CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Transcription

1 CONSOLIDATED INTERIM FINANCIAL STATEMENTS MARCH 31, 2016

2 CONSOLID AT ED INT ERIM FIN ANCIAL ST ATEM ENTS CONSOLIDATED INTERIM FINANCIAL STATEMENTS BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31 (Unaudited, expressed in thousands of US dollars, except per share amounts) Note Revenues $ 33,091 $ 72,404 Royalties (4,231) (10,144) Revenues, net of royalties 28,860 62,260 Realized gain on financial commodity contracts 5(b) 7,423 14,130 Unrealized loss on financial commodity contracts 5(b) (3,800) (2,039) Total operating revenues 32,483 74,351 Operating expenses 17,717 23,495 Sales and transportation expenses 7,695 13,897 General and administrative expenses 7,141 4,652 Contract settlement expenses Depletion and depreciation 10 26,658 30,119 Share-based compensation ,182 Total expenses 59,463 73,700 Operating income (loss) (26,980) 651 Net finance expense 6 (164) (8,888) Loss before income tax (27,144) (8,237) Income tax (expense) recovery Current 8 (267) - Deferred 8 15,440 9,116 15,173 9,116 Net income (loss) for the period (11,971) 879 Other comprehensive income (loss) Currency translation adjustment 476 (1,420) Comprehensive loss for the period $ (11,495) $ (541) Basic earnings (loss) per share 12 $ (0.046) $ Diluted earnings (loss) per share 12 $ (0.046) $ The notes are an integral part of these consolidated interim financial statements.

3 CONSOLIDATED INTERIM FINANCIAL STATEMENTS Current assets BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited, expressed in thousands of US dollars) ASSETS Note March December Cash and cash equivalents $ 37,958 $ 51,963 Restricted cash 15 15,038 17,178 Accounts receivable 5(a) 53,752 56,592 Inventory 4,316 4,597 Deposits and prepaid expenses 11 81,219 67,514 Financial commodity contracts 4 16,200 20, , ,844 Non-current assets Property, plant and equipment 10 1,019,130 1,034,791 Exploration and evaluation assets 9 10,767 8,755 Current liabilities LIABILITIES $ 1,238,380 $ 1,261,390 Accounts payable and accrued liabilities $ 40,604 $ 39,156 Income tax liability 1, Current portion of long-term debt 13 22,636 18,055 Non-current liabilities 64,272 57,976 Long-term debt 13 95,188 98,628 Decommissioning obligation 29,655 29,264 Deferred tax liabilities 8 340, ,228 SHAREHOLDERS EQUITY 530, ,096 Share capital 365, ,045 Contributed surplus 94,818 94,299 Currency translation reserve 1,993 1,517 Retained earnings 246, , , ,294 $ 1,238,380 $ 1,261,390 The notes are an integral part of these consolidated interim financial statements.

4 CONSOLIDATED INTERIM FINANCIAL STATEMENTS BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31 (Unaudited, expressed in thousands of US dollars) Note Cash provided by (used in): Operating activities Net income (loss) for the period $ (11,971) $ 879 Depletion and depreciation 10 26,658 30,119 Accretion of long-term debt Accretion of decommissioning obligation Unrealized foreign exchange gain (2,691) (778) Current income tax expense Deferred income tax recovery 8 (15,440) (9,116) Share-based compensation ,182 Unrealized loss on financial commodity contracts 5(b) 3,800 2,039 1,447 24,890 Change in non-cash working capital 7 2,918 7,839 4,365 32,729 Investing activities Additions to property, plant and equipment (10,664) (49,818) Additions to exploration and evaluation assets (2,012) (127) Restricted cash 2,140 (591) Change in non-cash working capital 7 (9,237) (5,718) (19,773) (56,254) Financing activities Issue of shares for cash Change in long-term debt 1,081 7,762 1,081 7,973 Foreign exchange gain (loss) on cash and cash equivalents 322 (233) Decrease in cash and cash equivalents (14,005) (15,785) Cash and cash equivalents, beginning of period 51,963 68,036 Cash and cash equivalents, end of period $ 37,958 $ 52,251 Interest paid $ 222 $ 45 Interest received $ 87 $ 96 The notes are an integral part of these consolidated interim financial statements. Page 3

