VILLANOVA 4 OIL CORP.

Transcription

1 VILLANOVA 4 OIL CORP Variance three months ended three months ended (Unaudited) December 31 December 31 % Financial Highlights Revenues $ 2,333,000 $ 64, % Cash Flow From Operations: $ 873,000 $ (108,000) 908% Per Share (Basic) $ $ (0.00) 907% Per Share (Diluted) $ $ (0.00) 911% Net Income (Loss): $ 97,000 $ (340,000) 129% Per Share (Basic) $ $ (0.01) 128% Per Share (Diluted) $ $ (0.01) 129% Capital Expenditures & Acquisitions $ 9,345,000 $ 2,854, % Working Capital Surplus $ 1,697,000 $ 25,916,000 (93%) Weighted Average Shares Outstanding: Basic 44,090,000 44,000,000 0% Diluted 50,905,000 51,085,000 (0%) Operating Highlights 2013 Production Boepd % Drilling Activity: Gross Wells 5-100% Net Wells % Undeveloped Lands: Gross Acres 57,250 31,342 83% Net Acres 49,000 28,196 74% Netbacks (per Boe): Average price realizations $ $ % Royalty expense (19.19) (5.16) 272% Production expense (11.71) (26.40) (56%) Field Netback $ $ % G&A expense (23.38) (194.44) (88%) Other income % Interest (99%) Corporate Netback $ $ (36.52) 192%

2 VILLANOVA 4 OIL CORP. Statement of Financial Position (Unaudited) As at: Canadian dollars (unaudited) December 31 September 30 Note Assets Cash $ 8,169,000 $ 14,264,000 Trade and other receivables 3 1,941,000 1,520,000 Restricted cash 4 955, ,000 Deposits and prepaids 40,000 52,000 Total current assets 11,105,000 16,791,000 Exploration and evaluation assets 5 23,429,000 22,302,000 Property, plant and equipment 6 20,344,000 12,569,000 Deferred tax asset 356, ,000 Total non-current assets 44,129,000 35,059,000 Total assets $ 55,234,000 $ 51,850,000 Liabilities Trade and other payables $ 8,277,000 $ 5,522,000 Total current liabilities 8,277,000 5,522,000 Decommissioning obligations 7 1,131, ,000 Total liabilities 9,408,000 6,515,000 Equity Share capital 8 45,556,000 45,556,000 Contributed surplus 9 3,077,000 2,683,000 Deficit (2,807,000) (2,904,000) Total equity 45,826,000 45,335,000 Total equity and liabilities $ 55,234,000 $ 51,850,000 The accompanying notes are an integral part of these financial statements. Approved by the Board of Directors 1

3 VILLANOVA 4 OIL CORP. Statement of Operations and Comprehensive Income (Loss) (Unaudited) Three Months Ended December 31 Canadian dollars Note Revenues: Petroleum and natural gas revenue $ 2,245,000 $ 64,000 Other income 88,000 - Royalties (516,000) (4,000) 1,817,000 60,000 Expenses: Production 315,000 20,000 General and administrative 629, ,000 Depletion and depreciation 6 634,000 39,000 Share based compensation 9 334, ,000 1,912, ,000 Loss from operating activities (95,000) (546,000) Finance income 31,000 84,000 Finance expense (7,000) (4,000) Net finance income 24,000 80,000 Loss before income tax (71,000) (466,000) Income tax reduction Deferred 168,000 (126,000) Net income (loss) and comprehensive income (loss) for the period $ 97,000 $ (340,000) The accompanying notes are an integral part of these financial statements. 2

4 VILLANOVA 4 OIL CORP. Statement of Changes in Equity (Unaudited) Canadian dollars Note Number of common shares Share capital Contributed surplus Deficit Total equity Balance at September 30, ,090,000 $ 45,556,000 $ 2,683,000 $ (2,904,000) $ 45,335,000 Share based compensation: Expensed , ,000 Capitalized ,000-60,000 Net income ,000 97,000 Balance at December 31, ,090,000 $ 45,556,000 $ 3,077,000 $ (2,807,000) $ 45,826,000 Note Number of common Share Contributed Total shares capital surplus Deficit equity Balance at September 30, ,965,000 $ 37,662,000 $ 223,000 $ (441,000) $ 37,444,000 Issue of shares for cash 7,035,000 7,738, ,738,000 Share based compensation: Expensed , ,000 Capitalized , ,000 Net loss (340,000) (340,000) Balance at December 31, ,000,000 $ 45,400,000 $ 950,000 $ (781,000) $ 45,569,000 The accompanying notes are an integral part of these financial statements. 3

