CROCOTTA ENERGY INC. (TSX:CTA) is pleased to announce its financial and
operating results for the three and nine months ended September 30, 2013,
including condensed interim consolidated financial statements, notes to the
condensed interim consolidated financial statements, and Management's Discussion
and Analysis. All dollar figures are Canadian dollars unless otherwise noted.
HIGHLIGHTS
-- Increased production 24% to 8,596 boe/d in Q3 2013 from 6,945 boe/d in
Q3 2012
-- Increased funds from operations 48% to $16.1 million in Q3 2013 from
$10.9 million in Q3 2012
-- Entered into a $145 million syndicated credit facility
FINANCIAL RESULTS
Three Months Ended Nine Months Ended
September 30 September 30
($000s, except per share % %
amounts) 2013 2012 Change 2013 2012 Change
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Oil and natural gas sales 26,950 17,922 50 80,369 55,580 45
Funds from operations (1) 16,102 10,888 48 47,506 36,137 31
Per share - basic 0.17 0.12 42 0.52 0.41 27
Per share - diluted 0.16 0.12 33 0.50 0.40 25
Net earnings (loss) 975 (3,944) 125 7,183 (3,172) 326
Per share - basic and
diluted 0.01 (0.04) 125 0.08 (0.04) 300
Capital expenditures 48,911 23,540 108 94,611 62,228 52
Net debt (2) 105,518 54,436 94
Common shares outstanding
(000s)
Weighted average - basic 95,978 88,103 9 91,954 88,097 4
Weighted average - diluted 97,969 90,586 8 94,114 90,915 4
End of period - basic 96,098 88,104 9
End of period - diluted 107,919 100,229 8
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(1) Funds from operations and funds from operations per share do not have
any standardized meaning prescribed by International Financial Reporting
Standards ("IFRS") and therefore may not be comparable to similar
measures used by other companies. Please refer to the Non-GAAP Measures
section in the MD&A for more details and the Funds from Operations
section in the MD&A for a reconciliation from cash flow from operating
activities.
(2) Net debt includes current liabilities (excluding risk management
contracts) and the credit facility less current assets. Net debt does
not have any standardized meaning prescribed by IFRS and therefore may
not be comparable to similar measures used by other companies. Please
refer to the Non-GAAP Measures section in the MD&A for more details.
OPERATING RESULTS Three Months Ended Nine Months Ended
September 30 September 30
% %
2013 2012 Change 2013 2012 Change
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Daily production
Oil and NGLs (bbls/d) 2,497 2,103 19 2,448 2,144 14
Natural gas (mcf/d) 36,593 29,053 26 36,624 27,743 32
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Oil equivalent (boe/d) 8,596 6,945 24 8,552 6,768 26
Revenue
Oil and NGLs ($/bbl) 79.85 56.78 41 70.61 63.75 11
Natural gas ($/mcf) 2.56 2.60 (2) 3.32 2.39 39
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Oil equivalent ($/boe) 34.08 28.05 21 34.42 29.97 15
Royalties
Oil and NGLs ($/bbl) 6.89 11.97 (42) 8.19 9.96 (18)
Natural gas ($/mcf) 0.04 0.12 (67) 0.09 0.13 (31)
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Oil equivalent ($/boe) 2.18 4.13 (47) 2.75 3.69 (25)
Production expenses
Oil and NGLs ($/bbl) 6.03 5.00 21 5.92 5.06 17
Natural gas ($/mcf) 1.12 1.00 12 1.13 0.98 15
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Oil equivalent ($/boe) 6.51 5.72 14 6.53 5.62 16
Transportation expenses
Oil and NGLs ($/bbl) 1.93 0.51 278 1.35 0.84 61
Natural gas ($/mcf) 0.18 0.19 (5) 0.13 0.18 (28)
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Oil equivalent ($/boe) 1.31 0.93 41 0.93 1.01 (8)
Operating netback (1)
Oil and NGLs ($/bbl) 65.00 39.30 65 55.15 47.89 15
Natural gas ($/mcf) 1.22 1.29 (5) 1.97 1.10 79
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Oil equivalent ($/boe) 24.08 17.27 39 24.21 19.65 23
Depletion and depreciation
($/boe) (14.13) (15.14) (7) (13.78) (14.87) (7)
Asset impairment ($/boe) (0.28) (3.77) (93) (0.23) (3.07) (93)
General and administrative
expenses ($/boe) (1.41) (1.29) 9 (1.83) (1.55) 18
Share based compensation
($/boe) (0.56) (1.17) (52) (0.60) (1.52) (61)
Finance expenses ($/boe) (1.76) (0.72) 144 (1.38) (0.72) 92
Deferred tax reduction
(expense) ($/boe) (4.31) 1.40 (408) (2.73) (0.26) 950
Realized gain (loss) on risk
management contracts
($/boe) (0.74) 1.60 (146) (0.83) 1.92 (143)
Unrealized gain (loss) on
risk management contracts
($/boe) 0.34 (4.36) 108 0.25 (1.29) 119
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Net earnings (loss) ($/boe) 1.23 (6.18) 120 3.08 (1.71) 280
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(1) Operating netback does not have any standardized meaning prescribed by
IFRS and therefore may not be comparable to similar measures used by
other companies. Please refer to the Non-GAAP Measures section in the
MD&A for more details.
OPERATIONS UPDATE
In Q3 2013, Crocotta continued its focus in improving netbacks, expanding its
footprint in core areas, and driving production growth towards its year-end
target of 10,500 boepd.
At Edson, it was the first full quarter under its new operated facility and
payoff was significant with improved netbacks of approximately $2.50 per boe.
After factoring in 98% on-time for the facility, the impact was even greater on
a relative basis.
Drilling was focused on Cardium horizontal wells in Q3 2013 but will shift to a
blend of Cardium and Bluesky on a go-forward basis. Production has increased
from 800 boepd in mid-2009 to over 8,000 boepd currently with an inventory of
over 100 net locations identified for future development. Free cash flow from
the property continues to increase as decline rates have started to moderate on
the base production.
Crocotta's Montney project at Dawson also took a significant step forward with
the commissioning of a new 100% owned gas plant connected to the Alliance
Pipeline. The plant, which became operational in mid-September, allows Crocotta
to receive significant liquid volume not previously received and also materially
reduce operating costs. Two successful Crocotta wells drilled in Q3 2013 also
provided increased confidence that this play will become a second major
producing property for Crocotta. The measured approach taken at Dawson including
construction of facilities to minimize costs and maximize returns mirror steps
taken at Edson and are typical of Crocotta's operating philosophy.
Capital is also being invested in land and drilling new concepts in order to
hopefully move the plays from concept to development over the next 12-24 months.
If successful, Crocotta would take the same approach to maximizing returns by
focusing on infrastructure and scale.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")
November 7, 2013
The MD&A should be read in conjunction with the unaudited interim consolidated
financial statements and related notes for the three and nine months ended
September 30, 2013 and the audited consolidated financial statements and related
notes for the year ended December 31, 2012. The unaudited interim consolidated
financial statements and financial data contained in the MD&A have been prepared
in accordance with International Financial Reporting Standards ("IFRS") in
Canadian currency (except where noted as being in another currency).
DESCRIPTION OF BUSINESS
Crocotta Energy Inc. ("Crocotta" or the "Company") is an oil and natural gas
company, actively engaged in the acquisition, development, exploration, and
production of oil and natural gas reserves in Western Canada. The Company trades
on the Toronto Stock Exchange under the symbol "CTA".
FREQUENTLY RECURRING TERMS
The Company uses the following frequently recurring industry terms in the MD&A:
"bbls" refers to barrels, "mcf" refers to thousand cubic feet, and "boe" refers
to barrel of oil equivalent. Disclosure provided herein in respect of a boe may
be misleading, particularly if used in isolation. A boe conversion rate of six
thousand cubic feet of natural gas to one barrel of oil equivalent has been used
for the calculation of boe amounts in the MD&A. This boe conversion rate is
based on an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead.
NON-GAAP MEASURES
This MD&A refers to certain financial measures that are not determined in
accordance with IFRS (or "GAAP"). This MD&A contains the terms "funds from
operations", "funds from operations per share", "net debt", and "operating
netback" which do not have any standardized meaning prescribed by GAAP and
therefore may not be comparable to similar measures used by other companies. The
Company uses these measures to help evaluate its performance.
Management uses funds from operations to analyze performance and considers it a
key measure as it demonstrates the Company's ability to generate the cash
necessary to fund future capital investments and to repay debt. Funds from
operations is a non-GAAP measure and has been defined by the Company as net
earnings (loss) plus non-cash items (depletion and depreciation, asset
impairments, share based compensation, non-cash finance expenses, unrealized
gains and losses on risk management contracts, and deferred income taxes) and
excludes the change in non-cash working capital related to operating activities
and expenditures on decommissioning obligations. The Company also presents funds
from operations per share whereby amounts per share are calculated using
weighted average shares outstanding, consistent with the calculation of earnings
per share. Funds from operations is reconciled from cash flow from operating
activities under the heading "Funds from Operations".
Management uses net debt as a measure to assess the Company's financial
position. Net debt includes current liabilities (excluding risk management
contracts) and the credit facility less current assets.
Management considers operating netback an important measure as it demonstrates
its profitability relative to current commodity prices. Operating netback, which
is calculated as average unit sales price less royalties, production expenses,
and transportation expenses, represents the cash margin for every barrel of oil
equivalent sold. Operating netback per boe is reconciled to net earnings (loss)
per boe under the heading "Operating Netback".