5 CONSOLIDATED INTERIM FINANCIAL STATEMENTS BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited, expressed in thousands of US dollars, except number of common shares) Note Number of common shares Share capital Contributed surplus Currency translation reserve Retained earnings Total Balance at December 31, ,084,393 $ 363,670 $ 86,409 $ 4,410 $ 262,047 $ 716,536 Share-based compensation , ,346 Options exercised 100, (192) Net income for the period Currency translation adjustment (1,420) - (1,420) Balance at March 31, ,184,393 $ 364,073 $ 88,563 $ 2,990 $ 262,926 $ 718,552 Share-based compensation , ,197 Options exercised 239, (461) RSUs exercised 133, Net loss for the period (4,493) (4,493) Currency translation adjustment (1,473) - (1,473) Balance at December 31, ,557,384 $ 365,045 $ 94,299 $ 1,517 $ 258,433 $ 719,294 Share-based compensation Net loss for the period (11,971) (11,971) Currency translation adjustment Balance at March 31, ,557,384 $ 365,045 $ 94,818 $ 1,993 $ 246,462 $ 708,318 The notes are an integral part of these consolidated interim financial statements.

6 NOTES T O TH E CON SOLID AT ED FIN ANC IAL ST ATEM ENT S 1. REPORTING ENTITY Bankers Petroleum Ltd. (Company) is incorporated and domiciled in Canada and is mainly engaged in the exploration for, and development and production of, oil in Albania. The Company is listed on the Toronto Stock Exchange and the Alternative Investment Market of the London Stock Exchange under the symbol BNK. The consolidated interim financial statements include the accounts of the Company and its wholly-owned operating subsidiaries (Group) and an 85% interest in a Joint Venture entity located in Hungary, known as Panbridge Hungary Zrt (PanBridge). The Group includes Bankers Petroleum International Limited (BPIL), Bankers Petroleum Albania Ltd. (BPAL), and Sherwood International Petroleum Ltd. (Sherwood). BPIL is incorporated in Jersey, BPAL and Sherwood are incorporated in the Cayman Islands. The Group operates the Albanian oilfields pursuant to Petroleum Agreements with Albpetrol Sh.A (Albpetrol), the state-owned oil company, under Albpetrol s existing license with the Albanian National Agency for Natural Resources (AKBN). The Patos-Marinza and Kuçova agreements became effective in March 2004 and September 2007, respectively, and have a 25 year term with extension options at the Company s election for further five year increments, subject to government and regulatory approvals. In November 2015, PanBridge acquired a license to operate in the area known as Block P located within the Pannonian basin in north Eastern Hungary. Bankers will operate the license and fund its 85% working interest share over a three and a half year contractual term. The Company has a significant investment in Albania. There are a number of risks associated with conducting foreign operations over which the Company has no control, including political instability, potential and actual civil disturbances, ability to repatriate funds, changes in laws and regulations affecting foreign ownership, production limits and existing contracts, environmental regulations, oil and gas prices, production regulations, royalty rates, income tax law changes, including tax increases and retroactive tax claims, potential expropriation of property without fair compensation and restrictions on imports and exports. On March 20, 2016, Bankers Petroleum Ltd. entered into a definitive agreement with an affiliate of Geo-Jade Petroleum Corporation, for the purchase of all the issued and outstanding common shares of the Company at a cash price of C$2.20 per common share of the Company. The transaction will be effected by way of a plan of arrangement under the Business Corporations Act. This transaction is subject to customary closing conditions, including receipt of court, shareholder and regulatory approvals required under the Investment Canada Act and approvals required by the People s Republic of China and the Republic of Albania. The transaction is expected to close before June 30, BASIS OF PREPARATION Statement of compliance These consolidated interim financial statements have been prepared in accordance with International Accounting Standards (IAS) 34 Interim Financial Reporting under International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. These consolidated interim financial statements follow the same accounting policies and methods of computation as outlined in note 3 of the Company s consolidated audited financial statements for the year ended December 31, 2015, except as noted below in note 3 of these consolidated interim financial statements. The consolidated interim financial statements do not include all of the information required for full annual financial statements. The consolidated financial statements were authorized for issue by the Board of Directors on May 5, Page 5

