CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Transcription

1 CONSOLIDATED INTERIM FINANCIAL STATEMENTS JUNE 30,

2 BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited, expressed in thousands of US dollars, except per share amounts) Three months ended Six months ended Note Revenues $ 85,707 $ 170,531 $ 158,111 $ 315,516 Royalties (12,306) (25,178) (22,450) (47,126) 73, , , ,390 Realized gain on financial commodity contracts 5(b) 9,856-23,986 - Unrealized loss on financial commodity contracts 5(b) (20,798) (2,307) (22,837) (2,772) 62, , , ,618 Operating expenses 22,132 24,808 45,627 44,978 Sales and transportation expenses 9,766 14,526 23,663 24,902 General and administrative expenses 5,188 6,097 9,840 11,969 Contract settlement expenses Depletion and depreciation 9 30,830 27,983 60,949 54,676 Share-based compensation ,903 2,467 68,677 74, , ,511 (6,218) 68,286 (5,567) 126,107 Net finance expense 13 (1,590) (3,994) (10,478) (7,807) Income (loss) before income tax (7,808) 64,292 (16,045) 118,300 Deferred income tax recovery (expense) 7 (2,654) (37,096) 6,462 (66,112) Net income (loss) for the period (10,462) 27,196 (9,583) 52,188 Other comprehensive income (loss) Currency translation adjustment (1,305) 200 Comprehensive income (loss) for the period $ (10,347) $ 27,630 $ (10,888) $ 52,388 Basic earnings (loss) per share 10 $ (0.040) $ $ (0.037) $ Diluted earnings (loss) per share 10 $ (0.040) $ $ (0.037) $ The notes are an integral part of these consolidated interim financial statements. 2

3 BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited, expressed in thousands of US dollars) ASSETS Note 2015 December Current assets Cash and cash equivalents $ 33,817 $ 68,036 Restricted cash 5,772 5,000 Accounts receivable 5(a) 87,161 81,612 Inventory 6,132 10,008 Deposits and prepaid expenses 15 61,226 62,984 Financial commodity contracts 5(b) 21,333 44, , ,810 Non-current assets Property, plant and equipment 9 1,033,741 1,004,508 Exploration and evaluation assets 8 8,655 8,528 $ 1,257,837 $ 1,284,846 LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 42,465 $ 69,285 Current portion of long-term debt 11 12,067 1,200 54,532 70,485 Non-current liabilities Long-term debt 11 98,459 98,276 Decommissioning obligation 27,661 26,147 Deferred tax liabilities 7 366, , , ,310 SHAREHOLDERS EQUITY Share capital 365, ,670 Contributed surplus 89,631 86,409 Currency translation reserve 3,105 4,410 Retained earnings 252, , , ,536 $ 1,257,837 $ 1,284,846 The notes are an integral part of these consolidated interim financial statements. 3

4 Cash provided by (used in): BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, expressed in thousands of US dollars) Three months ended Six months ended Note Operating activities Net income (loss) for the period $ (10,462) $ 27,196 $ (9,583) $ 52,188 Depletion and depreciation 9 30,830 27,983 60,949 54,676 Accretion of long-term debt 11(c) ,049 Accretion of decommissioning obligation Unrealized foreign exchange loss 5, , Deferred income tax (recovery) expense 7 2,654 37,096 (6,462) 66,112 Share-based compensation ,903 2,467 Discount and revaluation of long-term receivable (205) Unrealized loss on financial commodity contracts 5(b) 20,798 2,307 22,837 2,772 Cash premiums paid for financial commodity contracts 5(b) - (2,847) - (2,847) 50,230 93,713 75, ,822 Change in non-cash working capital 6 (26,856) (33,979) (19,017) (36,738) 23,374 59,734 56, ,084 Investing activities Additions to property, plant and equipment (37,567) (71,250) (87,385) (131,098) Additions to exploration and evaluation assets - (251) (127) (268) Restricted cash (181) (5,000) (772) (2,891) Change in non-cash working capital 6 (7,216) 1,694 (12,934) 2,498 (44,964) (74,807) (101,218) (131,759) Financing activities Issue of shares for cash 511 9, ,060 Financing costs 11(c) - (2) - (435) Change in long-term debt 11 2,505 (600) 10,267 (896) 3,016 8,610 10,989 11,729 Foreign exchange gain (loss) on cash and cash equivalents (93) 176 Increase (decrease) in cash and cash equivalents (18,434) (6,345) (34,219) 20,230 Cash and cash equivalents, beginning of period 52,251 51,172 68,036 24,597 Cash and cash equivalents, end of period $ 33,817 $ 44,827 $ 33,817 $ 44,827 Interest paid $ 3,095 $ 3,358 $ 3,140 $ 3,431 Interest received $ 55 $ 52 $ 151 $ 274 The notes are an integral part of these consolidated interim financial statements. 4

