cash working
capital (11) (174) 3 (166)
Cash flow (used in) from financing
activities (188) (332) 4,068 (347)
---------------------------------------- --------- ---------- --------- ---------
(Decrease) increase in
cash (262) 15 3,819 (3,329)
Cash, beginning of period 7,586 8,026 3,554 11,089
Impact of foreign exchange
on foreign denominated cash
balances (74) (5) (123) 276
Cash, end of period $7,250 $8,036 $7,250 $8,036
--------------------------------- ----- --------- ---------- --------- ---------
The following are included
in cash flow from operating
activities:
Interest paid in cash 221 226 448 454
Income taxes paid in cash 1,424 252 2,011 449
--------------------------------- ----- --------- ---------- --------- ---------
See accompanying notes to these unaudited interim consolidated
financial statements.
Notes to the Interim Consolidated Financial Statements
(unaudited)
As at June 30, 2019 and for the three and six months ended June
30, 2019 and 2018
1. Reporting Entity
Touchstone Exploration Inc. and its subsidiaries (collectively,
the "Company") are engaged in the business of crude oil and natural
gas exploration, development, acquisition and production. The
Company is currently active in the Republic of Trinidad and Tobago
("Trinidad").
Touchstone Exploration Inc. is incorporated under the laws of
Alberta, Canada with its head and principal office located at 4100,
350 7(th) Avenue SW, Calgary, Alberta, T2P 3N9. The Company's
common shares are listed on the Toronto Stock Exchange and on the
AIM market of the London Stock Exchange under the symbol "TXP".
2. Basis of Preparation and Statement of Compliance
These unaudited condensed 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. These financial
statements are condensed as they do not include all the information
required by IFRS for annual financial statements and therefore
should be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31,
2018. Certain reclassification adjustments have been made to these
financial statements to conform to the current presentation.
Unless otherwise stated, amounts presented in these financial
statements are rounded to thousands of United States dollars ("$"
or "US$), and tabular amounts are stated in thousands of United
States dollars, as described further in Note 3 "Changes to
Accounting Policies".
The 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, 2018. 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 disclosed in Note 3 "Changes to Accounting
Policies". There have been no significant changes to the use of
estimates or judgments since December 31, 2018, except as noted in
Note 4 "Use of Estimates, Judgements and Assumptions".
All intercompany transactions have been eliminated upon
consolidation between Touchstone and its subsidiaries in these
financial statements. The Company's operations are viewed as a
single operating segment by the chief operating decision makers of
the Company for the purposes of resource allocation and assessing
performance.
These financial statements were authorized for issue by the
Company's Board of Directors on August 13, 2019.
3. Changes to Accounting Policies
(a) Change in presentation currency
The Company changed its presentation currency from Canadian
dollars to United States dollars effective January 1, 2019, with
retrospective application on comparative figures in accordance with
IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors and IAS 21 Foreign Currency ("IAS 21"). The change in
accounting policy was made to better reflect the Company's
international business activities and to improve comparability of
the Company's financial results with other internationally focused
junior oil and gas companies.
The Company did not change its functional currency, nor did it
change the functional currencies of any of its subsidiaries. The
functional currency of the parent company is the Canadian dollar
("C$"), the functional currency of the Company's Barbadian entity
is the US$, and the functional currency of its three operational
Trinidadian subsidiaries is the Trinidad and Tobago dollar
("TT$").
For comparative purposes, historical consolidated financial
statements have been restated to reflect financial results had they
been presented in US$ since the Company's inception. The current
and comparative results and financial position of the Company's
consolidated subsidiaries that have a functional currency different
from the presentation currency have been translated into the US$
presentation currency in accordance with IAS 21 as follows:
-- assets and liabilities for each statement of financial
position presented were translated at the reporting date closing
rate;
-- shareholders' equity items for each statement of financial
position presented were translated at the rates prevailing on the
dates of the transactions;
-- revenue and expenses and certain cash flow items for each
period were translated at average monthly exchange rates (unless
this was not a reasonable approximation of the cumulative effect of
the rates prevailing on the transaction dates, in which case
revenue and expenses were translated at the dates of the
transactions);
-- all resulting exchange differences were recognized in
accumulated other comprehensive loss, a separate component of
equity; and
-- all foreign exchange rates used were extracted from the
Company's underlying financial records.
As such, the change in presentation currency does not have an
economic impact on the Company's underlying operations and
transactions. The change in presentation currency simply converts
the consolidated financial statement amounts to US$ as described
above. In addition to the comparative consolidated statement of
financial position, the Company has presented a third consolidated
statement of financial position as at January 1, 2018 as a result
of the change in presentation currency.
