Villanova 4 Oil Corp. Financial and Operational Highlights (Unaudited)

Transcription

1 Q3 17 Performance Villanova 4 Oil Corp. Financial and Operational Highlights (Unaudited) Financial highlights Three Months Ended June 30 Nine Months Ended June Change Change Petroleum and natural gas sales, net of royalties $ 2,991,000 $ 1,370, % $ 6,384,000 $ 4,278,000 49% Funds generated by operations: $ 2,133,000 $ 855, % $ 4,115,000 $ 2,463,000 67% Per share (Basic) $ 0.02 $ 0.01 $ 0.03 $ 0.02 Net comprehensive income (loss): $ 449,000 $ (1,848,000) (124%) $ 20,000 $ (6,031,000) (100%) Per share (Basic) $ 0.00 $ (0.02) $ 0.00 $ (0.06) Capital expenditures & acquisitions $ 4,091,000 $ 244, % $ 15,681,000 $ 2,174, % Working capital surplus $ 9,607,000 $ 14,830,000 (35%) Common shares outstanding: Basic 122,090,000 98,653,000 24% Diluted 196,704, ,859,000 0% Operating highlights Production Boepd % % Netbacks (per Boe): Average price realizations $ $ % $ $ % Royalty expense (34%) (8%) Production expense % % Operating Netback $ $ % $ $ % Drilling activity (BPO): Gross wells % Net wells % Undeveloped lands: Net acres 17,804 25,355 (30%)

2 VILLANOVA 4 OIL CORP. Statement of Financial Position (Unaudited) As at: June 30 September 30 Canadian dollars Notes Assets Cash $ 10,748,000 $ 12,820,000 Trade and other receivables 3 2,531,000 1,751,000 Deposits and prepaids 1,218,000 61,000 Total current assets 14,497,000 14,632,000 Exploration and evaluation assets 4 2,422,000 2,672,000 Property, plant and equipment 5 46,701,000 34,002,000 Total non-current assets 49,123,000 36,674,000 Total assets $ 63,620,000 $ 51,306,000 Liabilities Trade and other payables 3 $ 4,890,000 $ 2,964,000 Total current liabilities 4,890,000 2,964,000 Decommissioning obligations 7 2,810,000 2,510,000 Total liabilities 7,700,000 5,474,000 Equity Share capital 8 82,181,000 72,806,000 Contributed surplus 9 6,487,000 5,794,000 Deficit (32,748,000) (32,768,000) Total equity 55,920,000 45,832,000 Total equity and liabilities $ 63,620,000 $ 51,306,000 The accompanying notes are an integral part of these condensed interim financial statements.

3 VILLANOVA 4 OIL CORP. Statement of Operations and Comprehensive Income (Loss) (Unaudited) Three Months Ended June 30 Nine Months Ended June 30 Canadian dollars Notes Revenues: Petroleum and natural gas sales $ 3,371,000 $ 1,695,000 $ 7,416,000 $ 5,287,000 Royalties (380,000) (325,000) (1,032,000) (1,009,000) 2,991,000 1,370,000 6,384,000 4,278,000 Expenses and other loss (income): Production 667, ,000 1,539,000 1,132,000 General and administrative 324, , , ,000 Depletion and depreciation 5 1,469, ,000 3,529,000 2,771,000 Share based compensation 9 209,000 1,864, , ,000 Gain on dispositions - - (67,000) - Impairments ,991,000 Interest and other income (133,000) (41,000) (210,000) (66,000) Finance costs 6,000 4,000 54,000 35,000 2,542,000 3,218,000 6,364,000 10,309,000 Net comprehensive income (loss) $ 449,000 $ (1,848,000) $ 20,000 $ (6,031,000) The accompanying notes are an integral part of these condensed interim financial statements.

4 VILLANOVA 4 OIL CORP. Statement of Changes in Equity (Unaudited) For the period ended June 30, 2017 Canadian dollars Number of common Share Contributed Total Notes shares capital surplus Deficit equity Balance at September 30, ,653,000 $ 72,806,000 $ 5,794,000 $ (32,768,000) $ 45,832,000 Issue of shares for cash 23,437,000 9,375,000 9,375,000 Share based compensation Expensed 9 579, ,000 Capitalized 9 114, ,000 Net comprehensive income 20,000 20,000 Balance at June 30, ,090,000 $ 82,181,000 $ 6,487,000 $ (32,748,000) $ 55,920,000 For the period ended June 30, 2016 Number of common Share Contributed Total Notes shares capital surplus Deficit equity Balance at September 30, ,590,000 $ 57,181,000 $ 4,821,000 $ (25,774,000) $ 36,228,000 Issue of shares for cash 39,063,000 15,625,000 15,625,000 Share based compensation Expensed 717, ,000 Capitalized 143, ,000 Net comprehensive loss (6,031,000) (6,031,000) Balance at June 30, ,653,000 $ 72,806,000 $ 5,681,000 $ (31,805,000) $ 46,682,000 The accompanying notes are an integral part of these condensed interim financial statements.