5 BANKERS PETROLEUM LTD. CONSOLIDATED STATEMENTS 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 Balance at December 31, ,681,911 $ 340,305 $ 84,811 $ 6,345 $ 133,214 $ 564,675 earnings Total Share-based compensation , ,587 Options exercised 4,613,648 20,312 (8,377) ,935 Warrants exercised 400,000 1,561 (438) - - 1,123 Net income for the period ,188 52,188 Currency translation adjustment Balance at, ,695,559 $ 362,178 $ 80,583 $ 6,545 $ 185,402 $ 634,708 Share-based compensation - - 6, ,453 Options exercised 388,834 1,492 (627) Net income for the period ,645 76,645 Currency translation adjustment (2,135) - (2,135) Balance at December 31, ,084,393 $ 363,670 $ 86,409 $ 4,410 $ 262,047 $ 716,536 Share-based compensation , ,875 Options exercised 339,935 1,375 (653) Net loss for the period (9,583) (9,583) Currency translation adjustment (1,305) - (1,305) Balance at, ,424,328 $ 365,045 $ 89,631 $ 3,105 $ 252,464 $ 710,245 The notes are an integral part of these consolidated interim financial statements. 5

6 1. REPORTING ENTITY Bankers Petroleum Ltd. (Company) is incorporated and domiciled in Canada and is 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 whollyowned operating subsidiaries (Group) Bankers Petroleum International Limited (BPIL), Bankers Petroleum Albania Ltd. (BPAL) and Sherwood International Petroleum Ltd. (Sherwood). BPIL is incorporated in Jersey and 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 June 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. 2. 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, 2014, 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 interim financial statements were authorized for issue by the Board of Directors on August 12, 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. Bankers Petroleum Ltd. 6 Second Quarter Report 2015

7 4. DETERMINATION OF FAIR VALUES Financial assets and liabilities The following tables provide fair value measurement information for financial assets and liabilities as of, 2015 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 statements 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: 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), 2015 ($000s) Financial assets Financial commodity contracts $ 21,333 $ 21,333 $ - $ 21,333 $ - 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) December 31, 2014 ($000s) Financial assets Financial commodity contracts $ 44,170 $ 44,170 $ - $ 44,170 $ - 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. Bankers Petroleum Ltd. 7 Second Quarter Report 2015

8 5. FINANCIAL RISK MANAGEMENT (a) Credit Risk As of, 2015 and December 31, 2014, 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, 2015, the Company s total receivables consisted of approximately $54 million (December 31, 2014 $48 million) from crude oil buyers, $28 million (December 31, 2014 $30 million) in Value Added Tax (VAT) receivable and $5 million (December 31, 2014 $3 million) of other Canadian trade receivables. Of the total receivables from export crude oil buyers, a total of $37 million (December 31, 2014 $33 million) is due within 30 days, of which $36 million has been received subsequent to, Of the total other Canadian trade receivables, approximately $3 million in realized gain on financial commodity contracts for the month of June 2015 has been received in July Of the total receivables in Albania, approximately $10 million (December 31, 2014 $15 million) is due from one domestic customer of which the full amount (December 31, 2014 $15 million) is past due. The Company expects to collect the full amount of the receivable. Based on actual repayment history and agreements in place, the full amount has been classified as current at, During the three and six months periods ended, 2015, approximately $1 million and $5 million were collected from this customer, respectively. (b) Commodity Risk At, 2015, the Company had outstanding financial commodity put contracts representing 6,000 barrels of oil per day at a floor price of $80 per barrel Brent for the remaining contractual period from July 1, 2015 to December 31, 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 representing 6,000 barrels of oil per day at a floor price of $80 per barrel Brent for the contractual period from January 1, 2015 to December 31, At, 2015, the estimated fair value of these financial commodity contracts is $21 million (December 31, 2014 $44 million), resulting in an unrealized loss of $21 million and $23 million (unrealized loss of $2 million for the same periods in 2014) and a realized gain of $10 million and $24 million (nil for the same periods in 2014) for the three and six months periods ended, 2015, respectively. These financial commodity contracts are classified as current. In July 2013, the Company entered into financial commodity contracts for For the three and six months periods ended, 2014, the unrealized loss for the contracts was $0.3 million and $0.7 million, respectively. Bankers Petroleum Ltd. 8 Second Quarter Report 2015