The Company's shareholders previously approved a special
resolution approving the reduction of the stated capital of the
Company's common shares by an aggregate amount of up to C$150
million, which was partially implemented on November 30, 2017
thereby reducing the Company's C$ accumulated deficit to $nil. The
change in presentation currency created an accumulated deficit at
that time, as the Company's historical accumulated deficit balance
presented in US$ exceeded the translated C$ capital reduction on
November 30, 2017.
(b) Adoption of IFRS 16 Leases ("IFRS 16")
Effective January 1, 2019, the Company adopted IFRS 16. The
standard supersedes IAS 17 Leases ("IAS 17") and requires the
recognition of a right-of-use ("ROU") asset and lease obligation on
the statement of financial position for most leases where the
entity is acting as a lessee. For lessees, IFRS 16 removes the
classification of leases as either operating leases or finance
leases, effectively treating all leases as finance leases. IFRS 16
allows lessors to continue with the dual classification model for
recognized leases with the resultant accounting remaining unchanged
from IAS 17. The Company is the lessee in the majority of its lease
arrangements; however, the Company does have one material lease
arrangement where it acts as the lessor.
The Company has elected to apply IFRS 16 using the modified
retrospective approach which does not require the restatement of
prior period financial information. Modified retrospective
application recognizes the cumulative effect of IFRS 16 as an
adjustment to opening accumulated deficit at January 1, 2019 and
applies the standard prospectively. Accordingly, comparative
information before adoption has not been restated and continues to
be reported under IAS 17.
On adoption of IFRS 16, the Company recognized lease liabilities
in relation to leases under the principles of the new standard
measured at the present value of the remaining lease payments,
discounted using the interest rate implicit in the lease or the
Company's incremental borrowing rate as at January 1, 2019. The
Company used a weighted average incremental borrowing rate of 8
percent to measure the present value of future lease payments on
January 1, 2019. The associated ROU assets (included in property
and equipment) were measured at the amount equal to the lease
liability on January 1, 2019 less any amount previously recognized
for office lease inducements, with no impact on opening accumulated
deficit.
On January 1, 2019, the Company elected to utilize the following
practical expedients permitted in the standard:
-- the Company recognized leases with terms ending within twelve
months of initial adoption as short-term leases, with lease
payments recognized in the financial statements as incurred;
-- on January 1, 2019, the provision for office lease
inducements previously recognized was applied to the value of the
associated ROU asset; and
-- certain leases having similar characteristics have been
measured as a portfolio by applying a single discount rate.
The Company identified ROU lease assets and liabilities related
to head office space, oilfield service equipment, motor vehicles
and office equipment. The following table sets forth the impact of
the adoption of IFRS 16 on the consolidated statement of financial
position as at January 1, 2019.
January
1, 2019
----------------------
ROU asset (included in property and equipment) $ 1,194
---------------------------------------------------- ----------------------
Increase in total assets $ 1,194
---------------------------------------------------- ----------------------
Short-term portion of lease liabilities (included
in accounts payable and accrued liabilities) $ 482
Provisions and accounts payable and accrued
liabilities (158)
Long-term portion of lease liabilities 870
---------------------------------------------------- ----------------------
Increase in total liabilities and shareholders'
equity $ 1,194
---------------------------------------------------- ----------------------
Upon adoption of IFRS 16, lease liability amounts are now
included in the Company's term loan financial covenants (see Note
10 "Term Loan and Associated Liabilities).
The adoption of IFRS 16 did not affect its finance lease where
the Company is the lessor.
Update to Significant Accounting Policies
The Company applied IFRS 16 using the modified retrospective
approach; therefore, the comparative information provided continues
to be accounted for in accordance with the Company's previous
accounting policy found in the audited consolidated financial
statements for the year ended December 31, 2018. The accounting
policy set forth below is applicable from January 1, 2019.
Lease arrangements
The Company assesses whether an arrangement is a lease based on
whether the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
As lessee
When the Company is a lessee, leases are recognized as a
right-of-use asset and a corresponding lease liability at the date
on which the leased asset is available for use by the Company.
Assets and liabilities arising from a lease are measured on a
present value basis. Lease liabilities include the net present
value of fixed payments, variable lease payments that are based on
an index or a rate, amounts expected to be paid by the lessee under
residual value guarantees, the exercise price of purchase options
if the lessee is reasonably certain to exercise that option, and
payments of penalties for terminating the lease, less any lease
incentives receivable. The future payments are discounted using the
interest rate implicit in the lease or, when that rate cannot be
readily determined, the Company's incremental borrowing rate. The
Company uses a single discount rate for a portfolio of leases with
reasonably similar characteristics.