Q3 2013 HIGHLIGHTS
-- Increased production 24% to 8,596 boe/d in Q3 2013 from 6,945 boe/d in
Q3 2012
-- Increased funds from operations 48% to $16.1 million in Q3 2013 from
$10.9 million in Q3 2012
-- Entered into a $145 million syndicated credit facility
SUMMARY OF FINANCIAL RESULTS
Three Months Ended Nine Months Ended
September 30 September 30
($000s, except per share % %
amounts) 2013 2012 Change 2013 2012 Change
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Oil and natural gas sales 26,950 17,922 50 80,369 55,580 45
Funds from operations 16,102 10,888 48 47,506 36,137 31
Per share - basic 0.17 0.12 42 0.52 0.41 27
Per share - diluted 0.16 0.12 33 0.50 0.40 25
Net earnings (loss) 975 (3,944) 125 7,183 (3,172) 326
Per share - basic and
diluted 0.01 (0.04) 125 0.08 (0.04) 300
Total assets 353,309 268,434 32
Total long-term liabilities 116,511 20,804 460
Net debt 105,518 54,436 94
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The Company has experienced significant growth in oil and natural gas sales and
funds from operations during the first nine months of 2013 compared to the first
nine months of 2012. Successful capital activity during the past year, at Edson,
AB and Northeast BC, resulted in a significant increase in production which,
combined with higher period-over-period oil, NGLs, and natural gas commodity
prices, led to increased revenue and funds from operations.
PRODUCTION Three Months Ended Nine Months Ended
September 30 September 30
% %
2013 2012 Change 2013 2012 Change
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Average Daily Production
Oil and NGLs (bbls/d) 2,497 2,103 19 2,448 2,144 14
Natural gas (mcf/d) 36,593 29,053 26 36,624 27,743 32
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Combined (boe/d) 8,596 6,945 24 8,552 6,768 26
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Daily production for the three months ended September 30, 2013 increased 24% to
8,596 boe/d compared to 6,945 boe/d for the comparative period in 2012.
Year-to-date, daily production increased 26% to 8,552 boe/d in 2013 compared to
6,768 boe/d in 2012. The significant increase in production was mainly due to
successful drilling activity at Edson, AB and Northeast BC during the past year.
Compared to the previous quarter, daily production increased in Q3 2013 to 8,596
boe/d from 8,227 boe/d in Q2 2013. The Company expects production to increase in
Q4 2013.
Crocotta's production profile for the first nine months of 2013 was comprised of
71% natural gas and 29% oil and NGLs compared with the production profile for
2012 which was comprised of 68% natural gas and 32% oil and NGLs. The increase
in gas weighting is due to a higher percentage of total production coming from
Northeast BC in 2013 compared to 2012.
Three Months Ended Nine Months Ended
REVENUE September 30 September 30
% %
($000s) 2013 2012 Change 2013 2012 Change
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Oil and NGLs 18,347 10,985 67 47,188 37,450 26
Natural gas 8,603 6,937 24 33,181 18,130 83
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Total 26,950 17,922 50 80,369 55,580 45
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Average Sales Price
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Oil and NGLs ($/bbl) 79.85 56.78 41 70.61 63.75 11
Natural gas ($/mcf) 2.56 2.60 (2) 3.32 2.39 39
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Combined ($/boe) 34.08 28.05 21 34.42 29.97 15
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Revenue totaled $27.0 million for the third quarter of 2013, up 50% from $17.9
million in the comparative period. For the nine months ended September 30, 2013,
revenue totaled $80.4 million, an increase of 45% from $55.6 million for the
nine months ended September 30, 2012. The increase in revenue was due to
significant increases in production combined with increases in oil, NGLs, and
natural gas commodity prices.
The following table outlines the Company's realized wellhead prices and industry
benchmarks:
Commodity Pricing Three Months Ended Nine Months Ended
September 30 September 30
% %
2013 2012 Change 2013 2012 Change
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Oil and NGLs
Corporate price ($CDN/bbl) 79.85 56.78 41 70.61 63.75 11
Edmonton par ($CDN/bbl) 105.17 84.79 24 95.57 87.29 9
West Texas Intermediate
($US/bbl) 105.82 92.18 15 98.15 96.16 2
Natural gas
Corporate price ($CDN/mcf) 2.56 2.60 (2) 3.32 2.39 39
AECO price ($CDN/mcf) 2.43 2.28 7 3.00 2.12 42
Exchange rate
CDN/US dollar average
exchange rate 0.9629 1.0053 (4) 0.9773 0.9981 (2)
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Differences between corporate and benchmark prices can be the result of quality
differences (higher or lower API oil and higher or lower heat content natural
gas), sour content, NGLs included in reporting, and various other factors.
Crocotta's differences are mainly the result of lower priced NGLs included in
oil price reporting and higher heat content natural gas production that is
priced higher than AECO reference prices. The Company's corporate average oil
and NGLs prices were 75.9% and 73.9% of Edmonton Par price for the three and
nine months ended September 30, 2013, respectively, up from 67.0% and 73.0% for
the respective comparative periods in 2012. The Company experienced an increase
in realized NGLs prices for a significant portion of its NGLs volumes at Edson,
AB as they were transitioned to new marketing arrangements in June 2013 which
allowed the Company to access higher propane and butane prices in the United
States. Corporate average natural gas prices were 105.3% and 110.7% of AECO
prices for the three and nine months ended September 30, 2013, respectively,
down slightly from 114.0% and 112.7% in the respective comparative periods.
Future prices received from the sale of the products may fluctuate as a result
of market factors. Other than noted below, the Company did not hedge any of its
oil, NGLs or natural gas production in 2013. During 2013, the Company had
entered into the following commodity price contracts:
Commodity Type of Quantity Contract
Period Contract Contracted Price
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Oil February 1, 2013 - Financial - 1,000 bbls/d WTI US
December 31, 2013 Swap $94.72/bbl
Natural Gas January 1, 2013 - Financial - 10,000 GJ/d AECO CDN
December 31, 2013 Swap $2.705/GJ
Natural Gas January 1, 2013 - Financial - 10,000 GJ/d AECO CDN
December 31, 2013 Call $4.000/GJ
Natural Gas April 1, 2013 - Financial - 15,000 GJ/d AECO CDN
October 31, 2013 Put $3.000/GJ
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For the three months ended September 30, 2013, the realized loss on the
contracts was $0.6 million and the unrealized gain on the contracts was $0.3
million. For the nine months ended September 30, 2013, the realized loss on the
contracts was $1.9 million and the unrealized gain on the contracts was $0.6
million.
ROYALTIES Three Months Ended Nine Months Ended
September 30 September 30
($000s) % %
2013 2012 Change 2013 2012 Change
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Oil and NGLs 1,584 2,317 (32) 5,473 5,849 (6)
Natural gas 140 321 (56) 939 991 (5)
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Total 1,724 2,638 (35) 6,412 6,840 (6)
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Average Royalty Rate (% of
sales)
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Oil and NGLs 8.6 21.1 (59) 11.6 15.6 (26)
Natural gas 1.6 4.6 (65) 2.8 5.5 (49)
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Combined 6.4 14.7 (56) 8.0 12.3 (35)
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The Company pays royalties to provincial governments (Crown), freeholders, which
may be individuals or companies, and other oil and gas companies that own
surface or mineral rights. Crown royalties are calculated on a sliding scale
based on commodity prices and individual well production rates. Royalty rates
can change due to commodity price fluctuations and changes in production volumes
on a well-by-well basis, subject to a minimum and maximum rate restriction
ascribed by the Crown. The provincial government has also enacted various
royalty incentive programs that are available for wells that meet certain
criteria, such as natural gas deep drilling, which can result in fluctuations in
royalty rates.
For the three months ended September 30, 2013, oil, NGLs, and natural gas
royalties decreased 35% to $1.7 million from $2.6 million in the comparative
period. For the nine months ended September 30, 2013, oil, NGLs, and natural gas
royalties decreased 6% to $6.4 million from $6.8 million in 2012. Oil and NGLs
royalties in Q3 2013 decreased significantly in the third quarter from the
comparative period as a result of royalty incentives received on new wells
brought on production. Natural gas royalties were lower in Q3 2013 compared to
Q2 2013 due to an increase in the monthly capital cost and processing fee
deductions.
The overall effective royalty rate was 6.4% for the three months ended September
30, 2013 compared to 14.7% for the three months ended September 30, 2012.
Year-to-date, the overall effective royalty rate was 8.0% in 2013 compared to
12.3% in 2012. The effective oil and NGLs royalty rates in 2013 decreased from
the comparative periods as a result of royalty incentives received on new wells
brought on production. The effective natural gas royalty rates in 2013 decreased
from the comparative periods as a result of royalty holidays received on the
Company's production in Northeast BC, a favourable prior period adjustment to
the annual capital cost and processing fee deductions, and an increase in the
monthly capital cost and processing fee deductions.
PRODUCTION EXPENSES Three Months Ended Nine Months Ended
September 30 September 30
% %
2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Oil and NGLs ($/bbl) 6.03 5.00 21 5.92 5.06 17
Natural gas ($/mcf) 1.12 1.00 12 1.13 0.98 15
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Combined ($/boe) 6.51 5.72 14 6.53 5.62 16
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Per unit production expenses for the three and nine months ended September 30,
2013 were $6.51/boe and $6.53/boe, respectively, compared to $5.72/boe and
$5.62/boe for the comparative periods ended September 30, 2012. The increase in
production expenses is mainly due to higher costs associated with wells brought
on production in Northeast BC during the past year. Production expenses in this
area were approximately $10.00/boe due mainly to third party processing and
throughput charges. During the latter part of the third quarter, the Company
completed the expansion of its infrastructure in this area and as a result,
anticipates production expenses in Northeast BC to decrease to approximately
$6.00/boe going forward. Year-to-date, production expenses in Edson, AB
continued to be very competitive at approximately $5.50/boe. The Company
continues to focus on opportunities to maintain operational efficiencies to
enhance operating netbacks.