5 VILLANOVA 4 OIL CORP. Statement of Cash Flows (Unaudited) Three Months Ended June 30 Nine Months Ended June 30 Canadian dollars Notes Cash flows from operating activities: Net comprehensive income (loss) for the period $ 449,000 $ (1,848,000) $ 20,000 $ (6,031,000) Adjustments for: Depletion and depreciation 5 1,469, ,000 3,529,000 2,771,000 Share based compensation 9 209,000 1,864, , ,000 Gain on dispositions - - (67,000) - Impairments ,991,000 Accretion on decommissioning obligations 7 6,000-54,000 15,000 2,133, ,000 4,115,000 2,463,000 Change in non-cash operating working capital 10 (193,000) (355,000) (723,000) 167,000 Net cash from operating activities 1,940, ,000 3,392,000 2,630,000 Cash flows from investing activities: Deposits 525, , Exploration and evaluation 4 (1,748,000) (229,000) (9,952,000) (890,000) Property, plant and equipment 5 (2,343,000) (15,000) (5,729,000) (1,284,000) Proceeds on asset dispositions ,000 7,000 Change in non-cash working capital 10 (2,290,000) (947,000) 710,000 (908,000) Net cash used in investing activities (5,856,000) (765,000) (14,839,000) (3,075,000) Cash flows from financing activities: Increase in debt (300,000) Proceeds from issue of share capital 9,375,000 4,775,000 9,375,000 15,625,000 Net cash from financing activities 9,375,000 4,775,000 9,375,000 15,325,000 Change in cash 5,459,000 4,510,000 (2,072,000) 14,880,000 Cash, beginning of period 5,289,000 10,416,000 12,820,000 46,000 Cash, end of period $ 10,748,000 $ 14,926,000 $ 10,748,000 $ 14,926,000 The accompanying notes are an integral part of these condensed interim financial statements.

6 1. Reporting entity: Villanova 4 Oil Corp. (the Company ) was incorporated under the Business Corporations Act of Saskatchewan on June 6, The Company is engaged in the exploration for and the development and production of oil and natural gas. The Company s principal place of business is located at 2530 Sandra Schmirler Way, Regina, Saskatchewan, Canada S4W 0M7. 2. Basis of preparation: (a) Statement of compliance: These unaudited condensed interim financial statements have been prepared using the same accounting policies and methods as those used in the Company s audited financial statements for the year ended September 30, Accordingly, certain information normally included in the annual audited financial statements prepared in accordance with International Financial Reporting Standards ( IFRS ), have been omitted or condensed. The condensed interim financial statements were authorized for issue by the Board of Directors on August 22, (b) Basis of measurement: The financial statements have been prepared on the historical cost basis. (c) Functional and presentation currency: These financial statements are presented in Canadian dollars, which is the Company s functional currency. (d) Use of estimates and judgments: The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected. Items that required significant estimates and judgments to be made by management in the preparation of these financial statements are outlined below. Reserves estimates can have a significant effect on net income, assets and liabilities as a result of their impact on depletion and depreciation, decommissioning liabilities, deferred taxes and asset impairments. Estimates of economically recoverable oil and gas reserves are based upon a number of variables and assumptions such as future commodity prices, exchange rates, discount rates and production and transportation costs for future cash flows as well as the interpretation of complex geological and geophysical models and data, all of which may vary considerably from actual results. These reserve estimates are verified by third party professional engineers, who work with information provided by the Company to establish reserve determinations in accordance with National Instrument