Lease payments are allocated between the lease liability and
finance expenses. Finance expenses are charged to the consolidated
statements of comprehensive income (loss) over the lease term.
Associated ROU assets are initially measured at cost, which
comprises the initial amount of the lease liability, any initial
direct costs incurred, and an estimate of costs to dismantle and
remove the underlying asset or to restore the underlying asset,
less any lease payments made at or before the commencement date.
ROU assets are depreciated on a straight-line basis over the
shorter of the estimated useful life of the asset or the lease
term. ROU assets may be adjusted for certain remeasurements of the
lease liability and impairment losses.
Leases that have terms of less than twelve months or leases on
which the underlying asset is of low value are recognized as an
expense in the consolidated statement of comprehensive income
(loss) on a straight-line basis over the lease term.
As lessor
Where the Company is the lessor in a lease arrangement, the
Company assesses at inception whether the lease is a finance or
operating lease. Leases where the Company transfers substantially
all of the risk and rewards incidental to ownership of the
underlying asset are classified as financing leases. Under a
finance lease, the Company records the short-term portion of the
finance lease in accounts receivable and the long-term portion in
other assets. Finance income related to the lease is recognized
using an approach that equals a constant rate of return on the net
investment of the lease. The net investment of the lease is the
aggregate of the net minimum lease payments and unearned finance
income discounted at the interest rate implicit in the lease.
Unearned finance income is deferred and recognized in the
statements of comprehensive income over the lease term. The Company
recognizes lease payments received under operating leases as income
on a straight-line basis over the lease term as other income.
(c) Adoption of IFRIC 23 Uncertainty over Income Tax Treatments ("IFRIC 23")
IFRIC 23 clarifies how the recognition and measurement
requirements of IAS 12 Income Taxes are applied where there is
uncertainty over income tax treatments. IFRIC 23 is effective for
years beginning on or after January 1, 2019. The adoption of this
amendment did not have a material impact on the Company's financial
statements or previously reported results.
(d) Future accounting policies
There are no other standards or interpretations issued, but not
yet effective, that the Company anticipates may have a material
effect on the financial statements once adopted.
4. Use of Estimates, Judgements and Assumptions
Leases
Management applies judgment in reviewing each of its contractual
arrangements to determine whether the arrangement contains a lease
within the scope of IFRS 16. Leases that are recognized are subject
to further Management judgment and estimation in various areas
specific to the contractual arrangements. In determining the lease
term to be recognized, Management considers all facts and
circumstances that create an economic incentive to exercise an
extension option or not to exercise a termination option.
Lease obligations are estimated using a discount rate equal to
the interest rate implicit in the lease or, if that rate cannot be
readily determined, the Company's incremental borrowing rate. The
Company's incremental borrowing rate represents the rate that the
Company would incur to obtain the funds necessary to purchase an
asset of a similar value, with similar payment terms and security
in a similar economic environment.
5. Financial Assets and 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. As at June 30,
2019, the Company was exposed to credit risk with respect to its
accounts receivable and other assets, which includes finance lease
receivable and deferred consideration from a property
disposition.
The credit risk associated with the Company's finance lease
receivable is considered to be low as the asset is secured by the
underlying fixed assets, with ownership transferring to the
counterparty subsequent to the final payment. The credit risk
associated with the Company's deferred consideration is also
considered low as the Company is selling the counterparty's crude
oil produced from the disposed assets through its facilities and
currently has the right to net the quarterly payment from the gross
proceeds received.
The Company's crude oil production is sold, as determined by
market-based prices adjusted for quality differentials, to Heritage
Petroleum Company Limited ("Heritage") (formerly the Petroleum
Company of Trinidad and Tobago Limited). Typically, the Company's
maximum credit exposure is petroleum sales for two months, of which
$3,215,000 was included in accounts receivable as at June 30, 2019,
which represented approximately 34 percent of the total balance
(December 31, 2018 - $5,165,000 and 43 percent, respectively). In
addition, $5,438,000 in value added tax due from the Trinidad
government was included in accounts receivable as at June 30, 2019,
which represented approximately 58 percent of the accounts
receivable balance (December 31, 2018 - $6,006,000 and 51 percent,
respectively).
As at June 30, 2019, 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 for value added taxes, and the Company
has historically not experienced any collection issues. The aging
of accounts receivable as at June 30, 2019 and December 31, 2018 is
disclosed in the following table.