7 3. CHANGES IN ACCOUNTING POLICIES In May 2014, the IASB published IFRS 15 Revenue from Contracts with Customers, to replace IAS 18 Revenue, which establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. The standard is effective for the Company for annual periods beginning on January 1, 2018, with required retrospective application and early adoption permitted. The Company is currently evaluating the impact of adopting this new standard. The IASB issued IFRS 9 Financial Instruments to replace IAS 39 "Financial Instruments: Recognition and Measurement," which includes a principle-based approach for classification and measurement of financial assets, a single expected loss impairment model and a substantially-reformed approach to hedge accounting. The standard is effective for the Company for annual periods beginning on January 1, 2018, with required retrospective application and early adoption permitted. The Company is currently evaluating the impact of adopting this new standard. In January 2016, the IASB issued the complete IFRS 16 Leases ("IFRS 16") which replaces IAS 17, Leases. The effective date of IFRS 16 is for annual periods beginning on or after January 1, 2019 and early adoption is permitted. Under IFRS 16, a single recognition and measurement model will apply for lessees which will require recognition of assets and liabilities for most leases. The extent of the impact of adoption of the standard has not yet been determined. 4. DETERMINATION OF FAIR VALUES Financial assets and liabilities The following tables provide fair value measurement information for financial assets and liabilities as of March 31, 2016 and December 31, The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities and long-term debt included in the consolidated statement of financial position approximate fair value due to the short term nature of those instruments or the indexed rate of interest on the long-term debt. These assets and liabilities are not included in the following tables: March 31, 2016 ($000s) Carrying amount Fair value Quoted prices in active markets (level 1) Fair value measurements using Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Financial assets Financial commodity contracts $ 16,200 $ 16,200 $ - $ 16,200 $ - December 31, 2015 ($000s) Carrying amount Fair value Quoted prices in active markets (level 1) Fair value measurements using Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Financial assets Financial commodity contracts $ 20,000 $ 20,000 $ - $ 20,000 $ - Level 1 fair value measurements are based on unadjusted quoted market prices. Cash and cash equivalents have been classified as level 1. Level 2 fair value measurements are based on valuation models and techniques where the significant inputs are derived from quoted indices. Level 3 fair value measurements are those with inputs for the asset or liability that are not based on observable market data. Page 6

8 5. FINANCIAL RISK MANAGEMENT a) Credit risk As at March 31, 2016, the Company does not have an allowance for doubtful accounts and did not provide for any doubtful accounts nor was it required to write-off any receivables. As at December 31, 2015, the Company recorded $17 million as a provision for bad debt expense. As at March 31, 2016, the Company s total receivables consisted of $14 million (December 31, 2015 $10 million) from petroleum refineries, $37 million (December 31, 2015 $38 million) in VAT receivable, and $3 million (December 31, 2015 $8 million) of other trade receivables. The $37 million VAT receivable consists of $12 million, $19 million and $6 million VAT receivable for the years ended December 31, 2014, 2015 and period ended March 31, 2016, respectively. Of the total receivables from petroleum refineries, a total of $14 million (December 31, 2015 $10 million) is due within 30 days, of which $10 million has been received and cleared subsequent to March 31, Of the VAT receivable outstanding, approximately $1 million has been recovered subsequent to March 31, Of the total other trade receivables, approximately $2 million in realized gain on financial commodity contracts for the month of March 2016 has been received in April As at March 31, 2016, the Company had receivables owing from the Government of Albania totaling $37 (December 31, $38) and deposits held by the Government of Albania totaling $66 (December 31, $53). b) Commodity risk At December 31, 2015, the Company had outstanding financial commodity put contracts representing 4,000 barrels of oil per day at an average floor price of $54/bbl and an average ceiling of $57/bbl Brent for the contractual period from January 1, 2016 to December 31, During the quarter ended March 31, 2016, the Company entered into a costless collar contract representing 1,000 barrels of oil per day at a floor price of $40.00/bbl and ceiling price of $40.25/bbl Brent for the contractual period from April 1, 2016 to December 31, At March 31, 2016, the estimated fair value of these financial commodity contracts is $16 million, resulting in an unrealized loss of $4 million and a realized gain of $7 million for the three months ended March 31, Subsequent to March 31, 2016, the Company entered into a costless collar contract representing 1,000 barrels of oil per day at a floor price $47.80/bbl and ceiling price of $48.00/bbl Brent for the contractual period from May 1, 2016 to December 31, Collectively, these costless collar contracts represent 6,000 barrels of oil per day at an average floor price of $51.52/bbl and an average ceiling of $53.78/bbl Brent. The estimated fair values of the financial commodity contracts have been determined as the amounts the Company would receive or pay to terminate the commodity contracts at period-end. In April 2014, the Company paid a $3 million premium to enter into financial commodity contracts for At March 31, 2015, the estimated fair value of these financial commodity contracts is $42 million, resulting in an unrealized loss of $2 million and a realized gain of $14 million for the three months ended March 31, Page 7