TRANSPORTATION EXPENSES Three Months Ended Nine Months Ended
September 30 September 30
% %
2013 2012 Change 2013 2012 Change
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Oil and NGLs ($/bbl) 1.93 0.51 278 1.35 0.84 61
Natural gas ($/mcf) 0.18 0.19 (5) 0.13 0.18 (28)
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Combined ($/boe) 1.31 0.93 41 0.93 1.01 (8)
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Transportation expenses are mainly third-party pipeline tariffs incurred to
deliver production to the purchasers at main hubs. For the quarter ended
September 30, 2013 compared to the quarter ended September 30, 2012,
transportation expenses increased 41% to $1.31/boe from $0.93/boe. Year-to-date,
transportation expenses decreased 8% to $0.93/boe in 2013 from $1.01/boe in
2012. Oil and NGLs transportation expenses were higher for both the three and
nine months ended September 30, 2013 as a result of the Company's production in
Northeast BC being diverted to a different processing facility during the second
quarter to obtain credit for NGLs volumes that were not being extracted
previously. The decrease in natural gas transportation expenses per boe is due
to obtaining a lower contracted transportation fee in the fourth quarter of 2012
on the majority of the Company's natural gas production. The lower contracted
transportation fee is in effect until November 2013.
OPERATING NETBACK Three Months Ended Nine Months Ended
September 30 September 30
% %
2013 2012 Change 2013 2012 Change
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Oil and NGLs ($/bbl)
Revenue 79.85 56.78 41 70.61 63.75 11
Royalties (6.89) (11.97) (42) (8.19) (9.96) (18)
Production expenses (6.03) (5.00) 21 (5.92) (5.06) 17
Transportation expenses (1.93) (0.51) 278 (1.35) (0.84) 61
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Operating netback 65.00 39.30 65 55.15 47.89 15
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----------------------------------------------------------------------------
Natural gas ($/mcf)
Revenue 2.56 2.60 (2) 3.32 2.39 39
Royalties (0.04) (0.12) (67) (0.09) (0.13) (31)
Production expenses (1.12) (1.00) 12 (1.13) (0.98) 15
Transportation expenses (0.18) (0.19) (5) (0.13) (0.18) (28)
----------------------------------------------------------------------------
Operating netback 1.22 1.29 (5) 1.97 1.10 79
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Combined ($/boe)
Revenue 34.08 28.05 21 34.42 29.97 15
Royalties (2.18) (4.13) (47) (2.75) (3.69) (25)
Production expenses (6.51) (5.72) 14 (6.53) (5.62) 16
Transportation expenses (1.31) (0.93) 41 (0.93) (1.01) (8)
----------------------------------------------------------------------------
Operating netback 24.08 17.27 39 24.21 19.65 23
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During the third quarter of 2013, Crocotta generated an operating netback of
$24.08/boe, up 39% from $17.27/boe for the third quarter of 2012. During the
first nine months of 2013, Crocotta generated an operating netback of $24.21/boe
compared to $19.65/boe in the comparative period. The increases were due to
increases in oil, NGLs, and natural gas commodity prices combined with
significant decreases in royalties, partially offset by increases in operating
expenses. Operating netbacks in Q3 2013 were consistent with operating netbacks
of $23.52/boe in Q2 2013.
The following is a reconciliation of operating netback per boe to net earnings
(loss) per boe for the periods noted:
Three Months Ended Nine Months Ended
September 30 September 30
% %
($/boe) 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Operating netback 24.08 17.27 39 24.21 19.65 23
Depletion and depreciation (14.13) (15.14) (7) (13.78) (14.87) (7)
Asset impairment (0.28) (3.77) (93) (0.23) (3.07) (93)
General and administrative
expenses (1.41) (1.29) 9 (1.83) (1.55) 18
Share based compensation (0.56) (1.17) (52) (0.60) (1.52) (61)
Finance expenses (1.76) (0.72) 144 (1.38) (0.72) 92
Deferred tax reduction
(expense) (4.31) 1.40 (408) (2.73) (0.26) 950
Realized gain (loss) on risk
management contracts (0.74) 1.60 (146) (0.83) 1.92 (143)
Unrealized gain (loss) on
risk management contracts 0.34 (4.36) 108 0.25 (1.29) 119
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Net earnings (loss) 1.23 (6.18) 120 3.08 (1.71) 280
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DEPLETION AND DEPRECIATION Three Months Ended Nine Months Ended
September 30 September 30
% %
2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Depletion and depreciation
($000s) 11,177 9,675 16 32,162 27,578 17
Depletion and depreciation
($/boe) 14.13 15.14 (7) 13.78 14.87 (7)
----------------------------------------------------------------------------
Depletion and depreciation for the three months ended September 30, 2013 was
$14.13/boe, down 7% from $15.14/boe for the comparative period ended September
30, 2012. Year-to-date, depletion and depreciation was down 7% to $13.78/boe in
2013 from $14.87 /boe in 2012. The decrease is due to a significant increase in
proved and probable reserves stemming from successful drilling activities during
2012 and 2013. Depletion and depreciation of $14.13/boe in Q3 2013 was
consistent with depletion and depreciation of $13.74/boe for the previous
quarter ended June 30, 2013.
ASSET IMPAIRMENT Three Months Ended Nine Months Ended
September 30 September 30
% %
2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Asset impairment ($000s) 219 2,412 (91) 546 5,696 (90)
Asset impairment ($/boe) 0.28 3.77 (93) 0.23 3.07 (93)
----------------------------------------------------------------------------
Exploration and evaluation assets and property, plant, and equipment are grouped
into cash generating units ("CGU") for purposes of impairment testing.
Exploration and evaluation assets are assessed for impairment when they are
transferred to property, plant, and equipment or if facts and circumstances
suggest that the carrying amount exceeds the recoverable amount. For property,
plant, and equipment, an impairment is recognized if the carrying value of a CGU
exceeds the greater of its fair value less costs to sell or value in use.
For the nine months ended September 30, 2013, total exploration and evaluation
asset impairments of $0.5 million were recognized relating to the expiry of
undeveloped land rights (CGUs - Miscellaneous AB and Saskatchewan). For the
comparative period ended September 30, 2012, total exploration and evaluation
asset impairments of $3.9 million were recognized. Asset impairments of $2.3
million were recognized relating to the determination of certain exploration and
evaluation activities in non-core areas to be uneconomical (CGU - Miscellaneous
AB). Additional exploration and evaluation impairments of $1.6 million were
recognized relating to the expiry of undeveloped land rights (CGUs - Smoky AB,
Lookout Butte AB, Miscellaneous AB, and Saskatchewan). For the three months
ended September 30, 2013, asset impairments of $0.2 million were recognized
relating to the expiry of undeveloped land rights (CGUs - Miscellaneous AB and
Saskatchewan). For the three months ended September 30, 2012, asset impairments
of $1.8 million were recognized relating to the determination of certain
exploration and evaluation activities to be uneconomical (CGU - Miscellaneous
AB) and asset impairments of $0.5 million were recognized relating to expiry of
undeveloped land rights (CGUs - Smoky AB, Lookout Butte AB, Miscellaneous AB,
and Saskatchewan).
For the nine months ended September 30, 2012, the Company recorded property,
plant, and equipment impairments of $1.8 million during the first quarter
relating to Smoky AB, Lookout Butte AB, Miscellaneous AB, and Saskatchewan CGUs
mainly as a result of weakening natural gas prices. No property, plant, and
equipment impairments were recorded for the three and nine months ended
September 30, 2013.
GENERAL AND ADMINISTRATIVE Three Months Ended Nine Months Ended
September 30 September 30
% %
($000s) 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
G&A expenses (gross) 1,683 1,159 45 5,579 3,944 41
G&A capitalized (167) (94) 78 (422) (240) 76
G&A recoveries (399) (241) 66 (878) (826) 6
----------------------------------------------------------------------------
G&A expenses (net) 1,117 824 36 4,279 2,878 49
G&A expenses ($/boe) 1.41 1.29 9 1.83 1.55 18
----------------------------------------------------------------------------
General and administrative expenses ("G&A") increased slightly to $1.41/boe and
$1.83/boe for the three and nine months ended September 30, 2013, respectively,
compared to $1.29/boe and $1.55/boe for the three and nine months ended
September 30, 2012. The increases were mainly due to an increase in employment
costs.
SHARE BASED COMPENSATION Three Months Ended Nine Months Ended
September 30 September 30
% %
2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Share based compensation
($000s) 443 745 (41) 1,403 2,828 (50)
Share based compensation
($/boe) 0.56 1.17 (52) 0.60 1.52 (61)
----------------------------------------------------------------------------
The Company grants stock options to officers, directors, employees and
consultants and calculates the related share based compensation using the
Black-Scholes-Merton option pricing model. The Company recognizes the expense
over the individual vesting periods for the graded vesting awards and estimates
a forfeiture rate at the date of grant and updates it throughout the vesting
period. The decrease in share based compensation expense for both the three and
nine months ended September 30, 2013 is attributable to the graded vesting
methodology used to calculate the expense and the timing of previous option
issuances.
On a boe basis, share based compensation expense decreased to $0.56/boe for the
three months ended September 30, 2013 from $1.17/boe in the comparative period.
Year-to-date, share based compensation expense decreased to $0.60/boe in 2013
from $1.52/boe in 2012. These decreases were due to lower share based
compensation expense amounts recognized in 2013 combined with significant
increases in production. During the first nine months of 2013, the Company
granted 1.7 million options (2012 - 0.7 million).