June 30, December
31, 2018
2019
--------------------------------- ---- --------------------- ---------------------
Not past due $ 3,541 $ 6,731
Past due (greater than 90 days) 5,857 5,162
--------------------------------------- --------------------- ---------------------
Accounts receivable $ 9,398 $ 11,893
--------------------------------------- --------------------- ---------------------
6. 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, 2018
2019
------------------------------ ----------------------- ------------------------
Balance, beginning of period $ 3,644 $ 1,659
Additions 1,041 2,557
Impairments (157) (548)
Effect of change in foreign
exchange rates 15 (24)
------------------------------- ----------------------- ------------------------
Balance, end of period $ 4,543 $ 3,644
------------------------------- ----------------------- ------------------------
During the three and six months ended June 30, 2019, $38,000 and
$95,000 of general and administrative expenses were capitalized to
exploration assets, respectively (2018 - $17,000 and $24,000).
During the three and six months ended June 30, 2019, the Company
incurred $63,000 and $141,000 in lease expenses relating to its
East Brighton property respectively (2018 - $92,000 and $185,000).
These fees were impaired given the property's estimated recoverable
value was $nil.
The June 30, 2019 $4,543,000 exploration asset balance was
included in the Ortoire cash-generating unit. No indicators of
impairment were identified by the Company as at June 30, 2019.
7. 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, 2018 $ 120,100 $ 1,960 $ 122,060
Additions 15,194 13 15,207
Dispositions (142) - (142)
Effect of change in foreign
exchange rates (844) (156) (1,000)
Balance, December 31, 2018 $ 134,308 $ 1,817 $ 136,125
Additions 631 - 631
Right-of-use assets (note 3) 1,114 80 1,194
Effect of change in foreign
exchange rates 554 78 632
Balance, June 30, 2019 $ 136,607 $ 1,975 $ 138,582
----------------------------------- -------------------- ---------------- --------------------
Accumulated depletion, depreciation and
impairments
Balance, January 1, 2018 $ 70,465 $ 1,550 $ 72,015
Depletion and depreciation 3,992 124 4,116
Impairment recoveries (3,724) - (3,724)
Decommissioning obligation change
in estimate 1,171 - 1,171
Effect of change in foreign
exchange rates (366) (128) (494)
Balance, December 31, 2018 $ 71,538 $ 1,546 $ 73,084
Depletion and depreciation 2,628 72 2,700
Decommissioning obligation change
in estimate 371 - 371
Effect of change in foreign
exchange rates 243 65 308
Balance, June 30, 2019 $ 74,780 $ 1,683 $ 76,463
----------------------------------- -------------------- ---------------- --------------------
Carrying amounts:
Balance, December 31, 2018 $ 62,770 $ 271 $ 63,041
Balance, June 30, 2019 $ 61,827 $ 292 $ 62,119
----------------------------------- -------------------- ---------------- --------------------
As at June 30, 2019, $68,390,000 in future development costs
were included in petroleum asset cost bases for depletion
calculation purposes (December 31, 2018 - $68,644,000). During the
three and six months ended June 30, 2019, $115,000 and $308,000 in
general and administrative expenses were capitalized to property
and equipment, respectively (2018 - $226,000 and $431,000). During
the three and six months ended June 30, 2019, $7,000 and $11,000 in
share-based compensation expenses were capitalized to property and
equipment, respectively (2018 - $4,000 and $10,000).
At June 30, 2019, 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.
(a) Exploration and production licence
The Company's Palo Seco exploration and production agreement
with the Trinidad and Tobago Minister of Energy and Energy
Industries ("MEEI") expired on August 19, 2013. The Company is
currently negotiating a renewal or extension of the licence and has
permission from the MEEI to operate in the interim period. The
Company has no indication that the licence will not be renewed.
During the three and six months ended June 30, 2019, production
volumes produced under the expired licence represented 0.6 percent
and 0.5 percent of total production, respectively (2018 - 0.8
percent and 0.8 percent).
(b) 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 petroleum sales on the producing properties because the
Company is the operator, is paying all associated royalties and
taxes, and no title to the producing properties have 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 based on antiquated land title processes. During
the three and six months ended June 30, 2019, production volumes
produced under expired private lease agreements represented 1.8
percent and 1.7 percent of total production, respectively (2018 -
2.4 percent and 2.5 percent).
8. Financial Liabilities and Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they become due. 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's
liquidity is dependent on the Company's expected business growth
and changes in its business environment. The Company manages this
risk by continuously monitoring actual and forecasted cash flows
from operating, financing and investing activities and
opportunities to extend its existing debt facility or to issue
additional equity. Management believes that future cash flows
generated from these activities will be adequate to settle the
Company's future liabilities. Given that the Company has minimal
developmental work obligations and guarantees, the Company will
continue to manage its capital expenditures to reflect current
financial resources in the interest of sustaining long-term
viability.