9 6. SUPPLEMENTAL CASH FLOW INFORMATION Three months ended Six months ended ($000s) Operating activities Change in current assets Accounts receivable $ (25,746) $ (39,825) $ (5,549) $ (52,810) Inventory ,024 3,876 24,981 Deposits and prepaid expenses 1,086 (1,993) 1,758 (13,423) Unrealized foreign exchange differences (4,965) - (4,965) - Change in current liabilities Accounts payable and accrued liabilities 2,656 (5,185) (14,039) 4,514 Unrealized foreign exchange differences (98) - (98) - $ (26,856) $ (33,979) $ (19,017) $ (36,738) Investing activities Change in current liabilities Accounts payable and accrued liabilities $ (7,063) $ 1,694 $ (12,781) $ 2,498 Unrealized foreign exchange differences (153) - (153) - (7,216) 1,694 (12,934) 2, INCOME TAX EXPENSE Deferred income tax expense relates to the Albanian operations and results from the following: ($000s), 2015 December 31, 2014 Net book value of property, plant and equipment and exploration and evaluation assets $ 974,687 $ 947,827 Decommissioning obligation (27,661) (26,147) Cost recovery pool (213,146) (174,876) Timing difference $ 733,880 $ 746,804 Deferred tax liabilities at 50% $ 366,940 $ 373,402 The Company s deferred tax liabilities result from the temporary differences between the carrying values and tax values of its Albanian assets and liabilities. Bankers Petroleum Ltd. 9 Second Quarter Report 2015

10 7. 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 has received an audit report 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. The Company continues to reject this reduced assessment and, pursuant to the dispute resolution process contained in the License Agreement, may elect to resolve all cost recovery matters through formal negotiation and then proceed to independent International Arbitration. 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. 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 Six months ended ($000s) Income (loss) before income taxes $ (7,808) $ 64,292 $ (16,045) $ 118,300 Statutory tax rate 26.0% 25.0% 26.0% 25.0% (2,030) 16,073 (4,172) 29,575 Difference in tax rates between Albania and Canada 1,504 18,548 (3,054) 33,056 Change in enacted tax rates (557) - (557) - Permanent differences (581) 155 2,054 1,500 Unrecognized deferred tax assets 4,684 2,321 (367) 1,981 Other (366) (1) (366) - Deferred income tax (recovery) expense $ 2,654 $ 37,096 $ (6,462) $ 66,112 The Alberta government introduced changes that increased the provincial corporate income tax rate from 10% to 12% effective July 1, The impact of this rate change has been recognized in the current quarter. In Canada, the benefit of non-capital losses of approximately $28 million as of December 31, 2014 has not been recognized in the financial statements. The non-capital losses have been utilized against Canadian income for the three and six months periods ended, Bankers Petroleum Ltd. 10 Second Quarter Report 2015