9 6. FINANCE INCOME AND EXPENSE Three months ended March 31 ($000s) Finance income Interest income $ 73 $ 97 Finance expense Interest and bank charges $ 1,746 $ 1,546 Net foreign exchange (gain) loss (2,081) 6,874 Accretion of long-term debt (note 13(c)) Accretion of decommissioning obligation $ 237 $ 8,985 Net finance expense $ 164 $ 8, SUPPLEMENTAL CASH FLOW INFORMATION Three months ended March 31 ($000s) Operating activities Change in current assets Accounts receivable $ 2,840 $ 20,197 Inventory 281 3,665 Deposits and prepaid expenses (13,705) 672 Unrealized foreign exchange differences 3,367 - Change in current liabilities Accounts payable and accrued liabilities 10,562 (16,695) Unrealized foreign exchange differences (427) - Investing activities Change in current liabilities $ 2,918 $ 7,839 Accounts payable and accrued liabilities $ (9,114) $ (5,718) Unrealized foreign exchange differences (123) - $ (9,237) $ (5,718) Page 8

10 8. INCOME TAX EXPENSE The Company is subject to income and commodity taxes. Judgment is required in determining provisions for taxation. There are many transactions and calculations for determination of the various tax assets and liabilities. The Company maintains provisions for tax assets and liabilities. These provisions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, the Company is subject to ongoing audits, and it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will be recognized in the consolidated financial statements in the period in which such determination is made. Deferred income tax expense relates to the Albanian operations and results from the following: ($000s) March 31, 2016 December 31, 2015 Albania Net book value of property, plant and equipment and exploration and evaluation assets $ 956,934 $ 972,822 Cost recovery pool (279,500) (269,262) Timing difference $ 677,434 $ 703,560 Deferred tax liability at 50% $ 338,717 $ 351,780 Canada Deferred tax liabilities at 27% $ 2,230 $ 4,448 $ 340,947 $ 356,228 The Company s deferred tax liabilities result from the temporary differences between the carrying values and tax values of its Albanian and Canadian assets and liabilities. Page 9

11 8. INCOME TAX EXPENSE (cont d) The cost recovery pool represents deductions for income taxes in Albania. Under the terms of the Petroleum Agreements in Albania, profit will be taxed at a rate of 50%. The amounts referenced represent BPAL s filing position, which is in accordance with BPAL s Petroleum and License Agreements. The annual Work Plan and Budget was presented and approved by AKBN and all costs within the cost recovery pool are subject to ongoing routine audits. BPAL had received an audit report for 2011 expenditures from AKBN with findings that could result in a $303 million reduction to the cost recovery pool and a potential taxable position. On July 27, 2015, Bankers received a revised audit report from AKBN wherein the disputed costs were reduced to $251 million. Other routine audits have accepted BPAL s costs within the cost recovery pool and based on these audits and the AKBN project approval, BPAL is currently defending all costs and providing the requested support documentation. In February 2016, the Company signed a binding agreement with AKBN and the Minister of Energy and Industry to engage a third-party international auditor to review and assess whether they were certifiable petroleum costs according to the Petroleum Agreement and Licence Agreements. The work by the independent auditor and consultant has commenced and is expected to be completed within the second quarter of ($000s) March 31, 2016 December 31, 2015 Cost Recovery Pool by area Main $ 211,747 $ 201,650 Extension 30,332 30,174 Thermal 13,815 13,815 Block F 8,800 8,792 Sherwood 14,806 14,831 Total Cost Recovery Pool $ 279,500 $ 269,262 The provision for income taxes reported differs from the amounts computed by applying the cumulative Canadian federal and provincial income tax rates to the income before tax provision due to the following: Three Months Ended March 31 ($000s) Loss before income taxes $ (27,144) $ (8,237) Statutory tax rate 27.0% 25.0% (7,329) (2,059) Difference in tax rates between Albania and Canada (6,033) (4,559) Permanent differences (1,916) 2,461 Unrecognized deferred tax assets (liabilities) - (4,959) Other Income tax recovery $ (15,173) $ (9,116) The statutory tax rate was 27.0% in 2016 ( %). Page 10

12 8. INCOME TAX EXPENSE (cont d) Canadian deferred tax liabilities are attributable to the following: ($000s) March 31, 2016 December 31, 2015 Deferred income tax liabilities Unrealized capital gains $ 3,592 $ 5,705 Deferred income tax assets Capital losses (182) (170) Property, plant and equipment (1,180) (1,087) $ 2,230 $ 4, EXPLORATION AND EVALUATION (E&E) ASSETS ($000s) Cost or deemed cost Total Balance at December 31, 2014 $ 8,528 Additions 227 Balance at December 31, 2015 $ 8,755 Additions 2,012 Balance at March 31, 2016 $ 10,767 Exploration and evaluation assets consist of the Company s exploration projects which are pending the determination of proved or probable reserves. Page 11