5 VILLANOVA 4 OIL CORP. Statement of Cash Flows (Unaudited) Three Months Ended December 31 Canadian dollars Note Cash flows from operating activities: Net income (loss) for the period $ 97,000 $ (340,000) Adjustments for: Depletion and depreciation 6 634,000 39,000 Net finance income (24,000) (80,000) Share based compensation 9 334, ,000 Deferred tax reduction (168,000) (126,000) 873,000 (108,000) Change in non-cash operating working capital 10 (535,000) (24,000) Net cash from operating activities 338,000 (132,000) Cash flows from investing activities: Exploration and evaluation 5 (2,161,000) (2,854,000) Property, plant and equipment 6 (7,184,000) - Change in non-cash working capital 10 2,881,000 59,000 Net cash used in investing activities (6,464,000) (2,795,000) Cash flows from financing activities: Interest income 31,000 84,000 Proceeds from issue of share capital - 7,738,000 Change in non-cash working capital 10 - (36,000) Net cash from financing activities 31,000 7,786,000 Change in cash (6,095,000) 4,859,000 Cash, beginning of period 14,264,000 13,696,000 Cash, end of period $ 8,169,000 $ 18,555,000 The accompanying notes are an integral part of these financial statements. 4

6 VILLANOVA 4 OIL CORP. Notes to Condensed Interim Financial Statements 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 Scarth Street, Regina, Saskatchewan, Canada S4P 4K9. 2. Basis of preparation: (a) Statement of compliance: The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements were authorized for issue by the Board of Directors on February 11, (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 Notes to Condensed Interim Financial Statements 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 periods. 3. Trade and other receivables: The maximum exposure to credit risk for trade and other receivables at the reporting date by type of customer was: December Oil and natural gas marketing companies $ 927,000 Joint venture partners 616,000 GST receivable 398,000 Total trade and other receivables $ 1,941,000 Trade and other receivables: December 31, 2013 Carrying Less than 31 to 61 to over amount 30 days 60 days 90 days 90 days Trade and other receivables $ 1,941,000 $ 1,665,000 $ 200,000 $ 76,000 $ - $ 1,941,000 $ 1,665,000 $ 200,000 $ 76,000 $ - 6

8 Notes to the Financial Statements 4. Restricted cash: At December 31, 2013, the Company has a $955,000 (September 30, $955,000) bank guarantee related to abandonment and reclamation liabilities. Based on forecast production volumes, it is expected that the funds will be released by the end of Q3, Exploration and evaluation assets: December 31 September Balance, beginning of period $ 22,302,000 $ 16,301,000 Additions 7,184,000 14,588,000 Changes to decommissioning liability 130, ,000 Transfer to property, plant, and equipment (6,187,000) (8,843,000) Balance, end of period $ 23,429,000 $ 22,302,000 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 period. 6. Property, plant and equipment: Petroleum and Vehicles natural gas and field Total properties equipment Cost: Balance at September 30, 2013 $ 9,714,000 $ 3,283,000 $ 12,997,000 Additions 2,116,000 45,000 2,161,000 Transfers from exploration and evaluation 6,187,000-6,187,000 Capitalized share based compensation 60,000-60,000 Balance at December 31, 2013 $ 18,077,000 $ 3,328,000 $ 21,405,000 Accumulated depletion and depreciation Balance at September 30, 2013 $ 314,000 $ 113,000 $ 427,000 Depletion and depreciation for period 564,000 70, ,000 Balance at December 31, 2013 $ 878,000 $ 183,000 $ 1,061,000 Net carrying amount at December 31, 2013 $ 17,199,000 $ 3,145,000 $ 20,344,000 At December 31, 2013, future development costs of $8.3 million are included in costs subject to depletion. Capitalized general and administrative costs in the period were $144,000 (September 30, $206,000). 7

9 Notes to the Financial Statements 7. Decommissioning obligations: December 31 September Balance at beginning of period $ 993,000 $ 720,000 Provisions made during the year 137, ,000 Revision due to change in estimate (6,000) (25,000) Accretion 7,000 17,000 Balance at end of period $ 993,000 $ 993,000 Non-current $ 1,131,000 $ 993,000 Current - - $ 1,131,000 $ 993,000 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. 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: As at Dec. 31, 2013 As at Sept. 30, 2013 Number Amount Number Amount Common Shares Balance beginning of period 44,090,000 $ 45,556,000 36,965,000 $ 37,662,000 Issued for cash - - 7,035,000 7,739,000 Issued on the exercise of stock options , ,000 Balance at end of period 44,090,000 $ 45,556,000 44,090,000 $ 45,556,000 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. During the period, there has been no change to share capital. (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. 8