The following table sets forth estimated undiscounted cash
outflows relating to financial liabilities as at June 30, 2019.
Undiscounted Less than 1 to 3 4 to 5
amount 1 year years years
----------------------- ------------- ----------- --------- --------
Accounts payable and
accrued liabilities $ 11,585 $ 11,585 $ - $ -
Income taxes payable 3,678 3,678 - -
Term loan principal 11,459 - 3,713 7,746
Term loan production
payments 1,438 290 709 439
Term loan interest
payments 3,129 918 1,573 638
Lease liabilities 1,226 584 518 124
Financial liabilities $ 32,515 $ 17,055 $ 6,513 $ 8,947
----------------------- ------------- ----------- --------- --------
Refer to Note 10 "Term Loan and Associated Liabilities" and Note
15 "Capital Management" for further details regarding the Company's
debt structure and capital management objectives.
9. Lease Liabilities
The following table details the movements of the Company's lease
liabilities for the six-month period ended June 30, 2019.
Total
--------------------------------------- ------------------------
Balance, January 1, 2019 (note
3) $ 1,352
Interest expense 42
Payments (274)
Effect of change in foreign
exchange rates 8
----------------------------------------- ------------------------
Balance, June 30, 2019 $ 1,128
----------------------------------------- ------------------------
Current (included in accounts payable
and accrued liabilities) 515
Non-current 613
----------------------------------------- ------------------------
Lease liabilities $ 1,128
----------------------------------------- ------------------------
The Company has lease liabilities for head office space,
oilfield service equipment, motor vehicles and office equipment.
The lease contracts are effective from two to four years. Discount
rates used in calculating the present values of lease payments
during the three and six months ended June 30, 2019 were between 5
and 10 percent. Leases are negotiated on an individual basis and
contain a wide range of varying terms and conditions. The following
table details the undiscounted cash flows which include both
principal and interest components of the Company's lease
liabilities as at June 30, 2019.
June 30,
2019
----------------------
Less than one year $ 584
1 to 3 years 518
4 years 124
Undiscounted cash flows related to lease liabilities $ 1,226
------------------------------------------------------ ----------------------
Payments recognized in the financial statements relating to
short-term leases for the three and six months ended June 30, 2019
were $32,000 and $64,000, respectively. These leases related to
short-term motor vehicle and office equipment and were recognized
in operating expenses and general administrative expenses,
respectively.
10. Term Loan and Associated Liabilities
On November 23, 2016, the Company completed an arrangement for a
C$15 million, five-year term credit facility from a Canadian
investment fund. The term loan bears a fixed interest rate of 8
percent 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, which extended
the term loan maturity date to November 23, 2022 and extended all
principal payments by one year. Effective March 29, 2019, the
Company and the lender entered into a Third Amending Agreement to
the Credit Agreement (the "2019 Amendment"), which extended the
term loan maturity date to November 23, 2023. The Company is
required to repay C$810,000 per quarter commencing on January 1,
2021 through October 1, 2023, and the then outstanding principal
balance is repayable on the maturity date. As consideration for the
2019 Amendment, the Company paid the lender a financing fee of
C$150,000 ($112,000).
In connection with the term loan, the Company granted the lender
a production payment equal to 1 percent of total petroleum sales
from then current Company land holdings in Trinidad. Concurrent
with the execution of the 2019 Amendment, the Company and the
lender extended the production payment agreement to mature on
October 31, 2023 regardless of any repayment or prepayment of the
term loan. The Company may prepay any principal portion of the term
loan and has the option to negotiate a buyout of the future
production payment obligation 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 financial liability
components: the term loan liability and the production payment
liability. At inception the term loan liability was measured at
fair value, net of all transaction fees, using a discount rate of
12 percent. The term loan was revalued based on the 2019 Amendment,
resulting in a gain of $277,000 recognized during the six months
ended June 30, 2019 (2018 - $219,000). The production payment
liability is revalued at each reporting period based on internally
estimated future production and forward crude oil pricing forecasts
using a discount rate of 15 percent. As a result of these changes
in estimates and the 2019 Amendment, a revaluation gain of $23,000
and a net revaluation loss of $209,000 were recognized during the
three and six months ended June 30, 2019 (2018 - losses of $194,000
and $320,000). The following is a continuity schedule of the term
loan and associated liabilities balances at the end of the
respective periods.