13 10. PROPERTY, PLANT AND EQUIPMENT (PP&E) ($000s) Cost or deemed cost Petroleum Interests Equipment, Furniture and Fixtures Balance at December 31, 2014 $ 1,334,137 $ 16,744 $ 1,350,881 Exchange differences - (399) (399) Additions 149, ,925 Balance at December 31, 2015 $ 1,483,219 $ 17,188 $ 1,500,407 Exchange differences Additions 10, ,970 Balance at March 31, 2016 $ 1,494,169 $ 17,351 $ 1,511,520 Accumulated depletion and depreciation Balance at December 31, 2014 $ 338,086 $ 8,287 $ 346,373 Total Exchange differences - (291) (291) Depletion and depreciation 117,611 1, ,534 Balance at December 31, 2015 $ 455,697 $ 9,919 $ 465,616 Exchange differences Depletion and depreciation 26, ,658 Balance at March 31, 2016 $ 481,952 $ 10,438 $ 492,390 Net book value At December 31, 2014 $ 996,051 $ 8,457 $ 1,004,508 At December 31, 2015 $ 1,027,522 $ 7,269 $ 1,034,791 At March 31, 2016 $ 1,012,217 $ 6,913 $ 1,019,130 The depletion expense calculation for the three months ended March 31, 2016 included $1.9 billion (2015 $2.0 billion) for estimated future development costs associated with proved and probable reserves in Albania. The Company capitalized general and administrative expenses and share-based compensation of $1 million during the three months ended March 31, 2016 (2015 $2 million) that were directly related to exploration and development activities in Albania. Included in PP&E as of March 31, 2016 are oilfield equipment of $41 million (December 31, 2015 $41 million) for utilization in future drilling, reactivation and infrastructure programs in Albania. For the three months ended March 31, 2016, there were no impairments on petroleum interests. a) Security At March and December 31, 2015, all of the assets of BPAL are pledged as security for the credit facilities (see note 13). Page 12

14 11. DEPOSITS AND PREPAID EXPENSES Of the total deposits and prepaid expenses of $81 million at March 31, 2016 (December 31, 2015 $68 million), $42 million (December 31, 2015 $40 million) is paid to the Albanian Courts as deposits for procedure purposes on several legal cases and $26 million (December 31, $13 million) was paid to the Albanian tax office as deposits for the 2011 profit tax assessment. Of the aforementioned $42 million (December 31, 2015 $40 million), $40 million relates to the carbon and circulation (C&C) tax on diluent imports. Bankers have received a favourable ruling on its initial court case. As a result of this ruling, the Company recovered approximately $11 million of the C&C taxes paid for 2011 in the first quarter of District and appeal courts have ruled in favour of Bankers and the Company is continuing its defence at other various levels of appeal. The recoverability of these amounts is dependent on the outcome of these cases. The $40 million consists of $7 million, $13 million, $13 million, $6 million and $1 million for the years ended December 31, 2012, 2013, 2014, 2015 and period ended March 31, 2016, respectively. During 2015, the Company received a tax assessment of $57 million in regards to the 2011 cost recovery audit by AKBN (note 8). The Company has paid a total of $26 million (December 31, 2015 $13 million) as deposits for this tax assessment and is scheduled to make further monthly deposits to the Albanian tax office of approximately $3.6 million for the year ending December 31, The refund of this deposit is dependent upon the result of the cost recovery audit (note 8). As of March 31, 2016, the total amounts paid to the Albanian Courts and the tax office were considered recoverable. The Company expects to collect the full amount of deposits paid and has classified the full amount as current. 12. EARNINGS PER SHARE The following table summarizes the calculation of basic and diluted weighted average number of common shares: Three Months Ended March Weighted-average number of common shares outstanding basic 261,557, ,130,699 Dilutive effect of stock options - 561,713 Weighted-average number of common shares outstanding diluted 261,557, ,692,412 The average market price of the Company s shares, for purposes of calculating the dilutive effect of share options and warrants, was based on quoted market prices for the period that the options and warrants were outstanding. Excluded from diluted earnings per share is the effect of 17,014,005 options for the three months ended March 31, 2016 ( ,603,137 options and 200,000 warrants), as their effect is anti-dilutive. Page 13