FINANCE EXPENSES Three Months Ended Nine Months Ended
September 30 September 30
% %
($000s) 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Interest expense 1,241 349 256 2,808 997 182
Accretion of decommissioning
obligations 153 111 38 423 333 27
----------------------------------------------------------------------------
Finance expenses 1,394 460 203 3,231 1,330 143
Finance expenses ($/boe) 1.76 0.72 144 1.38 0.72 92
----------------------------------------------------------------------------
Interest expense relates to interest incurred on amounts drawn from the
Company's credit facility. The increase in interest expense is a result of
higher amounts being drawn on the Company's credit facility in the first nine
months of 2013 compared to the first nine months of 2012. At September 30, 2013,
$93.8 million (September 30, 2012 - $42.6 million) had been drawn on the
Company's credit facility.
DEFERRED INCOME TAXES
Deferred income tax expense on the earnings before taxes for the three months
ended September 30, 2013 was $3.4 million compared to a deferred income tax
reduction of $0.9 million for the three months ended September 30, 2012. For the
nine months ended September 30, 2013, deferred income tax expense was $6.4
million compared to $0.5 million for the nine months ended September 30, 2012.
This was larger than expected by applying the statutory tax rate to the earnings
before taxes due to non-deductible items such as share based compensation as
well as renouncing tax deductions related to flow-through shares.
Estimated tax pools at September 30, 2013 total approximately $330.1 million
(December 31, 2012 - $299.6 million).
FUNDS FROM OPERATIONS
Funds from operations for the three and nine months ended September 30, 2013
were $16.1 million ($0.16 per diluted share) and $47.5 million ($0.50 per
diluted share), respectively, compared to $10.9 million ($0.12 per diluted
share) and $36.1 million ($0.40 per diluted share) for the three and nine months
ended September 30, 2012. The increase was mainly due to a significant increase
in revenue which resulted from significant increases in production and oil,
NGLs, and natural gas prices. Of note, included in funds from operations for the
three and nine months ended September 30, 2013 were realized losses on risk
management contracts of $0.6 million and $1.9 million, respectively, compared to
realized gains on risk management contracts of $1.0 million and $3.6 million,
respectively, for the three and nine months ended September 30, 2012.
The following is a reconciliation of cash flow from operating activities to
funds from operations for the periods noted:
Three Months Ended Nine Months Ended
September 30 September 30
($000s) % %
2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Cash flow from operating
activities (GAAP) 9,440 9,686 (3) 45,717 35,353 29
Add back:
Decommissioning expenditures 23 271 (92) 270 621 (57)
Change in non-cash working
capital 6,639 931 613 1,519 163 832
----------------------------------------------------------------------------
Funds from operations (non-
GAAP) 16,102 10,888 48 47,506 36,137 31
----------------------------------------------------------------------------
NET EARNINGS (LOSS)
The Company had net earnings of $1.0 million ($0.01 per diluted share) for the
three months ended September 30, 2013 compared to a net loss of $3.9 million
($0.04 per diluted share) for the three months ended September 30, 2012.
Year-to-date, the Company had net earnings of $7.2 million ($0.08 per diluted
share) in 2013 compared to a net loss of $3.2 million ($0.04 per diluted share)
in 2012. Net earnings for the three and nine months ended September 30, 2013
arose mainly due to a significant increase in revenue which resulted from
significant increases in production and oil, NGLs, and natural gas prices. The
net loss for the three and nine months ended September 30, 2012 arose mainly due
to exploration and evaluation impairments in non-core areas and unrealized
losses on risk management contracts.
CAPITAL EXPENDITURES Three Months Ended Nine Months Ended
September 30 September 30
% %
($000s) 2013 2012 Change 2013 2012 Change
----------------------------------------------------------------------------
Land 1,526 1,326 15 3,195 4,406 (27)
Drilling, completions, and
workovers 39,358 19,121 106 69,283 47,159 47
Equipment 7,608 3,016 152 20,943 10,168 106
Geological and geophysical 419 77 444 1,190 495 140
----------------------------------------------------------------------------
Capital expenditures 48,911 23,540 108 94,611 62,228 52
----------------------------------------------------------------------------
For the three months ended September 30, 2013, the Company had capital
expenditures of $48.9 million compared to capital expenditures of $23.5 million
for the three months ended September 30, 2012. For the nine months ended
September 30, 2013, the Company had capital expenditures of $94.6 million
compared to $62.2 million for the comparative period in 2012. The increase in
exploration and development expenditures in 2013 was due mainly to an increase
in capital activity in the Company's core areas of Edson, AB and Northeast BC.
During the first nine months of 2013, Crocotta drilled a total of 17 (15.2 net)
wells, which resulted in 12 (10.6 net) oil wells, 4 (3.6 net) liquids-rich
natural gas wells, and 1 (1.0 net) well to be completed during the fourth
quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net debt of $105.5 million at September 30, 2013 compared to net
debt of $80.1 million at December 31, 2012. The increase of $25.4 million was
mainly due to $94.6 million used for the purchase and development of oil and
natural gas properties and equipment, $1.0 million in share issue costs, and
$0.3 million in decommissioning expenditures, offset by gross proceeds of $22.0
million from an equity financing in June 2013, funds from operations of $47.5
million, and $1.0 million from the exercise of stock options.
In June 2013, the Company issued approximately 6.0 million common shares on a
flow-through basis for gross proceeds of approximately $22.0 million.
Approximately 4.2 million shares were issued at a price of $3.70 per share in
respect of Canadian exploration expenses ("CEE") and approximately 1.8 million
shares were issued at a price of $3.50 per share in respect of Canadian
development expenses ("CDE"). The proceeds will be used by the Company to fund
eligible CEE and CDE projects.
During the third quarter, the Company entered into a syndicated credit facility
with three Canadian chartered banks. The syndicated credit facility replaces the
Company's previous $140 million revolving operating demand loan credit facility.
The syndicated facility has a borrowing base of $145 million, consisting of a
$135 million revolving line of credit and a $10 million operating line of
credit. The syndicated facility revolves for a 364 day period and will be
subject to its next 364 day extension by July 11, 2014. If not extended, the
syndicated facility will cease to revolve, the margins thereunder will increase
by 0.50%, and all outstanding advances will become repayable in one year from
the extension date.
Advances under the syndicated facility are available by way of prime rate loans,
with interest rates between 1.00% and 2.50% over the Canadian prime lending
rate, and bankers' acceptances and LIBOR loans, which are subject to stamping
fees and margins ranging from 2.00% to 3.50% depending upon the debt to cash
flow ratio of the Company. Standby fees are charged on the undrawn syndicated
facility at rates ranging from 0.50% to 0.875%. At September 30, 2013, $93.8
million (December 31, 2012 - $68.5 million) had been drawn on the credit
facility. In addition, at September 30, 2013, the Company had outstanding
letters of guarantee of approximately $2.5 million (December 31, 2012 - $1.5
million) which reduce the amount that can be borrowed under the credit facility.
The next scheduled borrowing base review of the syndicated facility is scheduled
on or before December 1, 2013.
The ongoing global economic conditions have continued to impact the liquidity in
financial and capital markets, restrict access to financing, and cause
significant volatility in commodity prices. Despite the economic downturn and
financial market volatility, the Company continued to have access to both debt
and equity markets recently. The Company raised gross proceeds of approximately
$22.0 million from the issuance of common shares during the second quarter of
2013 and during the third quarter, the Company entered into a $145 million
syndicated credit facility which replaced the previous $140 million operating
demand loan credit facility. The Company has also maintained a very successful
drilling program which has resulted in significant increases in production and
funds flow from operations in recent quarters in spite of continued pressure on
oil and natural gas commodity prices. Management anticipates that the Company
will continue to have adequate liquidity to fund budgeted capital investments
through a combination of cash flow, equity, and debt. Crocotta's capital program
is flexible and can be adjusted as needed based upon the current economic
environment. The Company will continue to monitor the economic environment and
the possible impact on its business and strategy and will make adjustments as
necessary.
CONTRACTUAL OBLIGATIONS
The following is a summary of the Company's contractual obligations and
commitments at September 30, 2013:
Less than One to After
($000s) Total One Year Three Years Three Years
----------------------------------------------------------------------------
Accounts payable and accrued
liabilities 27,283 27,283 - -
Credit facility 93,804 - 93,804 -
Risk management contracts 1,009 1,009 - -
Decommissioning obligations 22,202 50 1,025 21,127
Office leases 475 439 36 -
Field equipment leases 711 711 - -
Firm transportation agreements 170 114 53 3
----------------------------------------------------------------------------
Total contractual obligations 145,654 29,606 94,918 21,130
----------------------------------------------------------------------------
In addition to the above commitments, as a result of the issuance of
flow-through shares in June 2013, the Company is committed to spend
approximately $22.0 million on qualifying exploration and development
expenditures prior to December 31, 2014. As at September 30, 2013, the Company
had spent $17.8 million in connection with this flow-through share commitment.
Under the terms of a farm-in agreement, the Company is also committed to drill
and complete one Edson Cardium well. Under the terms of the agreement, the
Company is committed to spud the well prior to November 15, 2013. The estimated
total cost to drill and complete the well is approximately $3.5 million.