10 Notes to the Financial Statements The number and weighted average exercise prices of share options are as follows: As at Dec. 31, 2013 As at Sept. 30, 2013 Weighted Weighted Average Average Exercise Exercise Number Price Number Price Balance beginning of period 4,285,000 $ ,000,000 $ 1.00 Granted - - 1,675, Exercised - - (90,000) 1.00 Forfeited - - (300,000) 1.04 Balance at end of period 4,285,000 $ ,285,000 $ 1.05 Vested and exercisable, end of period 1,298,000 $ ,000 $ 1.00 During the period, there has been no change to the number of stock options outstanding. Performance warrants: The number and exercise prices of performance warrants are as follows: As at Dec. 31, 2013 As at Sept. 30, 2013 Exercise Exercise Number Price Number Price Balance beginning of period 2,530,000 $ $ - Granted - - 2,800, Forfeited - - (270,000) 1.10 Balance at end of period 2,530,000 $ ,530,000 $ 1.10 During the period, there has been no change to the number of performance warrants outstanding. 9

11 Notes to the Financial Statements 9. Contributed surplus: Stock options: The fair value of the options was estimated using the Black Scholes model with the following weighted average inputs: September November August Fair value at grant date $ 1.20 $ 1.10 $ 1.00 Share price Exercise price Volatility 100% 100% 100% Option life 5 years 5 years 5 years Dividends nil nil nil Risk-free interest rate 1.86% 1.24% 1.31% The forfeiture rate was estimated to be nil when recognizing share based compensation related to stock options. This estimate is adjusted to the actual forfeiture rate. Expensed stock option related share based compensation totaled $215,000 for the period. Capitalized stock option related share based compensation of $40,000 was recognized for the period ended December 31, Performance warrants: The forfeiture rate was estimated to be nil when recognizing share based payment costs related to the performance warrants. This estimate is adjusted to the actual forfeiture rate. Expensed performance warrant related share based compensation totaled $119,000 for the period ended September 30, Capitalized performance warrant related share based compensation of $20,000 was recognized for the period ended December 31, Supplemental cash flow information: Changes in non-cash working capital is comprised of: December 31 September Sources (use) of cash: Trade and other receivables $ (421,000) $ (1,246,000) Deposit and prepaid expenses 11,000 (41,000) Receivable from shareholders - 8,411,000 Trade and other payables 2,756,000 4,912,000 $ 2,346,000 $(12,036,000) Related to operating activities $ (535,000) $ 184,000 Related to investing activities $ 2,881,000 $ 3,441,000 Related to financing activities $ - $ 8,411,000 10

12 Notes to the Financial Statements 11. Related party transactions: Keystone Royalty Corp. ("KRC") owns 2.27% of the issued and outstanding shares of the Company and has a common Director. During the period, the Company did not enter into any petroleum and natural gas leases with KRC. Effective January 1, 2013, the Company entered into a Management Support Agreement with KRC to provide ongoing support services and receive the greater of $150,000 or 1.5% of KRC s gross annual revenue as compensation. During the period, the Company recognized $37,000 as a reduction to general and administrative expense pursuant to the Management Support Agreement. Effective February 1, 2013, the Company entered into a lease with Black Ridge Consulting & Oilfield Services Ltd. ("BRC"). BRC owns 1.13% of the issued and outstanding shares of the Company and has a common employee in a senior management position. The Company leased premises from BRC for the purpose of equipment storage and access to offices and a repair shop. During the period, the Company recognized $21,000 in general and administrative expenses with respect to this lease. The lease was negotiated pursuant to terms set out and agreed to by the Board of the Company. The lease term is for 3 years and has a monthly aggregate cost of $7,000. Effective April 1, 2013, the Company entered into a lease with three members of senior management. The Company leased the premise in Calgary, Alberta, for the purpose of providing office space for local staff. During the period, the Company recognized $15,000 in general and administrative expenses with respect to this lease. The lease was negotiated pursuant to terms set out and agreed to by the Board of the Company. The lease term is for 2 years and has a monthly aggregate cost of $5,000. Effective September 1, 2013, the Company entered into a Contract with D2 Drilling Inc. ( D2 ). D2 has two shareholders who are employees of the Company. The Company has agreed to a 2 year contract and/or a 360 drilling day commitment over the period for a total contract value of $6,480,000. The Contract was negotiated pursuant to terms set out and agreed to by the Board of the Company. During the period, the Company recognized $1,692,000 in capital expenditures with respect to this contract. 12. Subsequent event: Effective May 1, 2014, the Company will be relocating its head office. The Company has entered into a lease with KVL Properties Inc. ( KVL ). KVL has six shareholders who are employees of the Company. The lease was negotiated pursuant to terms set out and agreed to by the Board of the Company. The lease term is for 10 years and has a monthly cost of $15,