11 8. EXPLORATION AND EVALUATION ASSETS ($000s) Total Cost or deemed cost Balance at December 31, 2013 $ 6,819 Additions 1,709 Balance at December 31, 2014 $ 8,528 Additions 127 Balance at, 2015 $ 8,655 Exploration and evaluation assets (E&E) consist of the Company s exploration projects which are pending the determination of proved or probable reserves. 9. PROPERTY, PLANT AND EQUIPMENT (PP&E) Petroleum Interests Equipment, Furniture and Fixtures ($000s) Total Cost or deemed cost Balance at December 31, 2013 $ 1,039,469 $ 14,489 $ 1,053,958 Exchange differences - (214) (214) Additions 294,668 2, ,137 Balance at December 31, 2014 $ 1,334,137 $ 16,744 $ 1,350,881 Exchange differences - (170) (170) Additions 89, ,235 Balance at, 2015 $ 1,423,990 $ 16,956 $ 1,440,946 Accumulated depletion and depreciation Balance at December 31, 2013 $ 223,544 $ 6,506 $ 230,050 Exchange differences - (135) (135) Depletion and depreciation 114,542 1, ,458 Balance at December 31, 2014 $ 338,086 $ 8,287 $ 346,373 Exchange differences - (117) (117) Depletion and depreciation 59, ,949 Balance at, 2015 $ 398,082 $ 9,123 $ 407,205 ($000s) Petroleum Interests Equipment, Furniture and Fixtures Total Net book value At December 31, 2013 $ 815,925 $ 7,983 $ 823,908 At December 31, 2014 $ 996,051 $ 8,457 $ 1,004,508 At, 2015 $ 1,025,908 $ 7,833 $ 1,033,741 Bankers Petroleum Ltd. 11 Second Quarter Report 2015

12 9. PROPERTY, PLANT AND EQUIPMENT (PP&E) (cont d) The depletion expense calculation for the three months ended, 2015 included $2.0 billion (2014 $2.1 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 and $3 million during the three and six months periods ended, 2015, respectively ($2 million and $3 million for the corresponding periods in 2014) that were directly related to exploration and development activities in Albania. Included in PP&E as of, 2015 are oilfield equipment of $50 million (December 31, 2014 $43 million) for utilization in future drilling, reactivation and infrastructure programs in Albania. At, 2015 and December 31, 2014, all of the assets of BPAL are pledged as security for the credit facilities (see note 11). 10. EARNINGS PER SHARE The following table summarizes the calculation of basic and diluted weighted average number of common shares: Three months ended Six months ended Weighted-average number of common shares outstanding basic 261,376, ,318, ,254, ,770,147 Dilutive effect of stock options 1,481,164 8,044, ,434 6,452,872 Dilutive effect of warrants 13,415 72, ,364 Weighted-average number of common shares outstanding diluted 262,871, ,434, ,202, ,278,383 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 12,311,008 options and 12,472,341 options for the three and six months periods ended, 2015, respectively (190,000 options and 263,334 options for the corresponding periods in 2014) as their effect is anti-dilutive. Bankers Petroleum Ltd. 12 Second Quarter Report 2015

13 11. 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, 2015 December 31, 2014 Raiffeisen Bank Operating loan (a) $ 20,000 $ 10,867 $ - EBRD and IFC* Environmental term loan (b) 3,000 3,000 3,600 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, , , ,600 EBRD and IFC* Transfer from deferred financing costs (c) - (3,341) (4,124) * all facilities are equally funded $ 223,000 $ 110,526 $ 99,476 ($000s), 2015 December 31, 2014 Current portion of long-term debt $ 12,067 $ 1,200 Long-term debt 98,459 98,276 $ 110,526 $ 99,476 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, 2015 and December 31, (a) Operating loan The operating loan consists of a two year facility, bearing interest based on the London Inter- Bank Offer Rate (LIBOR) plus 3.5% and matures on March 31, As at, 2015, the entire operating loan has been classified as current. Bankers Petroleum Ltd. 13 Second Quarter Report 2015

14 11. LONG-TERM DEBT (cont d) (b) Environmental term loan This 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, 2015, $3 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 $2 million as longterm. Principal repayments of the environmental term loan are as follows: ($000s) Due date 2015 October 15, 2015 $ April 15 and October 15, , April 15 and October 15, ,200 $ 3,000 (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. All tranches are available to the Company, subject to borrowing base determination based on prevailing production, costs and commodity prices, to be done semi-annually and at each draw date. 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. 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, 2015, Tranche 1 and 2 have both been fully utilized and the total amount has been 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 $ September 16, , September 16, , September 16, , September 16, ,000 $ 100,000 Bankers Petroleum Ltd. 14 Second Quarter Report 2015