OUTSTANDING SHARE DATA
The Company is authorized to issue an unlimited number of voting common shares,
an unlimited number of non-voting common shares, Class A preferred shares,
issuable in series, and Class B preferred shares, issuable in series. The voting
common shares of the Company commenced trading on the TSX on October 17, 2007
under the symbol "CTA". The following table summarizes the common shares
outstanding and the number of shares exercisable into common shares from
options, warrants, and other instruments:
(000s) September 30, November 7,
2013 2013
----------------------------------------------------------------------------
Voting common shares 96,098 96,206
Stock options 9,500 9,400
Warrants 2,321 2,321
----------------------------------------------------------------------------
Total 107,919 107,927
----------------------------------------------------------------------------
SUMMARY OF QUARTERLY RESULTS
Q3 Q2 Q1 Q4 Q2 Q1
2013 2013 2013 2012 Q3 2012 2012 2012 Q4 2011
----------------------------------------------------------------------------
Average Daily
Production
Oil and NGLs
(bbls/d) 2,497 2,158 2,691 2,476 2,103 2,053 2,277 1,879
Natural gas
(mcf/d) 36,593 36,412 36,869 29,160 29,053 27,309 26,852 23,354
----------------------------------------------------------------------------
Combined (boe/d) 8,596 8,227 8,836 7,336 6,945 6,604 6,752 5,771
($000s, except per
share amounts)
----------------------------------------------------------------------------
Oil and natural
gas sales 26,950 25,152 28,267 24,938 17,922 17,518 20,140 20,391
Funds from
operations 16,102 14,280 17,124 14,478 10,888 12,275 12,974 12,115
Per share -
basic 0.17 0.16 0.19 0.16 0.12 0.14 0.15 0.15
Per share -
diluted 0.16 0.15 0.19 0.16 0.12 0.14 0.14 0.14
Net earnings
(loss) 975 3,604 2,604 (2,082) (3,944) 1,065 (293) (7,052)
Per share -
basic and
diluted 0.01 0.04 0.03 (0.02) (0.04) 0.01 - (0.09)
----------------------------------------------------------------------------
Significant increases in production stemming from successful drilling activities
during the past two years has resulted in increasing oil and natural gas sales
and funds from operations over the same period. The Company had a net loss in
four of the eight previous quarters mainly as a result of asset impairments
recognized in each quarter on non-core properties.
CRITICAL ACCOUNTING ESTIMATES
Management is required to make estimates, judgments, and assumptions in the
application of IFRS that affect the reported amounts of assets and liabilities
at the date of the financial statements and revenues and expenses for the period
then ended. Certain of these estimates may change from period to period
resulting in a material impact on the Company's results from operations,
financial position, and change in financial position. The Company's significant
critical accounting estimates have not changed from the year ended December 31,
2012.
CHANGES IN ACCOUNTING POLICIES
On January 1, 2013, the Company adopted new standards with respect to
consolidations (IFRS 10), joint arrangements (IFRS 11), disclosure of interests
in other entities (IFRS 12), fair value measurements (IFRS 13), and amendments
to financial statement disclosures (IFRS 7). The adoption of these standards had
no impact on the amounts recorded in the consolidated financial statements.
RISK ASSESSMENT
The acquisition, exploration, and development of oil and natural gas properties
involves many risks common to all participants in the oil and natural gas
industry. Crocotta's exploration and development activities are subject to
various business risks such as unstable commodity prices, interest rate and
foreign exchange fluctuations, the uncertainty of replacing production and
reserves on an economic basis, government regulations, taxes, and safety and
environmental concerns. While management realizes these risks cannot be
eliminated, they are committed to monitoring and mitigating these risks.
Reserves and reserve replacement
The recovery and reserve estimates on Crocotta's properties are estimates only
and the actual reserves may be materially different from that estimated. The
estimates of reserve values are based on a number of variables including price
forecasts, projected production volumes and future production and capital costs.
All of these factors may cause estimates to vary from actual results.
Crocotta's future oil and natural gas reserves, production, and funds from
operations to be derived therefrom are highly dependent on the Company
successfully acquiring or discovering new reserves. Without the continual
addition of new reserves, any existing reserves the Company may have at any
particular time and the production therefrom will decline over time as such
existing reserves are exploited. A future increase in Crocotta's reserves will
depend on its abilities to acquire suitable prospects or properties and discover
new reserves.
To mitigate this risk, Crocotta has assembled a team of experienced technical
professionals who have expertise operating and exploring in areas the Company
has identified as being the most prospective for increasing reserves on an
economic basis. To further mitigate reserve replacement risk, Crocotta has
targeted a majority of its prospects in areas which have multi-zone potential,
year-round access, and lower drilling costs and employs advanced geological and
geophysical techniques to increase the likelihood of finding additional
reserves.
Operational risks
Crocotta's operations are subject to the risks normally incidental to the
operation and development of oil and natural gas properties and the drilling of
oil and natural gas wells. Continuing production from a property, and to some
extent the marketing of production therefrom, are largely dependent upon the
ability of the operator of the property.
Financial instruments
Market risk
Market risk is the risk that the fair value of future cash flows of a financial
instrument will fluctuate because of changes in market prices. Market risk is
comprised of foreign currency risk, interest rate risk, and other price risk,
such as commodity price risk. The objective of market risk management is to
manage and control market price exposures within acceptable limits, while
maximizing returns. The Company may use financial derivatives or physical
delivery sales contracts to manage market risks. All such transactions are
conducted within risk management tolerances that are reviewed by the Board of
Directors.
Foreign exchange risk
The prices received by the Company for the production of crude oil, natural gas,
and NGLs are primarily determined in reference to US dollars, but are settled
with the Company in Canadian dollars. The Company's cash flow from commodity
sales will therefore be impacted by fluctuations in foreign exchange rates. The
Company currently does not have any foreign exchange contracts in place.
Interest rate risk
The Company is exposed to interest rate risk as it borrows funds at floating
interest rates. In addition, the Company may at times issue shares on a
flow-through basis. This results in the Company being exposed to interest rate
risk to the Canada Revenue Agency for interest on unexpended funds on the
Company's flow-through share obligations. The Company currently does not use
interest rate hedges or fixed interest rate contracts to manage the Company's
exposure to interest rate fluctuations.
Commodity price risk
Oil and natural gas prices are impacted by not only the relationship between the
Canadian and US dollar but also by world economic events that dictate the levels
of supply and demand. The Company's oil, natural gas, and NGLs production is
marketed and sold on the spot market to area aggregators based on daily spot
prices that are adjusted for product quality and transportation costs. The
Company's cash flow from product sales will therefore be impacted by
fluctuations in commodity prices. During 2013, the Company had entered into the
following commodity price contracts:
Commodity Period Type of Quantity Contract
Contract Contracted Price
----------------------------------------------------------------------------
Oil February 1, 2013 - Financial - 1,000 bbls/d WTI US
December 31, 2013 Swap $94.72/bbl
Natural Gas January 1, 2013 - Financial - 10,000 GJ/d AECO CDN
December 31, 2013 Swap $2.705/GJ
Natural Gas January 1, 2013 - Financial - 10,000 GJ/d AECO CDN
December 31, 2013 Call $4.000/GJ
Natural Gas April 1, 2013 - Financial - 15,000 GJ/d AECO CDN
October 31, 2013 Put $3.000/GJ
----------------------------------------------------------------------------
For the three months ended September 30, 2013, the realized loss on the
contracts was $0.6 million and the unrealized gain on the contracts was $0.3
million. For the nine months ended September 30, 2013, the realized loss on the
contracts was $1.9 million and the unrealized gain on the contracts was $0.6
million.
Credit risk
Credit risk represents the financial loss that the Company would suffer if the
Company's counterparties to a financial instrument, in owing an amount to the
Company, fail to meet or discharge their obligation to the Company. A
substantial portion of the Company's accounts receivable and deposits are with
customers and joint venture partners in the oil and natural gas industry and are
subject to normal industry credit risks. The Company generally grants unsecured
credit but routinely assesses the financial strength of its customers and joint
venture partners.
The Company sells the majority of its production to three petroleum and natural
gas marketers and therefore is subject to concentration risk. Historically, the
Company has not experienced any collection issues with its oil and natural gas
marketers. Joint venture receivables are typically collected within one to three
months of the joint venture invoice being issued to the partner. The Company
attempts to mitigate the risk from joint venture receivables by obtaining
partner approval for significant capital expenditures prior to the expenditure
being incurred. The Company does not typically obtain collateral from petroleum
and natural gas marketers or joint venture partners; however, in certain
circumstances, the Company may cash call a partner in advance of expenditures
being incurred.
The maximum exposure to credit risk is represented by the carrying amount on the
statement of financial position. At September 30, 2013, $13.4 million or 95.5%
of the Company's outstanding accounts receivable were current while $0.7 million
or 4.5% were outstanding over 90 days but not impaired. During the nine months
ended September 30, 2013, the Company did not deem any outstanding accounts
receivable to be uncollectable.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they become due. The Company's processes for managing
liquidity risk include ensuring, to the extent possible, that it will have
sufficient liquidity to meet its liabilities when they become due. The Company
prepares annual, quarterly, and monthly capital expenditure and cash flow
budgets, which are monitored and updated as required, and requires
authorizations for expenditures on projects to assist with the management of
capital. In managing liquidity risk, the Company ensures that it has access to
additional financing, including potential equity issuances and additional debt
financing. The Company also mitigates liquidity risk by maintaining an insurance
program to minimize exposure to insurable losses.
Safety and Environmental Risks
The oil and natural gas business is subject to extensive regulation pursuant to
various municipal, provincial, national, and international conventions and
regulations. Environmental legislation provides for, among other things,
restrictions and prohibitions on spills, releases, or emissions of various
substances produced in association with oil and natural gas operations. Crocotta
is committed to meeting and exceeding its environmental and safety
responsibilities. Crocotta has implemented an environmental and safety policy
that is designed, at a minimum, to comply with current governmental regulations
set for the oil and natural gas industry. Changes to governmental regulations
are monitored to ensure compliance. Environmental reviews are completed as part
of the due diligence process when evaluating acquisitions. Environmental and
safety updates are presented and discussed at each Board of Directors meeting.