Term loan Production Total
liability payment
liability
-------------------------------------- ------------------------- ------------------------- ------------------------
Balance, January 1, 2018 $ 11,031 $ 834 $ 11,865
Revaluation (gain) loss (219) 341 122
Accretion 301 - 301
Payments / transfers to accounts
payable (119) (377) (496)
Effect of change in foreign
exchange rates (864) (65) (929)
Balance, December 31, 2018 $ 10,130 $ 733 $ 10,863
Revaluation (gain) loss (277) 209 (68)
Accretion 151 - 151
Payments / transfers to accounts
payable (112) (207) (319)
Effect of change in foreign
exchange rates 413 31 444
-------------------------------------- ------------------------- ------------------------- ------------------------
Balance, June 30, 2019 $ 10,305 $ 766 $ 11,071
-------------------------------------- ------------------------- ------------------------- ------------------------
Current - 193 193
Non-current 10,305 573 10,878
-------------------------------------- ------------------------- ------------------------- ------------------------
Term loan and associated liabilities $ 10,305 $ 766 $ 11,071
-------------------------------------- ------------------------- ------------------------- ------------------------
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, 2019 are summarized in the
following table.
Covenant Covenant threshold Six months
ended June
30, 2019
----------------------------------- ------------------- ------------
Net funded debt to equity ratio(1) < 0.50 times 0.12 times
Net funded debt to EBITDA ratio(2) < 2.50 times 0.42 times
Notes:
(1) Net funded debt is defined as interest-bearing debt
including lease liabilities, less cash balances. Equity is defined
as book value of shareholders' equity less accumulated other
comprehensive loss.
(2) 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.
11. Decommissioning Liabilities and Abandonment Fund
The Company's decommissioning liabilities relate to future site
restoration and well abandonment costs including the costs of
production equipment removal and land reclamation based on current
environmental regulations. The provision 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. Payments to settle the obligations occur over the
operating lives of the underlying assets, estimated to be from
three to twenty-two years, with the majority of the costs estimated
to be incurred subsequent to 2031. The liabilities are expected to
be funded from the abandonment fund and the Company's internal
resources available at the time of settlement.
Pursuant to Heritage and MEEI production and exploration
licences, the Company is obligated to remit payments into an
abandonment fund based on production. The Company remits $0.25 per
barrel of crude oil sold, and the funds will be used for the future
abandonment of wells in the related licenced area. As at June 30,
2019, the Company classified $1,050,000 of accrued or paid fund
contributions as long-term abandonment fund assets (December 31,
2018 - $966,000).
The Company estimated the net present value of the cash flows
required to settle its decommissioning liabilities to be $8,644,000
as at June 30, 2019 based on an inflation adjusted future liability
of $28,919,000 (December 31, 2018 - $8,915,000 and $31,606,000,
respectively). The following table summarizes the Company's
estimated decommissioning obligation provision at the end of the
respective periods.
Six months Year ended
ended December
31,
June 30, 2018
2019
-----------
Balance, beginning of period $ 8,915 $ 9,438
Liabilities incurred 3 208
Liabilities settled - (66)
Accretion expense 180 262
Revision to estimates (484) (828)
Dispositions - (62)
Effect of change in foreign exchange
rates 30 (37)
Balance, end of period $ 8,644 $ 8,915
-------------------------------------- ----------- -----------
At June 30, 2019, decommissioning liabilities were valued using
a long-term risk-free rate of 7.9 percent and a long-term inflation
rate of 3.3 percent (December 31, 2018 - 7.9 percent and 3.7
percent, respectively).
12. 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 of Balance
shares
--------------------------------------- -------------- -----------------------
Balance, January 1, 2018 and December
31, 2018 129,021,428 $ 56,987
Issued pursuant to private placement 31,666,667 4,496
Balance, June 30, 2019 160,688,095 $ 61,483
--------------------------------------- -------------- -----------------------
(b) February 2019 private placement
On February 26, 2019, the Company completed a private placement
directed toward United Kingdom institutional investors, whereby
gross proceeds of $5,013,000 (GBP3,800,000) were raised by way of a
placing of 31,666,667 new common shares at a price of C$0.21 (12
pence) per common share. Fees incurred from the private placement
were $517,000, which included brokerage commissions and legal,
accounting and corporate finance advisory fees. Net proceeds of the
private placement were $4,496,000.
(c) Share option plans
The Company has a share option plan pursuant to which options to
purchase common shares of the Company may be granted by the Board
of Directors to directors, officers, employees and consultants of
the Company. The exercise price of each option may not be less than
the closing price of the common shares prior to the date of grant.
Compensation expense is recognized as the options vest. Unless
otherwise determined by the Board of Directors, vesting typically
occurs one third on each of the next three anniversaries of the
date of the grant as recipients render continuous service to the
Company, and the share options typically expire five years from the
date of the grant. The following table summarizes the share options
outstanding at the end of the respective periods.