15 13. LONG-TERM DEBT The Company has credit facilities with three international banks, including Raiffeisen Bank, the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC), as summarized below: ($000s) Facility Amount Outstanding Amount Raiffeisen Bank March 31, 2016 December 31, 2015 Operating loan (a) $ 18,000 $ 17,936 $ 16,855 EBRD and IFC* Environmental term loan (b) 2,400 2,400 2,400 Revolving loan Tranche 1 (c) 50,000 50,000 50,000 Revolving loan Tranche 2 (c) 50,000 50,000 50,000 Revolving loan Tranche 3 (c) 20, Revolving loan Tranche 4 (c) 80, EBRD and IFC* 220, , ,255 Transfer from deferred financing costs (c) - (2,512) (2,572) $ 220,400 $ 117,824 $ 116,683 * all facilities are equally funded ($000s) March 31, 2016 December 31, 2015 Current portion of long-term debt $ 22,636 $ 18,055 Long-term debt 95,188 98,628 $ 117,824 $ 116,683 These facilities are secured by all of the assets of BPAL, assignment of proceeds from the Albanian domestic and export crude oil sales contracts, a pledge of the common shares of BPAL and a guarantee by the Company. The credit facilities are subject to certain covenants requiring the maintenance of certain financial ratios, all of which were met as at March 31, 2016 and December 31, Financial Covenants EBRD/IFC Facilities In the revolving loan agreement, the Company and/or Group, is subject to the following financial covenants, on a consolidated basis (terms as defined in the loan agreement): Covenant Requirement Target Ratio 1 Life of field coverage ratio greater than 1.6:1.0. >1.6 2 Life of loan coverage ratio greater than 1.4:1.0. >1.4 3 Barrels of oil expected to be produced from the borrower s base asset(s) after the relevant final maturity date in relation to prove reserves exceeds the minimum reserves tail. 4 Interest cover and projected interest cover is greater than 10.0:1.0 with respect to the borrower. 5 In the case of the revolving borrowing base loan, the total outstanding amount of the lenders revolving borrowing base loans do not exceed the aggregate available amount. >33.6 million >10.0 < or = $100 million 6 A ratio of financial debt to EBIDA of less than 2.0:1.0. <2.0 Page 14

16 13. LONG-TERM DEBT (cont d) Financial covenants Raiffeisen Bank Facilities In the operating loan agreement, BPAL is subject to the following financial covenants (terms as defined in the loan agreement): Covenant Requirement 1 At least 25 percent of the collateral value shall be comprised of: Target Ratio >25% a. Cash on hand; b. Accounts receivables for deliveries under export contracts and local sales contracts; and c. Stocks of oil that have been extracted and stored in tanks. 2 The collateral value shall be at least 150 percent of the loan. >150% 3 The ratio of EBITDA to total debt costs shall not be less than 10:1. >10 4 The ratio of net senior debt to EBITDA shall be equal to or less than 2.5:1. < or =2.5 5 The aggregate amount of shareholder equity and shareholder loans shall be at least >55% equal to 55 percent of the aggregate amount of the total assets. 6 The EBITDA for each financial year shall be no less than $10 million. >$10 million 7 The ratio of net senior debt to shareholder loans shall not be less than 1:1.3. >1.3 a) Operating loan The operating loan represents a two year facility, bearing interest based on the London Inter-Bank Offer Rate (LIBOR) plus 3.5% and matures on May 31, Discussions are ongoing with respect to an extension for another two years. As at March 31, 2016, $17.9 million was utilized. b) Environmental term loan The term loan, funded equally by IFC and EBRD, is available for environmental and social programs pertinent to the Company s activities in Albania. The interest rate is based on LIBOR plus 4.5%. A standby fee of 0.5% is charged on the unutilized portion. At March 31, 2016, approximately $2 million of the facility was drawn. Principal repayments commenced in April 2013 in bi-annual installments of $0.3 million to both IFC and EBRD, with maturity on October 15, Of the amount outstanding, approximately $1 million is classified as current and $1 million as long-term. Principal repayments of the environmental term loan are as follows: ($000s) Due date 2016 April 15 and October 15, 2016 $ 1, April 15 and October 15, ,200 $ 2,400 Page 15