Crocotta maintains adequate insurance commensurate with industry standards to
cover reasonable risks and potential liabilities associated with its activities
as well as insurance coverage for officers and directors executing their
corporate duties. To the knowledge of management, there are no legal proceedings
to which Crocotta is a party or of which any of its property is the subject
matter, nor are any such proceedings known to Crocotta to be contemplated.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Company's President and Chief Executive Officer ("CEO") and Vice President
Finance and Chief Financial Officer ("CFO") are responsible for establishing and
maintaining disclosure controls and procedures and internal controls over
financial reporting as defined in Multilateral Instrument 52-109 of the Canadian
Securities Administrators.
Disclosure controls and procedures have been designed to ensure that information
required to be disclosed by the Company is accumulated and communicated to
management as appropriate to allow timely decisions regarding required
disclosure. The Company evaluated its disclosure controls and procedures for the
year ended December 31, 2012. The Company's CEO and CFO have concluded that,
based on their evaluation, the Company's disclosure controls and procedures are
effective to provide reasonable assurance that all material or potentially
material information related to the Company is made known to them and is
disclosed in a timely manner if required.
Internal controls over financial reporting have been designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
IFRS. The Company's internal controls over financial reporting include those
policies and procedures that: pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect transactions and disposition of
the assets; provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles and that receipts and expenditures are
being made only in accordance with authorizations of management and directors;
and provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could have a
material effect on the annual financial statements or interim financial
statements.
The Company evaluated the effectiveness of its internal controls over financial
reporting as of December 31, 2012. In making this evaluation, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework (1992).
Based on their evaluation, the Company's CEO and CFO have identified weaknesses
over segregation of duties. Specifically, due to the limited number of finance
and accounting personnel at the Company, it is not feasible to achieve complete
segregation of duties with regards to certain complex and non-routine accounting
transactions that may arise. This weakness is considered to be a common
deficiency for many smaller listed companies in Canada. Notwithstanding the
weaknesses identified with regards to segregation of duties, the Company
concluded that all other of its internal controls over financial reporting were
effective as of December 31, 2012. No material changes in the Company's internal
controls over financial reporting were identified during the most recent
reporting period that have materially affected, or are likely to material
affect, the Company's internal controls over financial reporting.
Because of their inherent limitations, disclosure controls and procedures and
internal controls over financial reporting may not prevent or detect
misstatements, errors, or fraud. Control systems, no matter how well conceived
or operated, can provide only reasonable, not absolute, assurance that the
objectives of the control systems are met. As a result of the weaknesses
identified in the Company's internal controls over financial reporting, there is
a greater likelihood that a material misstatement would not be prevented or
detected. To mitigate the risk of such material misstatement in financial
reporting, the CEO and CFO oversee all material and complex transactions of the
Company and the financial statements are reviewed and approved by the Board of
Directors each quarter. In addition, the Company will seek the advice of
external parties, such as the Company's external auditors, in regards to the
appropriate accounting treatment for any complex and non-routine transactions
that may arise.
FORWARD-LOOKING INFORMATION
This document contains forward-looking statements and forward-looking
information within the meaning of applicable securities laws. The use of any of
the words "expect", "anticipate", "continue", "estimate", "may", "will",
"should", "believe", "intends", "forecast", "plans", "guidance" and similar
expressions are intended to identify forward-looking statements or information.
More particularly and without limitation, this MD&A contains forward looking
statements and information relating to the Company's risk management program,
oil, NGLs, and natural gas production, capital programs, oil, NGLs, and natural
gas commodity prices, and debt levels. The forward-looking statements and
information are based on certain key expectations and assumptions made by the
Company, including expectations and assumptions relating to prevailing commodity
prices and exchange rates, applicable royalty rates and tax laws, future well
production rates, the performance of existing wells, the success of drilling new
wells, the availability of capital to undertake planned activities, and the
availability and cost of labour and services.
Although the Company believes that the expectations reflected in such
forward-looking statements and information are reasonable, it can give no
assurance that such expectations will prove to be correct. Since forward-looking
statements and information address future events and conditions, by their very
nature they involve inherent risks and uncertainties. Actual results may differ
materially from those currently anticipated due to a number of factors and
risks. These include, but are not limited to, the risks associated with the oil
and gas industry in general such as operational risks in development,
exploration and production, delays or changes in plans with respect to
exploration or development projects or capital expenditures, the uncertainty of
estimates and projections relating to production rates, costs, and expenses,
commodity price and exchange rate fluctuations, marketing and transportation,
environmental risks, competition, the ability to access sufficient capital from
internal and external sources and changes in tax, royalty, and environmental
legislation. The forward-looking statements and information contained in this
document are made as of the date hereof for the purpose of providing the readers
with the Company's expectations for the coming year. The forward-looking
statements and information may not be appropriate for other purposes. The
Company undertakes no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of new
information, future events or otherwise, unless so required by applicable
securities laws.
ADDITIONAL INFORMATION
Additional information related to the Company, including the Company's Annual
Information Form (AIF), may be found on the SEDAR website at www.sedar.com.
Crocotta Energy Inc.
Condensed Consolidated Statements of Financial Position
(unaudited)
September 30 December 31
($000s) Note 2013 2012
----------------------------------------------------------------------------
Assets
Current assets
Accounts receivable 14,051 15,983
Prepaid expenses and deposits 1,518 1,550
----------------------------------------------------------------------------
15,569 17,533
Property, plant, and equipment (5) 304,714 241,703
Exploration and evaluation assets (4) 27,548 28,302
Deferred income taxes 5,478 13,442
----------------------------------------------------------------------------
337,740 283,447
----------------------------------------------------------------------------
353,309 300,980
----------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued
liabilities 27,283 29,165
Risk management contracts 1,009 1,592
Revolving credit facility (6) - 68,480
----------------------------------------------------------------------------
28,292 99,237
Credit facility (6) 93,804 -
Decommissioning obligations (7) 22,202 21,852
Flow-through share premium (8) 505 -
----------------------------------------------------------------------------
144,803 121,089
Shareholders' Equity
Shareholders' capital (8) 248,818 228,277
Contributed surplus 12,917 12,026
Deficit (53,229) (60,412)
----------------------------------------------------------------------------
208,506 179,891
----------------------------------------------------------------------------
353,309 300,980
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed interim
consolidated financial statements.
Crocotta Energy Inc.
Condensed Consolidated Statements of Operations and Comprehensive Earnings
(Loss)
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
($000s, except per share
amounts) Note 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue
Oil and natual gas sales 26,950 17,922 80,369 55,580
Royalties (1,724) (2,638) (6,412) (6,840)
----------------------------------------------------------------------------
25,226 15,284 73,957 48,740
Realized gain (loss) on risk
management contracts (582) 1,024 (1,940) 3,560
Unrealized gain (loss) on risk
management contracts 270 (2,786) 583 (2,386)
----------------------------------------------------------------------------
24,914 13,522 72,600 49,914
Expenses
Production 5,151 3,653 15,249 10,418
Transportation 1,033 594 2,175 1,870
Depletion and depreciation (5) 11,177 9,675 32,162 27,578
Asset impairment (4,5) 219 2,412 546 5,696
General and administrative 1,117 824 4,279 2,878
Share based compensation (9) 443 745 1,403 2,828
----------------------------------------------------------------------------
19,140 17,903 55,814 51,268
----------------------------------------------------------------------------
Operating earnings (loss) 5,774 (4,381) 16,786 (1,354)
Other Expenses
Finance expense (11) 1,394 460 3,231 1,330
----------------------------------------------------------------------------
Earnings (loss) before taxes 4,380 (4,841) 13,555 (2,684)
Taxes
Deferred income tax expense
(reduction) 3,405 (897) 6,372 488
----------------------------------------------------------------------------
Net earnings (loss) and
comprehensive earnings (loss) 975 (3,944) 7,183 (3,172)
----------------------------------------------------------------------------
Net earnings (loss) per share
Basic and diluted (10) 0.01 (0.04) 0.08 (0.04)
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed
interim consolidated financial statements.
Crocotta Energy Inc.
Condensed Consolidated Statements of Shareholders' Equity
(unaudited)
Nine Months Ended September
30
($000s) 2013 2012
----------------------------------------------------------------------------
Shareholders' Capital
Balance, beginning of period 228,277 225,848
Issue of shares (net of share issue costs and
flow-through share premium) 18,887 -
Issued on exercise of stock options 985 12
Share based compensation - exercised 669 -
----------------------------------------------------------------------------
Balance, end of period 248,818 225,860
----------------------------------------------------------------------------
Contributed Surplus
Balance, beginning of period 12,026 8,927
Share based compensation - expensed 1,403 2,828
Share based compensation - capitalized 157 254
Share based compensation - exercised (669) -
----------------------------------------------------------------------------
Balance, end of period 12,917 12,009
----------------------------------------------------------------------------
Deficit
Balance, beginning of period (60,412) (55,158)
Net earnings (loss) 7,183 (3,172)
----------------------------------------------------------------------------
Balance, end of period (53,229) (58,330)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Shareholders' Equity 208,506 179,539
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed interim
consolidated financial statements.