7 For purposes of impairment testing, property, plant and equipment is aggregated into cashgenerating units ( CGUs ), based on separately identifiable and largely independent cash inflows. The determination of the CGUs are based on management s judgment in regards to shared infrastructure, geographical proximity, petroleum type and the manner in which management monitors and makes decisions regarding operations. Upon retirement of its oil and gas assets, decommissioning costs will be incurred by the Company. The liability, the related asset and the amount expensed are impacted by estimates with respect to the costs and timing of decommissioning. Share-based compensation is subject to the estimation of what the ultimate payout will be using the Black-Scholes pricing model which is based on significant assumptions such as expected volatility, forfeiture rates and expected term. The provision for income taxes is based on judgments in applying income tax law and estimates on the timing, likelihood and reversal of temporary differences between the accounting and tax bases of assets and liabilities. These above estimates are subject to measurement uncertainty and changes in these estimates could materially impact the financial statements of future years. 3. Financial risk management: (a) Credit Risk: The maximum exposure to credit risk for trade and other receivables at the reporting date by type of customer was: June Oil and natural gas marketing companies $ 1,332,000 Joint venture partners 1,119,000 GST receivable 80,000 Total trade and other receivables $ 2,531,000 Trade and other receivables: Carrying Less than 31 to 61 to over June 30, 2017 amount 30 days 60 days 90 days 90 days Trade and other receivables $ 2,531,000 $ 1,721,000 $ 302,000 $ 508,000 $ - (b) Liquidity risk: $ 2,531,000 $ 1,721,000 $ 302,000 $ 508,000 $ - The following are the contractual maturities of financial liabilities, excluding estimated interest payments and excluding the impact of netting agreements: 6

8 Carrying Contractual Less than One - two Two - five June 30, 2017 amount cash flows one year years years Non-derivative financial liabilities: Trade and other payables $ 4,890,000 $ 4,890,000 $ 4,890,000 $ - $ - $ 4,890,000 $ 4,890,000 $ 4,890,000 $ - $ - 4. Exploration and evaluation assets: June 30 September Balance, beginning of period $ 2,672,000 $ 6,972,000 Additions 9,952,000 3,952,000 Changes to decommissioning obligations 247, ,000 Impairments - (3,575,000) Transfer to property, plant, and equipment (10,449,000) (5,114,000) Balance, end of period $ 2,422,000 $ 2,672,000 E&E assets consist of the Company s exploration projects which are pending the determination of technical feasibility and commercial viability. Additions represent the Company s share of costs incurred on E&E assets during the year. 5. Property, plant and equipment: Petroleum and Vehicles natural gas and field properties equipment Total Cost: Balance at September 30, 2016 $ 50,501,000 $ 3,640,000 $ 54,141,000 Additions 5,715,000 14,000 5,729,000 Transfers from exploration and evaluation 10,449,000-10,449,000 Capitalized share-based compensation 114, ,000 Dispositions (65,000) - (65,000) Balance at June 30, 2017 $ 66,714,000 $ 3,654,000 $ 70,368,000 Accumulated impairment, depletion and depreciation Balance at September 30, 2016 $ 19,195,000 $ 944,000 $ 20,139,000 Depletion and depreciation for period 3,299, ,000 3,529,000 Balance at June 30, 2017 $ 22,494,000 $ 1,174,000 $ 23,668,000 Net carrying amount at June 30, 2017 $ 44,220,000 $ 2,480,000 $ 46,701,000 7

9 At June 30, 2017, future development costs of $33,700,000 are included in costs subject to depletion. Capitalized general and administrative costs in the period were $42,000 (September 30, $56,000). 6. Current debt: As at June 30, 2017, the Company had an undrawn $3,000,000 revolving operating demand loan with an interest rate of prime plus 1.00% at the National Bank of Canada. The facilities are secured by a general assignment of book debts, a $50,000,000 debenture with a floating charge over all assets of the Company with a negative pledge and undertaking to provide fixed charges on the Company's major producing petroleum properties at the request of the lender, as well as an assignment of revenues and monies under material contracts, as applicable. The Company is subject to certain reporting and financial covenants in its credit facility. The credit facility has a financial covenant to which the Company must maintain an adjusted working capital ratio of not less than 1.0:1.0 at all times. The Company was in compliance with all covenants as at June 30, Effective July 17, 2017, the Company s revolving operating demand loan at the National Bank of Canada, increased from $3,000,000 to $7,500, Decommissioning obligations: June 30 September Balance at beginning of period $ 2,510,000 $ 2,054,000 Provisions made during the period 247, ,000 Revision due to change in estimate (1,000) - Accretion 54,000 19,000 Balance at end of period $ 2,810,000 $ 2,510,000 Non-current $ 2,810,000 $ 2,510,000 Current - - $ 2,810,000 $ 2,510,000 The Company s decommissioning obligations result from its ownership interest in petroleum and natural gas properties including well sites and processing facilities. The total decommissioning obligation is estimated 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 years. The Company has estimated the net present value of the decommissioning obligations to be $2,810,000 as at June 30, 2017 based on an undiscounted total future liability of $3,924,000. These payments are expected to be made over the next 20 years with the majority of costs to be incurred between 2032 and The discount factor, being the risk-free rate, is 1.99% (September 30, %). The liability has been calculated using an inflation rate of 2.00% (September 30, %). 8