17 13. LONG-TERM DEBT (cont d) c) Revolving loans The revolving loans, funded equally by EBRD and IFC, consist of four tranches; $50 million for both Tranche 1 and 2, $20 million for Tranche 3 and $80 million for Tranche 4. The availability of all Tranches is subject to borrowing base determination based on prevailing production, costs and commodity prices, to be done semi-annually and at each draw date. In April 2016, these tranches were re-determined by EBRD and IFC. The new borrowing base is set at $96.5 million, subject to a repayment by the Company of the revolving loans in the aggregate amount of $3.5 million, which was classified as current as at March 31, 2016 and was paid on April 29, The next borrowing base determination date is in October The underlying price forecast is based on the NYMEX Futures Brent oil price (discounted at 10%) for 24 months and $70/bbl thereafter, averaged with the financial commodity contract valuation. The facility also requires that prevailing average Brent prices be at $55/bbl, $62/bbl and $70/bbl for Tranches 1, 2 and 3/4, respectively, or such other amounts, as agreed between the Company and its lenders. As of March 31, 2016, Tranche 1 and 2 were available to the Company and Tranches 3 and 4 were not available to the Company mainly due to the prevailing commodity prices. The interest rate is based on LIBOR plus a margin of 4.5%. A standby fee of 1.8% is charged on any unutilized Tranche 3 portion and 0.9% on any unutilized Tranche 4 portion. At March 31, 2016, Tranches 1 and 2 have both been fully utilized and $3.5 million is classified as current with the remainder classified as long-term. The total available revolving loan of $200 million declines to $150 million on September 16, 2017, $100 million on September 16, 2018, $50 million on September 16, 2019 with final repayment due on September 16, Principal repayments of the revolving loan are as follows: ($000s) Due date 2016 April 29, 2016 $ 3, September 16, , September 16, , September 16, , September 16, ,125 $ 100,000 Deferred financing costs pertaining to the Company s revolving loans were amortized over the life of the facilities. These costs were netted against the corresponding long-term debt when the debt was drawn. The debt is being accreted up to its face value using the effective interest rate method. ($000s) March 31, 2016 December 31, 2015 Balance, beginning of period $ 2,572 $ 4,124 Additions - 2 Exchange differences 160 (593) Accretion (220) (961) Balance, end of period $ 2,512 $ 2,572 Page 16

18 14. SHARE-BASED COMPENSATION a) Options A summary of the changes in stock options is presented below: Number of Options Weighted Average Exercise Price (CAD$) Outstanding, December 31, ,329,038 $ 3.74 Granted 3,726, Exercised (339,935) 2.62 Cancelled (9,258,404) 4.67 Forfeited (257,500) 4.18 Outstanding, December 31, ,199,901 $ 2.90 Cancelled (75,731) 2.12 Forfeited (110,165) 2.12 Outstanding, March 31, ,014,005 $ 2.91 Exercisable, March 31, ,790,760 $ 3.03 The range of exercise prices of the outstanding options is a follows: Range of Exercise Price (CAD$) Number of Options Weighted Average Exercise Price (CAD$) Weighted Average Remaining Contractual Life (years) ,000 $ ,549, ,268, , ,014,005 $ There were no stock options exercised during the three months ended March 31, The weighted average share price at the dates of exercise for stock options exercised during the three months ended March 31, 2015 was CAD$3.23. No options were granted during the three months ended March 31, 2016 and Using the fair value method for share-based compensation, the Company calculated share-based compensation for the three months ended March 31, 2016 as $0.3 million (2015 $2 million) for the stock options granted to officers, directors, employees and service providers. Of this amount, $0.2 million (2015 $1 million) was charged to earnings and $0.1 million (2015 $1 million) was capitalized. Page 17

19 14. SHARE-BASED COMPENSATION (cont d) b) c) Warrants A summary of the changes in warrants is presented below: Number of Warrants Exercise Price (CAD$) Outstanding, December 31, ,000 $ 3.08 Exercised Outstanding, December 31, ,000 $ 3.08 Expired (200,000) 3.08 Outstanding, March 31, $ 3.08 Exercisable, March 31, $ 3.08 In March 2013, 600,000 performance warrants were granted with an exercise price of CAD$3.08. These warrants vest one-third when the share price closes at CAD$4.00 per share, one-third when the share price closes at CAD$4.50 per share, and one-third when the share price closes at CAD$5.00 per share, all of which must meet the target price for 20 consecutive business days. The performance warrants expire three years following the date of grant. The performance warrants were valued using the Black-Scholes option pricing model assuming a risk-free interest rate of 1.1%, a dividend yield of 0%, a forfeiture rate of 0%, a volatility of 58% and an expected life of three years from the date of grant. The fair market value per performance warrant granted was CAD$1.19. All outstanding warrants expired during the three months ended March 31, Restricted share units (RSUs) A summary of the changes in RSUs is presented below: Number of RSUs Price (CAD$) Outstanding, December 31, ,406 $ 4.51 Granted 77, Exercised (133,056) 4.51 Cancelled (87,968) 4.42 Forfeited (7,875) 4.51 Outstanding, December 31, ,607 $ 4.24 Cancelled (27,518) 4.51 Forfeited (26,835) 4.51 Outstanding, March 31, ,254 $ 4.22 RSUs are granted to officers, directors, employees and service providers. The fair value of RSUs is determined at the date of grant using the closing price of the common shares and assuming a forfeiture rate of 5%. RSUs issued vest one-third after one year following the date of grant, one-third after two years following the grant date, and one-third after three years following the grant date. Using the fair value method for share-based compensation, the Company calculated share-based compensation for the three months ended March 31, 2016 as $0.2 million (2015 $0.6 million) for the RSUs granted to officers, directors, employees and service providers. Of this amount, $0.1 million (2015 $0.3 million) was charged to earnings and $0.1 million (2014 $0.3 million) was capitalized. Page 18