Crocotta Energy Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
($000s) Note 2013 2012 2013 2012
----------------------------------------------------------------------------
Operating Activities
Net earnings (loss) 975 (3,944) 7,183 (3,172)
Depletion and depreciation (5) 11,177 9,675 32,162 27,578
Asset impairment (4,5) 219 2,412 546 5,696
Share based compensation (9) 443 745 1,403 2,828
Finance expense (11) 1,394 460 3,231 1,330
Interest paid (11) (1,241) (349) (2,808) (997)
Deferred income tax expense
(reduction) 3,405 (897) 6,372 488
Unrealized loss (gain) on
risk management contracts (270) 2,786 (583) 2,386
Decommissioning expenditures (7) (23) (271) (270) (621)
Change in non-cash working
capital (13) (6,639) (931) (1,519) (163)
----------------------------------------------------------------------------
9,440 9,686 45,717 35,353
----------------------------------------------------------------------------
Financing Activities
Credit facility (6) 30,018 2,912 25,324 37,408
Issuance of shares (8) 819 12 22,968 12
Share issue costs (8) (32) - (999) -
----------------------------------------------------------------------------
30,805 2,924 47,293 37,420
----------------------------------------------------------------------------
Investing Activities
Capital expenditures -
property, plant, and
equipment (5) (23,972) (7,796) (59,996) (37,278)
Capital expenditures -
exploration and evaluation
assets (4) (24,939) (15,744) (34,615) (24,950)
Change in non-cash working
capital (13) 8,666 10,930 1,601 (10,545)
----------------------------------------------------------------------------
(40,245) (12,610) (93,010) (72,773)
----------------------------------------------------------------------------
Change in cash and cash
equivalents - - - -
Cash and cash equivalents,
beginning of period - - - -
----------------------------------------------------------------------------
Cash and cash equivalents, end
of period - - - -
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed
interim consolidated financial statements.
Crocotta Energy Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three and Nine Months Ended September 30, 2013
(Tabular amounts in 000s, unless otherwise stated)
1. REPORTING ENTITY
Crocotta Energy Inc. ("Crocotta" or the "Company") is an oil and natural gas
company, actively engaged in the acquisition, development, exploration, and
production of oil and natural gas reserves in Western Canada. The Company
conducts many of its activities jointly with others and these condensed interim
consolidated financial statements reflect only the Company's proportionate
interest in such activities. The Company currently has one wholly-owned
subsidiary.
The Company's place of business is located at 700, 639 - 5th Avenue SW, Calgary,
Alberta, Canada, T2P 0M9.
2. BASIS OF PRESENTATION
(a) Statement of compliance
These condensed interim consolidated financial statements have been prepared in
accordance with International Accounting Standard ("IAS") 34, Interim Financial
Reporting and accordingly do not include all of the information required in the
preparation of annual consolidated financial statements. The condensed interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and related notes for the year ended December
31, 2012.
The condensed interim consolidated financial statements were authorized for
issuance by the Board of Directors on November 7, 2013.
(b) Basis of measurement
The condensed interim consolidated financial statements have been prepared on
the historical cost basis except for risk management contracts, which are
measured at fair value.
(c) Functional and presentation currency
The condensed interim consolidated financial statements are presented in
Canadian dollars, which is the Company's functional currency.
(d) Use of estimates and judgments
The preparation of the condensed interim consolidated financial statements in
conformity with IFRS requires management to make estimates and use judgment
regarding the reported amounts of assets and liabilities as at the date of the
interim consolidated financial statements and the reported amounts of revenues
and expenses during the period. By their nature, estimates are subject to
measurement uncertainty and changes in such estimates in future periods could
require a material change in the interim consolidated financial statements.
Accordingly, actual results may differ from the estimated amounts as future
confirming events occur. The significant estimates and judgments made by
management in the preparation of these condensed interim consolidated financial
statements were consistent with those applied to the consolidated financial
statements as at and for the year ended December 31, 2012.
3. SIGNIFICANT ACCOUNTING POLICIES
The condensed interim consolidated financial statements have been prepared
following the same accounting policies as the audited consolidated financial
statements for the year ended December 31, 2012. The accounting policies have
been applied consistently by the Company to all periods presented in these
condensed interim consolidated financial statements.
On January 1, 2013, the Company adopted new standards with respect to
consolidations (IFRS 10), joint arrangements (IFRS 11), disclosure of interests
in other entities (IFRS 12), fair value measurements (IFRS 13), and amendments
to financial statement disclosures (IFRS 7). The adoption of these standards had
no impact on the amounts recorded in the condensed interim consolidated
financial statements.
4. EXPLORATION AND EVALUATION ASSETS
Total
----------------------------------------------------------------------------
Balance, December 31, 2011 20,641
Additions 49,198
Transfer to property, plant, and equipment (36,838)
Impairment (4,699)
----------------------------------------------------------------------------
Balance, December 31, 2012 28,302
Additions 34,615
Transfer to property, plant, and equipment (34,823)
Impairment (546)
----------------------------------------------------------------------------
Balance, September 30, 2013 27,548
----------------------------------------------------------------------------
Exploration and evaluation assets consist of the Company's exploration projects
which are pending the determination of proved or probable reserves. Additions
represent the Company's share of costs incurred on exploration and evaluation
assets during the period, consisting primarily of undeveloped land and drilling
costs until the drilling of the well is complete and the results have been
evaluated. Included in the $34.6 million of additions during the nine months
ended September 30, 2013 were additions of $28.4 million related to the Edson AB
CGU and $5.8 million related to the Miscellaneous AB CGU.
Impairments
Exploration and evaluation assets are assessed for impairment when they are
transferred to property, plant, and equipment or if facts and circumstances
suggest that the carrying amount exceeds the recoverable amount. For the nine
months ended September 30, 2013, total exploration and evaluation asset
impairments of $0.5 million were recognized relating to the expiry of
undeveloped land rights (CGUs - Miscellaneous AB and Saskatchewan).
5. PROPERTY, PLANT, AND EQUIPMENT
Cost Total
----------------------------------------------------------------------------
Balance, December 31, 2011 236,846
Additions 54,756
Transfer from exploration and evaluation assets 36,838
Change in decommissioning obligation estimates 2,883
Capitalized share based compensation 319
----------------------------------------------------------------------------
Balance, December 31, 2012 331,642
Additions 59,996
Transfer from exploration and evaluation assets 34,823
Change in decommissioning obligation estimates 197
Capitalized share based compensation 157
----------------------------------------------------------------------------
Balance, September 30, 2013 426,815
----------------------------------------------------------------------------
Accumulated Depletion, Depreciation, and Impairment Total
----------------------------------------------------------------------------
Balance, December 31, 2011 44,514
Depletion and depreciation 36,685
Impairment 8,740
----------------------------------------------------------------------------
Balance, December 31, 2012 89,939
Depletion and depreciation 32,162
----------------------------------------------------------------------------
Balance, September 30, 2013 122,101
----------------------------------------------------------------------------
Net Book Value Total
----------------------------------------------------------------------------
December 31, 2012 241,703
September 30, 2013 304,714
----------------------------------------------------------------------------
During the three and nine months ended September 30, 2013, approximately $0.3
million (2012 - $0.1 million) and $0.4 million (2012 - $0.3 million),
respectively, of directly attributable general and administrative costs were
capitalized as expenditures on property, plant, and equipment.
Depletion and depreciation
The calculation of depletion and depreciation expense for the three months ended
September 30, 2013 included an estimated $197.6 million (2012 - $174.3 million)
for future development costs associated with proved plus probable undeveloped
reserves and excluded approximately $14.0 million (2012 - $10.6 million) for the
estimated salvage value of production equipment and facilities.
6. CREDIT FACILITY
During the third quarter, the Company entered into a syndicated credit facility
with three Canadian chartered banks. The syndicated credit facility replaces the
Company's previous $140 million revolving operating demand loan credit facility.
The syndicated facility has a borrowing base of $145 million, consisting of a
$135 million revolving line of credit and a $10 million operating line of
credit. The syndicated facility revolves for a 364 day period and will be
subject to its next 364 day extension by July 11, 2014. If not extended, the
syndicated facility will cease to revolve, the margins thereunder will increase
by 0.50%, and all outstanding advances will become repayable in one year from
the extension date.
Advances under the syndicated facility are available by way of prime rate loans,
with interest rates between 1.00% and 2.50% over the Canadian prime lending
rate, and bankers' acceptances and LIBOR loans, which are subject to stamping
fees and margins ranging from 2.00% to 3.50% depending upon the debt to cash
flow ratio of the Company. Standby fees are charged on the undrawn syndicated
facility at rates ranging from 0.50% to 0.875%. At September 30, 2013, $93.8
million (December 31, 2012 - $68.5 million) had been drawn on the credit
facility. In addition, at September 30, 2013, the Company had outstanding
letters of guarantee of approximately $2.5 million (December 31, 2012 - $1.5
million) which reduce the amount that can be borrowed under the credit facility.
The next scheduled borrowing base review of the syndicated facility is scheduled
on or before December 1, 2013.
7. PROVISIONS - DECOMMISSIONING OBLIGATIONS
The Company's decommissioning obligations result from its ownership interest in
oil and natural gas assets including well sites and gathering systems. The total
decommissioning obligation is estimated based on the Company's net ownership
interest in all wells and facilities, estimated costs to abandon and reclaim the
wells and facilities, and the estimated timing of the costs to be incurred in
future periods. The total undiscounted amount of the estimated cash flows
(adjusted for inflation at 2% per year) required to settle the decommissioning
obligations is approximately $33.1 million which is estimated to be incurred
over the next 28 years. At September 30, 2013, a risk-free rate of 3.0%
(December 31, 2012 - 2.3%) was used to calculate the net present value of the
decommissioning obligations.
Nine Months
Ended Year Ended
September 30, December 31,
2013 2012
----------------------------------------------------------------------------
Balance, beginning of period 21,852 19,250
Provisions incurred 2,052 2,208
Provisions settled (270) (734)
Revisions (1,855) 675
Accretion 423 453
----------------------------------------------------------------------------
Balance, end of period 22,202 21,852
----------------------------------------------------------------------------
8. SHAREHOLDERS' CAPITAL
The Company is authorized to issue an unlimited number of voting common shares,
an unlimited number of non-voting common shares, Class A preferred shares,
issuable in series, and Class B preferred shares, issuable in series. No
non-voting common shares or preferred shares have been issued.