10 8. Share capital: (a) Authorized: The Company is authorized to issue an unlimited number of shares in the following classes: Class A, Class B, Class C and Class D. (b) Issued: June 30, 2017 September 30, 2016 Number Amount Number Amount Common Shares Balance beginning of period 98,653,000 $ 72,806,000 59,590,000 $ 57,181,000 Issued for cash 23,437,000 9,375,000 39,063,000 15,625,000 Balance at end of period 122,090,000 $ 82,181,000 98,653,000 $ 72,806,000 Only Class A common shares have been issued since the inception of the Company. The holders of Class A shares are entitled to receive dividends as declared by the Company and are entitled to one vote per share. On April 12, 2016, the Company entered into an equity line of credit ( ELOC ) agreement with certain investors, whereby the Company may exercise its right to call or the investor may exercise its right to put the deferred capital within 24 months of the initial close (March 30, 2016). In the period, the Company exercised its right to call the remaining committed capital under the ELOC agreements of $9,375,000, which was placed on the same terms as the original Unit offering. Each unit consisted of one Class A common share of the Company at a price of $0.40 per share and one common share purchase warrant. (c) Reserved for issue: Stock options: The Company has an option program that entitles officers, directors, and employees to purchase shares in the Company. Options are granted at the market price of the shares at the date of grant, have a five year term and vest over three years. The number and weighted average exercise prices of share options are as follows: June 30, 2017 September 30, 2016 Weighted Weighted Average Average Exercise Exercise Number Price Number Price Balance beginning of period 11,139,000 $ ,210,000 $ 0.97 Granted 975, ,249, Forfeited - - (320,000) 0.77 Balance at end of period 12,114,000 $ ,139,000 $ 0.65 Vested and exercisable 6,606,000 $ ,120,000 $

11 Share purchase warrants: As at June 30, 2017, 62,500,000 share purchase warrants have been granted. They have an exercise price of $0.50 per common share and expire 24 months from the initial close of the Unit offering on March 30, There has been no share based event since the Unit offering in March 2016 to indicate the market value of the common shares of the Company is in excess of the exercise price of the share purchase warrants; consequently, the value of the share purchase warrants is estimated to be NIL. 9. Share-based compensation: For the period ended June 30, 2017, the Company recorded share-based compensation of $693,000, of which $114,000 was capitalized. 10. Supplemental cash flow information: Changes in non-cash working capital is comprised of: June 30 June Sources (use) of cash: Trade and other receivables $ (781,000) $ 1,502,000 Deposit and prepaid expenses (1,158,000 (3,000) Trade and other payables 1,926,000 (2,240,000) $ (13,000) $ (741,000) Related to operating activities $ (723,000) $ 167,000 Related to investing activities $ 710,000 $ (908,000) Related to financing activities $ - $ Related party transactions: Effective February 1, 2013, the Company entered into a lease with Black Ridge Consulting & Oilfield Services Ltd. ("BRC"). The Company leased premises from BRC for the purpose of equipment storage and access to offices and a repair shop. The lease was negotiated pursuant to terms set out and agreed to by the Board of the Company. The lease is currently in an over hold position, at a reduced monthly aggregate cost of $3,250 (50% of original contract amount). BRC owns 1.69% of the issued and outstanding shares of the Company and has a common employee in a senior management position. At June 30, 2017, the Company had accounts payable to BRC of $10,000. Effective June 1, 2014, the Company entered into a Management Support Agreement with Keystone Royalty Corp. ( KRC ) to provide ongoing support services and receive the greater of $100,000 or 0.8% of KRC s gross annual operating revenue as compensation. In the period, a total of $76,000 was received. KRC owns 2.22% of the issued and outstanding shares of the Company and is connected by way of common management. 10

12 At June 30, 2017, the Company had accounts receivable from KRC of $32,000. Effective October 1, 2015, the Company entered into a month to month rental agreement with KVL Properties Inc. ( KVL ), a wholly owned subsidiary of KRC, to provide office space for its Regina head office. The rental agreement was negotiated pursuant to terms set out and agreed to by the Board of the Company. The monthly cost is $11,525 (not including operating costs). At June 30, 2017, the Company had accounts payable to KVL of $12,000. On an as need basis, the Company utilizes D2 Drilling Inc. ( D2 ) to provide drilling services. No longterm contract is in place and day rates are negotiated by non-conflicted management. Two members of senior management are shareholders of D2. At June 30, 2017, the Company had accounts payable to D2 of $387,