Number of Weighted
share options average
exercise
price
------------------------------ ----------------- ----------------------
Outstanding, January 1, 2018 6,870,840 C$ 0.50
Granted 1,688,800 0.23
Forfeited (25,000) 2.10
------------------------------ ----------------- ----------------------
Outstanding, January 1, 2019 8,534,640 C$ 0.44
Granted 2,550,000 0.23
Expired (1,955,240) 0.89
------------------------------ ----------------- ----------------------
Outstanding, June 30, 2019 9,129,400 C$ 0.29
Exercisable, June 30, 2019 4,896,439 0.34
------------------------------ ----------------- ----------------------
The Company has an incentive share compensation option plan
which provides for the grant of incentive share options to purchase
common shares of the Company at a C$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. As
at June 30, 2019, 15,000 incentive share options were outstanding
and exercisable with an exercise price of C$0.10 per incentive
share.
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 percent of the issued and outstanding common
shares.
During the three and six months ended June 30, 2019, the Company
recorded share-based compensation expenses of $49,000 and $80,000
in relation to share option plans, respectively (2018 - $31,000 and
$56,000).
(d) Weighted average common shares
The weighted average common shares used in calculating net loss
per common share was calculated as follows.
Three months ended June 30, 2019 Six months ended
June 30,
2019 2018 2019 2018
------------------ ----------------------- ----------------------- ----------------------- -----------------------
Weighted average
common
shares, basic 160,688,095 129,021,428 150,890,673 129,021,428
Dilutive impact - - - -
of
share-based
compensation
Weighted average
common
shares, diluted 160,688,095 129,021,428 150,890,673 129,021,428
------------------ ----------------------- ----------------------- ----------------------- -----------------------
There was no dilutive impact to the weighted average number of
common shares for the three and six months ended June 30, 2019 and
2018, as all share options and incentive share options were
excluded from the weighted average dilutive share calculations
because their effect would be anti-dilutive.
13. Net Finance Expenses
The following table summarizes net finance expenses recorded
during the three and six months ended June 30, 2019 and 2018.
Three months ended June 30, 2019 Six months ended
June 30,
2019 2018 2019 2018
--------------------- ---------------------- ----------------------- --------------------- -----------------------
Interest income $ (29) $ (46) $ (60) $ (90)
Term loan interest
expense 223 232 445 463
Term loan
revaluation
gain - (219) (277) (219)
Production payment
liability
revaluation
(gain) loss (23) 194 209 320
Accretion on term
loan 78 78 151 148
Accretion on decom.
liabilities 90 65 180 129
Lease liability
interest
expense 24 - 50 -
Other (112) 4 (126) 4
Net finance expenses $ 251 $ 308 $ 572 $ 755
--------------------- ---------------------- ----------------------- --------------------- -----------------------
14. Financial Derivatives and Market Risk Management
Management of cash flow variability is an integral component of
the Company's business strategy. Changing business conditions are
monitored regularly and, where material, reviewed with the Board of
Directors to establish risk management guidelines to be used by
Management. The risk exposures inherent in the movements of the
price of crude oil and fluctuations in foreign exchange rates are
proactively reviewed by the Company and may be managed through the
use of derivative contracts as considered appropriate.
(a) Commodity price risk
The nature of crude oil operations exposes the Company to risks
associated with commodity prices. The Company maintains a risk
management strategy to protect funds flow from operations from the
volatility of commodity prices. The Company's strategy focuses on
the periodic use of puts, costless collars, swaps or fixed price
contracts to limit exposure to fluctuations in commodity prices
while allowing for participation in commodity price increases.
In April 2019, the Company purchased put option contracts from a
financial institution for 800 bbls/d at a strike price of Brent
US$56.10 per barrel from June 1, 2019 to December 31, 2019. The
options may be settled on a monthly basis during the option
exercise period. The June 2019 options expired out of the
money.
The Company recognized the $171,000 premium for the put options
as a derivative financial asset. The financial 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. As at June 30, 2019, the Company
recognized a financial derivative asset of $196,000 related to the
put options (December 31, 2018 - $nil). For the three and six
months ended June 30, 2019, the Company recorded derivative gains
of $25,000 and $25,000, respectively (2018 - losses of $87,000 and
$143,000) related to commodity management contracts.