Voting Common Shares Number Amount
----------------------------------------------------------------------------
Balance, December 31, 2012 89,261 228,277
Exercise of stock options 795 1,654
Share issuances 6,042 21,983
Share issue costs, net of future tax effect
of $0.2 million (749)
Flow-through share premium (2,347)
----------------------------------------------------------------------------
Balance, September 30, 2013 96,098 248,818
----------------------------------------------------------------------------
In June 2013, the Company issued approximately 6.0 million common shares on a
flow-through basis for gross proceeds of approximately $22.0 million.
Approximately 4.2 million shares were issued at a price of $3.70 per share in
respect of Canadian exploration expenses ("CEE") and approximately 1.8 million
shares were issued at a price of $3.50 per share in respect of Canadian
development expenses ("CDE"). Upon issuance, the premium received on the
flow-through shares, being the difference between the fair value of the
flow-through shares issued and the fair value that would have been received for
common shares at the date of the announcement of the financing, was recognized
as a liability. Under the terms of the flow-through share agreements, the
Company is committed to spend approximately $22.0 million on qualifying
exploration and development expenditures prior to December 31, 2014. As at
September 30, 2013, the Company had spent $17.8 million in connection with this
flow-through share commitment.
9. SHARE BASED COMPENSATION PLANS
Stock options
The Company has authorized and reserved for issuance 9.6 million common shares
under a stock option plan enabling certain officers, directors, employees, and
consultants to purchase common shares. The Company will not issue options
exceeding 10% of the shares outstanding at the time of the option grants. Under
the plan, the exercise price of each option equals the market price of the
Company's shares on the date of the grant. The options vest over a period of
three years and an option's maximum term is 5 years. At September 30, 2013, 9.5
million options are outstanding at exercise prices ranging from $1.10 to $3.46
per share.
The number and weighted average exercise price of stock options are as follows:
Weighted
Average
Number of Exercise
Options Price ($)
----------------------------------------------------------------------------
Balance, December 31, 2012 8,601 2.09
Granted 1,696 2.77
Exercised (795) 1.24
Forfeited (2) 3.46
----------------------------------------------------------------------------
Balance, September 30, 2013 9,500 2.28
----------------------------------------------------------------------------
The following table summarizes the stock options outstanding and exercisable
at September 30, 2013:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Price Number Life Price Number Price
----------------------------------------------------------------------------
$1.10 to $2.00 2,847 1.4 1.24 2,504 1.21
$2.01 to $3.00 5,912 3.2 2.64 2,876 2.59
$3.01 to $3.46 741 3.5 3.44 231 3.46
----------------------------------------------------------------------------
9,500 2.6 2.28 5,611 2.01
----------------------------------------------------------------------------
Warrants
The Company has an arrangement that allows warrants to be issued to directors,
officers, and employees. The maximum number of common shares that may be issued,
and that have been reserved for issuance under this arrangement, is 2.4 million.
Warrants granted under this arrangement vest over three years and have exercise
prices ranging from $3.75 per share to $6.75 per share. During the year ended
December 31, 2007, the Company issued 2.4 million warrants under this
arrangement. The fair value of the warrants granted under this arrangement at
the date of issue was determined to be $nil using the minimum value method as
they were issued prior to the Company becoming publicly traded. During 2012,
approval was obtained to extend the expiry date of the warrants to December 23,
2013. The resulting compensation cost charged to earnings during 2012 in
relation to the extension of the warrants was $0.2 million.
On October 29, 2009, the Company issued an additional 1.2 million warrants at an
exercise price of $1.40 per share in conjunction with a private placement share
issuance. The warrants vested immediately and had an expiry date of October 29,
2012. The warrants were exercised during 2012.
The number and weighted average exercise price of warrants are as follows:
Number of Weighted Average
Warrants Exercise Price
----------------------------------------------------------------------------
Balance, December 31, 2012 and September 30,
2013 2,321 4.80
----------------------------------------------------------------------------
The following table summarizes the warrants outstanding and exercisable at
September 30, 2013:
Warrants Outstanding and Exercisable
----------------------------------------------------------------------------
Weighted Average Weighted Average
Exercise Price Number Remaining Life Exercise Price
----------------------------------------------------------------------------
$3.75 to $4.05 740 0.3 3.76
$4.50 to $5.25 807 0.3 4.55
$6.00 to $6.75 774 0.3 6.05
----------------------------------------------------------------------------
2,321 0.3 4.80
----------------------------------------------------------------------------
Share based compensation
The Company accounts for its share based compensation plans using the fair value
method. Under this method, compensation cost is charged to earnings over the
vesting period for stock options and warrants granted to officers, directors,
employees, and consultants with a corresponding increase to contributed surplus.
The fair value of the stock options granted were estimated on the date of grant
using the Black-Scholes-Merton option pricing model with the following weighted
average assumptions:
Three Months Nine Months
Ended Ended
September 30, September 30,
2013 2013
----------------------------------------------------------------------------
Risk-free interest rate (%) 1.6 1.6
Expected life (years) 4.0 4.0
Expected volatility (%) 51.4 51.6
Expected dividend yield (%) - -
Forfeiture rate (%) 5.9 5.9
Weighted average fair value of options granted
($ per option) 1.14 1.15
----------------------------------------------------------------------------
10. PER SHARE AMOUNTS
The following table summarizes the weighted average number of shares used in the
basic and diluted net earnings per share calculations:
Three Months Nine Months
Ended Ended
September 30, September 30,
2013 2013
----------------------------------------------------------------------------
Weighted average number of shares - basic 95,978 91,954
Dilutive effect of share based compensation
plans 1,991 2,160
----------------------------------------------------------------------------
Weighted average number of shares - diluted 97,969 94,114
----------------------------------------------------------------------------
For the three months ended September 30, 2013, 3.9 million stock options (2012 -
4.9 million) and 2.3 million warrants (2012 - 2.3 million) were anti-dilutive
and were not included in the diluted earnings per share calculation. For the
nine months ended September 30, 2013, 3.9 million stock options (2012 - 2.3
million) and 2.3 million warrants (2012 - 2.3 million) were anti-dilutive and
were not included in the diluted earnings per share calculation.
11. FINANCE EXPENSES
Finance expenses include the following:
Three Months Nine Months
Ended Ended
September 30, September 30,
2013 2013
----------------------------------------------------------------------------
Interest expense (note 6) 1,241 2,808
Accretion of decommissioning obligations (note
7) 153 423
----------------------------------------------------------------------------
Finance expenses 1,394 3,231
----------------------------------------------------------------------------
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivatives
The fair value of risk management contracts is determined by discounting the
difference between the contracted price and published forward curves as at the
statement of financial position date using the remaining contracted volumes and
a risk-free interest rate (based on published government rates).
The Company classified the fair value of its financial instruments carried at
fair value according to the following hierarchy based on the amount of
observable inputs used to value the instrument:
-- Level 1 - observable inputs, such as quoted market prices in active
markets
-- Level 2 - inputs, other that the quoted market prices in active markets,
which are observable, either directly or indirectly
-- Level 3 - unobservable inputs for the asset or liability in which little
or no market data exists, therefore requiring an entity to develop its
own assumptions
The fair value of derivative contracts used for risk management as shown in the
statement of financial position as at September 30, 2013 is measured using level
2. During the nine months ended September 30, 2013, there were no transfers
between level 1, level 2, and level 3 classified assets and liabilities.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Three Months Nine Months
Ended Ended
September 30, September 30,
2013 2013
----------------------------------------------------------------------------
Accounts receivable (4,149) 1,932
Prepaid expenses and deposits 512 32
Accounts payable and accrued liabilities 5,664 (1,882)
----------------------------------------------------------------------------
Change in non-cash working capital 2,027 82
----------------------------------------------------------------------------
Relating to:
Investing 8,666 1,601
Operating (6,639) (1,519)
----------------------------------------------------------------------------
Change in non-cash working capital 2,027 82
----------------------------------------------------------------------------
CORPORATE INFORMATION
OFFICERS AND DIRECTORS
Robert J. Zakresky, CA BANK
President, CEO & Director National Bank of Canada
1800, 311 - 6th Avenue SW
Nolan Chicoine, MPAcc, CA Calgary, Alberta T2P 3H2
VP Finance & CFO
Terry L. Trudeau, P.Eng.
VP Operations & COO TRANSFER AGENT
Valiant Trust Company
Weldon Dueck, BSc., P.Eng. 310, 606 - 4th Street SW
VP Business Development Calgary, Alberta T2P 1T1
R.D. (Rick) Sereda, M.Sc., P.Geol.
VP Exploration
LEGAL COUNSEL
Helmut R. Eckert, P.Land Gowling Lafleur Henderson LLP
VP Land 1400, 700 - 2nd Street SW
Calgary, Alberta T2P 4V5
Kevin Keith
VP Production
Larry G. Moeller, CA, CBV AUDITORS
Chairman of the Board KPMG LLP
2700, 205 - 5th Avenue SW
Daryl H. Gilbert, P.Eng. Calgary, Alberta T2P 4B9
Director
Don Cowie
Director INDEPENDENT ENGINEERS
GLJ Petroleum Consultants Ltd.
Brian Krausert 4100, 400 - 3rd Avenue SW
Director Calgary, Alberta T2P 4H2
Gary W. Burns
Director
Don D. Copeland, P.Eng.
Director
Brian Boulanger
Director
Patricia Phillips
Director
FOR FURTHER INFORMATION PLEASE CONTACT:
Crocotta Energy Inc.
Robert J. Zakresky
President & CEO
(403) 538-3736
Crocotta Energy Inc.
Nolan Chicoine
VP Finance & CFO
(403) 538-3738
Crocotta Energy Inc.
Suite 700, 639 - 5th Avenue SW
Calgary, Alberta T2P 0M9
(403) 538-3737
(403) 538-3735 (FAX)
www.crocotta.ca
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