20 15. RESTRICTED CASH At March 31, 2016, the Company has $15 million (December 31, 2015 $17 million) in restricted cash. This consists of a bank guarantee of $5 million (December 31, 2015 $5 million) for certain capital projects in Phase 2 of Block F. At March 31, 2016, approximately $2 million (December 31, $2 million) for this project has been incurred. At March 31, 2016, the Company also has an $8 million (December 31, 2015 $8 million) bank guarantee on tax assessments and $2 million (December 31, 2015 $4 million) dedicated to other projects. 16. SEGMENTED INFORMATION The Company defines its reportable segments based on geographic locations. For the three months ended March 31, 2016, revenues of $32 million (2015 $62 million), were derived from one customer (2015 four customers) who individually amounted to 95% of the Company s revenues. Three months ended March 31, 2016 ($000s) Albania Canada Hungary Total Revenues $ 33,091 $ - $ - $ 33,091 Royalties (4,231) - - (4,231) Revenues, net of royalties 28, ,860 Realized gain on financial commodity - - 7,423 contracts 7,423 Unrealized loss on financial commodity - - (3,800) contracts (3,800) Total operating revenues 28,860 3,623-32,483 Operating expenses 17, ,717 Sales and transportation expenses 7, ,695 General and administrative expenses 4,328 2, ,141 Depletion and depreciation 26, ,658 Share-based compensation Total expenses 56,423 2, ,463 Operating income (loss) (27,563) 646 (63) (26,980) Net finance income (expense) 1,524 (1,702) 14 (164) Loss before income tax (26,039) (1,056) (49) (27,144) Income tax (expense) recovery Current - (267) - (267) Deferred 13,063 2,377-15,440 13,063 2,110-15,173 Net loss for the period (12,976) 1,054 (49) (11,971) Other comprehensive income Currency translation adjustment Comprehensive loss for the period $ (12,976) $ 1,530 $ (49) $ (11,495) Assets, March 31, 2016 $ 1,180,801 $ 53,671 $ 3,908 $ 1,238,380 Liabilities, March 31, 2016 $ 71,639 $ 458,423 - $ 530,062 Additions to PP&E $ 10,664 $ - - $ 10,664 Additions to E&E $ 7 $ - 2,005 $ 2,012 Page 19

21 16. SEGMENTED INFORMATION (cont d) Three months ended March 31, 2015 ($000s) Albania Canada Hungary Total Revenues $ 72,404 $ - $ - $ 72,404 Royalties (10,144) - - (10,144) Revenues, net of royalties 62, ,260 Realized gain on financial commodity - contracts - 14,130 14,130 Unrealized loss on financial commodity - contracts - (2,039) (2,039) Total operating revenues 62,260 12,091-74,351 Operating expenses 23, ,495 Sales and transportation expenses 13, ,897 General and administrative expenses 2,426 2,226-4,652 Contract settlement expenses Depletion and depreciation 30, ,119 Share-based compensation ,182 Total expenses 70,641 3,059-73,700 Operating income (loss) (8,381) 9, Net finance expense (7,242) (1,646) - (8,888) Income (loss) before income tax (15,623) 7,386 - (8,237) Deferred income tax recovery 9, ,116 - Net income (loss) for the year (6,507) 7, Other comprehensive loss Currency translation adjustment - (1,420) - (1,420) Comprehensive income (loss) for the year $ (6,507) $ 5,966 $ - $ (541) Assets, March 31, 2015 $ 1,166,645 $ 97,611 $ - $ 1,264,256 Liabilities, March 31, 2015 $ 440,539 $ 105,165 $ - $ 545,704 Additions to PP&E $ 49,814 $ 4 $ - $ 49,818 Additions to E&E $ 127 $ - $ - $ 127 Revenues by geographical region are as follows: Three months ended March 31 ($000s) Albania- domestic $ 845 $ 36,308 Albania- domestic take-in-kind Albania- export 31,507 35,907 $ 33,091 $ 72,404 Page 20