15 11. LONG-TERM DEBT (cont d) (c) Revolving loans (cont d) 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), 2015 December 31, 2014 Balance, beginning of period $ 4,124 $ 5,450 Additions Exchange differences (283) (411) Accretion (500) (1,350) Balance, end of period $ 3,341 $ 4, 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, ,642,771 $ 3.40 Granted 4,074, Exercised (5,002,482) 2.80 Expired (117,499) 5.10 Cancelled (100,835) 3.38 Forfeited (167,335) 3.67 Outstanding, December 31, ,329,038 $ 3.74 Granted 35, Exercised (339,935) 2.62 Cancelled (1,182,753) 4.33 Forfeited (100,000) 4.36 Outstanding,, ,741,350 $ 3.72 Exercisable,, ,183,601 $ 3.58 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) ,304,009 $ ,398, ,830, , ,741,350 $ The weighted average share price at the dates of exercise for stock options exercised during the three and six months periods ended, 2015 was CAD$3.40 and CAD$3.35, respectively (CAD$6.93 and CAD$6.07 for the same periods in 2014). Bankers Petroleum Ltd. 15 Second Quarter Report 2015

16 12. SHARE-BASED COMPENSATION (cont d) (a) Options (cont d) The weighted average fair market value per option granted during the three and six months periods ended, 2015 and 2014 and the weighted average assumptions used in the Black-Scholes option pricing model in their determination were as follows: Three months ended Six months ended Fair value per option (CAD$) Risk-free interest rate (%) Forfeiture rate (%) Volatility (%) Expected life (years) Using the fair value method for share-based compensation, the Company calculated share-based compensation for the three and six months periods ended, 2015 as $1 million and $3 million, respectively ($2 million and $4 million for the same periods in 2014), for the stock options granted to officers, directors, employees and service providers. Of these amounts, $1 million and $1 million ($1 million and $2 million for the same periods in 2014) was charged to earnings and $1 million and $1 million ($1 million and $2 million for the same periods in 2014) was capitalized. (b) Warrants A summary of the changes in warrants is presented below: Number of Warrants Outstanding, December 31, ,000 $ 3.08 Exercised (400,000) 3.08 Outstanding, December 31, ,000 $ 3.08 Exercised - - Outstanding,, ,000 $ 3.08 Exercisable,, ,000 $ 3.08 Exercise Price (CAD$) On March 13, 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, onethird 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. Bankers Petroleum Ltd. 16 Second Quarter Report 2015

17 12. SHARE-BASED COMPENSATION (cont d) (b) Warrants (cont d) 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. Using the fair value method for share-based compensation, the Company calculated share-based compensation of the warrants for the three and six months periods ended, 2015 as $18,000 and $0.1 million, respectively ($0.1 million and $0.2 million for the same periods in 2014), of which the full amount ($0.1 million and $0.2 million for the same periods in 2014) was charged to earnings. No warrants were exercised during the three and six months periods ended, The weighted average share price at the date of exercise for warrants exercised during the three and six months periods ended, 2014 was CAD$7.21 and CAD$5.80, respectively. During the three and six months periods ended, 2014, 200,000 and 400,000 warrants were exercised, respectively. (c) Restricted share units (RSUs) A summary of the changes in RSUs is presented below: Number of RSU Price (CAD$) Outstanding, December 31, $ - Granted 796, Outstanding, December 31, ,406 $ 4.51 Granted 13, Cancelled (81,084) 4.51 Forfeited (7,875) 4.51 Outstanding,, ,947 $ 4.48 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 and six months periods ended, 2015 as $0.4 million and $1 million, respectively (2014 nil) for the RSUs granted to officers, directors, employees and service providers. Of these amounts, $0.2 million and $0.5 million (2014 nil) was charged to earnings and $0.2 million and $0.6 million (2014 nil) was capitalized. Bankers Petroleum Ltd. 17 Second Quarter Report 2015