(b) Foreign currency risk
Foreign currency exchange risk arises from changes in foreign
exchange rates that may affect the fair value or future cash flows
of the Company's financial assets or liabilities. As the Company
primarily operates in Trinidad, fluctuations in the exchange rate
between the TT$ and the US$ could have a significant effect on
reported results, as the sales prices of crude oil are determined
by reference to US$ denominated benchmark prices and the majority
of the Company's operating costs are denominated in TT$. This is
currently mitigated by the fact that the TT$ is informally pegged
to the US$. The Company is also subject to foreign exchange
exposure relating to Canadian head office expenses and its term
loan, which are denominated in C$. Any material movements in the C$
to US$ exchange rate may have a material effect on the Company's
reporting results. The Company also has foreign exchange exposure
on costs denominated in pounds sterling required to maintain its
AIM listing.
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 petroleum sales 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, 2019 and 2018.
During the three and the six months ended June 30, 2019, the C$
depreciated 4% and the TT$ weakened by 1% relative to the US$ in
comparison to the equivalent periods of 2018, respectively. As a
result, the Company recorded foreign exchange losses of $91,000 and
$129,000 during the three and six months ended June 30, 2019,
respectively (2018 - loss of $20,000 and gain of $249,000). The
majority of the 2019 translation differences in each period were
unrealized in nature and may be reversed in the future as a result
of fluctuations in prevailing exchange rates.
15. 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. The Company's long-term
goal is to fund current period decommissioning and capital
expenditures necessary for the replacement of production declines
using only funds flow from operations. Profitable growth activities
will be financed with a combination of funds flow from operations
and other sources of capital. The Company typically uses equity and
term debt to raise capital.
The Company's objective is to maintain net debt to trailing
twelve-month funds flow from operations at or below a ratio of 2.0
times. Net debt is a Non-IFRS measure calculated by summing the
Company's working capital and the principal (undiscounted) amounts
of long-term debt and lease liabilities. Working capital is a
Non-IFRS measure calculated as current assets minus 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. Funds flow from operations is an
additional GAAP measure included in the Company's consolidated
statements of cash flows.
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.
The Company's internal capital management calculations for the six
months ended June 30, 2019 and the year ended December 31, 2018 are
summarized below.
Target measure June 30, December
31, 2018
2019
----------------------------------- ---------------- --------------------- ---------------------
Current assets $ (17,518) $ (15,854)
Current liabilities 15,456 19,172
----------------------------------------------------- --------------------- ---------------------
Working capital (surplus) deficit $ (2,062) $ 3,318
Principal long-term portion
of term loan 11,459 11,004
Long-term lease liabilities 613 -
Net debt $ 10,010 $ 14,322
Shareholders' equity 34,565 31,217
----------------------------------------------------- --------------------- ---------------------
Net debt plus equity $ 44,575 $ 45,539
----------------------------------------------------- --------------------- ---------------------
Trailing twelve-month funds
flow from operations(1) $ 7,585 $ 8,414
----------------------------------------------------- --------------------- ---------------------
Net debt to funds flow from
operations < 2.0 times 1.3 1.7
----------------------------------- ---------------- --------------------- ---------------------
Net debt to net debt plus equity < 0.4 times 0.2 0.3
----------------------------------- ---------------- --------------------- ---------------------
Note:
(1) Trailing twelve-month funds flow from operations as at June
30, 2019 include funds flow from operations for the six months
ended June 30, 2019 plus funds flow from operations for the July 1,
2018 through December 31, 2018 interim period.
16. Commitments and Contingencies
The Company has minimum work obligations under various operating
agreements with Heritage, exploration commitments under exploration
and production agreements with the MEEI and various lease
commitments for office space and equipment.
The following table outlines the Company's estimated minimum
contractual capital requirements as at June 30, 2019.
Total 2019 2020 2021 Thereafter
------------------------ --------------- --------------- --------------- ------------------- -------------------
Operating agreements $ 3,169 $ 154 $ 884 $ 296 $ 1,835
Exploration agreements 10,192 2,922 7,270 - -
Office leases 714 136 300 278 -
Equipment leases 263 111 146 6 -
------------------------ --------------- --------------- --------------- ------------------- -------------------
Minimum payments $ 14,338 $ 3,323 $ 8,600 $ 580 $ 1,835
------------------------ --------------- --------------- --------------- ------------------- -------------------
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, 2019, 10 wells were drilled, and 15 well
recompletions were completed with respect to these obligations. The
Company has provided $271,000 in cash collateralized guarantees to
Heritage to support its operating agreement work commitments
(December 31, 2018 - $271,000). The balance is classified as
long-term restricted cash on the consolidated statements of
financial position.
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, 2019.
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 BCGDIUUBBGCX
(END) Dow Jones Newswires
August 14, 2019 02:01 ET (06:01 GMT)
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