18 13. FINANCE INCOME AND EXPENSE Three months ended Six months ended ($000s) Finance income Interest income $ 66 $ 54 $ 163 $ 281 Discount and revaluation of long-term receivable Net unrealized foreign exchange gain $ 954 $ 54 $ 163 $ 486 Finance expense Interest and bank charges $ 1,571 $ 1,686 $ 3,117 $ 3,389 Net unrealized foreign exchange loss - 1,492 5,001 3,309 Net realized foreign exchange loss 402-1,387 - Accretion of long-term debt (note 11(c)) ,049 Accretion of decommissioning obligation ,544 4,048 10,641 8,293 Net finance expense $ (1,590) $ (3,994) $ (10,478) $ (7,807) Bankers Petroleum Ltd. 18 Second Quarter Report 2015

19 14. SEGMENTED INFORMATION The Company defines its reportable segments based on geographic locations. Three months ended, 2015 ($000s) Albania Canada Total Revenues $ 85,707 $ - $ 85,707 Royalties (12,306) - (12,306) 73,401-73,401 Realized gain on financial commodity contracts - 9,856 9,856 Unrealized loss on financial commodity contracts - (20,798) (20,798) 73,401 (10,942) 62,459 Operating expenses 22,132-22,132 Sales and transportation expenses 9,766-9,766 General and administrative expenses 3,046 2,142 5,188 Contract settlement expenses Depletion and depreciation 30, ,830 Share-based compensation ,036 2,641 68,677 7,365 (13,583) (6,218) Net finance income (expense) 99 (1,689) (1,590) Income (loss) before income tax 7,464 (15,272) (7,808) Deferred income tax expense (2,654) - (2,654) Net income (loss) for the period 4,810 (15,272) (10,462) Other comprehensive income Currency translation adjustment Comprehensive income (loss) for the period $ 4,810 $ (15,157) $ (10,347) Assets,, 2015 $ 1,200,375 $ 57,462 $ 1,257,837 Liabilities,, 2015 $ 445,384 $ 102,208 $ 547,592 Additions to PP&E $ 37,536 $ 31 $ 37,567 Additions to E&E $ - $ - $ - Bankers Petroleum Ltd. 19 Second Quarter Report 2015

20 14. SEGMENTED INFORMATION (cont d) Three months ended, 2014 ($000s) Albania Canada Total Revenues $ 170,531 $ - $ 170,531 Royalties (25,178) - (25,178) 145, ,353 Unrealized loss on financial commodity contracts - (2,307) (2,307) 145,353 (2,307) 143,046 Operating expenses 24,808-24,808 Sales and transportation expenses 14,526-14,526 General and administrative expenses 3,123 2,974 6,097 Contract settlement expenses Depletion and depreciation 27, ,983 Share-based compensation ,018 3,742 74,760 74,335 (6,049) 68,286 Net finance expense (1,784) (2,210) (3,994) Income (loss) before income tax 72,551 (8,259) 64,292 Deferred income tax expense (37,096) - (37,096) Net income (loss) for the period 35,455 (8,259) 27,196 Other comprehensive income Currency translation adjustment Comprehensive income (loss) for the period $ 35,455 $ (7,825) $ 27,630 Assets,, 2014 $ 1,113,370 $ 37,508 $ 1,150,878 Liabilities,, 2014 $ 412,508 $ 103,662 $ 516,170 Additions to PP&E $ 71,231 $ 19 $ 71,250 Additions to E&E $ 251 $ - $ 251 Bankers Petroleum Ltd. 20 Second Quarter Report 2015

21 14. SEGMENTED INFORMATION (cont d) Six months ended, 2015 ($000s) Albania Canada Total Revenues $ 158,111 $ - $ 158,111 Royalties (22,450) - (22,450) 135, ,661 Realized gain on financial commodity contracts - 23,986 23,986 Unrealized loss on financial commodity contracts - (22,837) (22,837) 135,661 1, ,810 Operating expenses 45,627-45,627 Sales and transportation expenses 23,663-23,663 General and administrative expenses 5,472 4,368 9,840 Contract settlement expenses Depletion and depreciation 60, ,949 Share-based compensation 731 1,172 1, ,677 5, ,377 (1,016) (4,551) (5,567) Net finance expense (7,143) (3,335) (10,478) Loss before income tax (8,159) (7,886) (16,045) Deferred income tax recovery 6,462-6,462 Net loss for the period (1,697) (7,886) (9,583) Other comprehensive loss Currency translation adjustment - (1,305) (1,305) Comprehensive loss for the period $ (1,697) $ (9,191) $ (10,888) Additions to PP&E $ 87,350 $ 35 $ 87,385 Additions to E&E $ 127 $ - $ 127 Bankers Petroleum Ltd. 21 Second Quarter Report 2015

22 14. SEGMENTED INFORMATION (cont d) Six months ended, 2014 ($000s) Albania Canada Total Revenues $ 315,516 $ - $ 315,516 Royalties (47,126) - (47,126) 268, ,390 Unrealized loss on financial commodity contracts - (2,772) (2,772) 268,390 (2,772) 265,618 Operating expenses 44,978-44,978 Sales and transportation expenses 24,902-24,902 General and administrative expenses 6,572 5,397 11,969 Contract settlement expenses Depletion and depreciation 54, ,676 Share-based compensation 689 1,778 2, ,138 7, , ,252 (10,145) 126,107 Net finance expense (3,543) (4,264) (7,807) Income (loss) before income tax 132,709 (14,409) 118,300 Deferred income tax expense (66,112) - (66,112) Net income (loss) for the period 66,597 (14,409) 52,188 Other comprehensive income Currency translation adjustment Comprehensive income (loss) for the period $ 66,597 $ (14,209) $ 52,388 Additions to PP&E $ 131,043 $ 55 $ 131,098 Additions to E&E $ 268 $ - $ 268 Bankers Petroleum Ltd. 22 Second Quarter Report 2015

23 14. SEGMENTED INFORMATION (cont d) Revenues by geographical region are as follows: Three months ended Six months ended ($000s) Albania - domestic $ 16,656 $ - $ 52,964 $ - Albania - domestic take-in-kind , ,157 Albania - export 68, , , ,359 $ 85,707 $ 170,531 $ 158,111 $ 315,516 For the three and six months periods ended, 2015, revenues of $81 million and $131 million, respectively ($150 million and $253 million for the same periods in 2014), were derived from five and four customers, respectively (three customers for the same periods in 2014) who individually amounted to over 10% or more of the Company s revenues. 15. TAX ASSESSMENTS Of the total deposits and prepaid expenses of $61 million at, 2015 (December 31, 2014 $63 million), $39 million (December 31, 2014 $47 million) is paid to the Albanian Courts as deposits for procedure purposes on several legal cases. The recoverability of these amounts is dependent on the outcome of these cases. The Albanian Courts have ruled in favour of the Company for the carbon and circulation (C&C) tax on diluent imports representing approximately $36 million (December 31, 2014 $43 million) of the total paid to the Albanian Courts. District and appeal courts have ruled in favour of Bankers and the Company is continuing its defence at other various levels of appeal. As of, 2015, the total amounts paid to the Albanian Courts were considered recoverable. The Company expects to collect the full amount of deposits paid to the Albanian court and has classified the full amount as current. During the three and six months periods ended, 2015, approximately $11 million of previously paid C&C tax was received. 16. CONTRACT SETTLEMENT In September 2013, a claim was filed in the Commercial Court of England and Wales against BPAL by BP Oil International Ltd. (BPOI) in connection with a dispute over the termination by BPAL of a crude oil sales contract. In December 2014, BPAL commenced settlement negotiations and in February 2015, BPAL reached a full and final settlement with BPOI for a payment by BPAL to BPOI. The lawsuit initially sought damages of up to $54 million for, among other things, the alleged wrongful termination of such agreement. As part of the settlement, neither party admitted to wrongful or illegal conduct, and both parties claims and counterclaims were dismissed on March 2, For the three and six months periods ended, 2015, contract settlement expenses were $40,000 and $0.4 million, respectively ($0.3 million and $0.5 million for the same periods in 2014) in legal and professional fees associated with the claim. During the six months period ended, 2015, Bankers paid the final settlement amount of approximately $17 million to BPOI. Bankers Petroleum Ltd. 23 Second Quarter Report 2015