UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of NOVEMBER, 2015
Commission File Number: 001-33491
DXI ENERGY INC.
(Translation of registrant's name into English)
598-999 Canada Place
Vancouver, British Columbia V6C 3E1 Canada
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F [ x ] Form 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
INCORPORATION BY REFERENCE
Exhibits 99.1 and 99.2 to this Form 6-K are hereby incorporated by reference into the registration statements on Form F-3 (File No. 333-183587) and Form S-8 (File No. 333-179540 and 333-156772) of Dejour Energy Inc.
DOCUMENTS INCLUDED AS PART OF THIS FORM 6-K
See the Exhibit Index hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
DXI Energy Inc. |
|
|
|
|
|
Date: November 5, 2015 |
By: |
/s/ David Matheson |
|
Name: |
David Matheson |
|
Title: |
CFO |
EXHIBIT INDEX
(formerly operating as Dejour Energy Inc.)
INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
September 30, 2015
DXI ENERGY INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited) |
|
|
|
September 30, |
|
|
December 31, |
|
(thousands of Canadian dollars) |
|
Notes |
|
2015 |
|
|
2014 |
|
|
|
|
|
$ |
|
|
$ |
|
ASSETS |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
31 |
|
|
1,215 |
|
Accounts
receivable |
|
|
|
1,849 |
|
|
605 |
|
Prepaids and deposits |
|
|
|
54 |
|
|
141 |
|
Current Assets |
|
|
|
1,934 |
|
|
1,961 |
|
Non-current |
|
|
|
|
|
|
|
|
Deposits |
|
|
|
292 |
|
|
297 |
|
Exploration and evaluation assets |
|
3 |
|
3,556 |
|
|
3,107 |
|
Property and equipment |
|
4 |
|
20,959 |
|
|
17,909 |
|
Total Assets |
|
|
|
26,741 |
|
|
23,274 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Bank credit facility |
|
6 |
|
902 |
|
|
1,955 |
|
Accounts payable
and accrued liabilities |
|
|
|
1,531 |
|
|
3,515 |
|
Loans from related parties |
|
7 |
|
6,800 |
|
|
- |
|
Warrant liability |
|
8 |
|
78 |
|
|
755 |
|
Derivative liability |
|
9 |
|
- |
|
|
216 |
|
Financial contract liability |
|
11 |
|
3,872 |
|
|
- |
|
Current Liabilities |
|
|
|
13,183 |
|
|
6,441 |
|
Non-current |
|
|
|
|
|
|
|
|
Decommissioning liability |
|
10 |
|
3,832 |
|
|
3,709 |
|
Financial contract liability |
|
11 |
|
- |
|
|
2,739 |
|
Total Liabilities |
|
|
|
17,015 |
|
|
12,889 |
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Share capital |
|
12 |
|
97,147 |
|
|
97,132 |
|
Contributed
surplus |
|
|
|
10,417 |
|
|
9,674 |
|
Deficit |
|
|
|
(101,323 |
) |
|
(98,042 |
) |
Accumulated other comprehensive
income (loss) |
|
|
|
3,485 |
|
|
1,621 |
|
Total Shareholders' Equity |
|
|
|
9,726 |
|
|
10,385 |
|
Total Liabilities and Shareholders' Equity |
|
|
|
26,741 |
|
|
23,274 |
|
Approved on behalf of the Board:
|
|
|
Robert Hodgkinson - Director |
|
Craig Sturrock - Director
|
The accompanying notes are an integral part of these
consolidated financial statements. |
1 |
DXI ENERGY INC.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(Unaudited) |
|
|
|
Three months ended September 30 |
|
|
Nine months ended September 30 |
|
(thousands of
Canadian dollars, except per share amounts) |
|
Notes |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
|
|
2,189 |
|
|
2,257 |
|
|
5,811 |
|
|
7,639 |
|
Royalties |
|
|
|
(389 |
) |
|
(339 |
) |
|
(966 |
) |
|
(1,292 |
) |
Total
Revenues, net of royalties |
|
16 |
|
1,800 |
|
|
1,918 |
|
|
4,845 |
|
|
6,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating and transportation |
|
|
|
768 |
|
|
875 |
|
|
2,526 |
|
|
3,256 |
|
General and administrative |
|
|
|
429 |
|
|
759 |
|
|
1,630 |
|
|
2,375 |
|
Financing expenses |
|
|
|
324 |
|
|
132 |
|
|
724 |
|
|
1,013 |
|
Stock based compensation |
|
|
|
139 |
|
|
404 |
|
|
747 |
|
|
925 |
|
Foreign exchange loss (gain) |
|
|
|
36 |
|
|
170 |
|
|
145 |
|
|
197 |
|
Loss on settlement of loan
facility |
|
|
|
- |
|
|
- |
|
|
- |
|
|
388 |
|
Loss on disposal of E&E assets |
|
|
|
- |
|
|
- |
|
|
- |
|
|
389 |
|
(Gain) loss on disposal of
property and equipment |
|
|
|
- |
|
|
(45 |
) |
|
6 |
|
|
(1,980 |
) |
Amortization, depletion and impairment losses |
|
5 |
|
1,703 |
|
|
834 |
|
|
2,945 |
|
|
2,264 |
|
Change in fair value of
warrant liability |
|
8 |
|
(92 |
) |
|
(18 |
) |
|
(677 |
) |
|
686 |
|
Change in fair value of derivative liability |
|
9 |
|
- |
|
|
94 |
|
|
(216 |
) |
|
390 |
|
Loss on financial contract liability |
|
11 |
|
103 |
|
|
338 |
|
|
299 |
|
|
338 |
|
Total Expenses |
|
|
|
3,410 |
|
|
3,543 |
|
|
8,129 |
|
|
10,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before other items |
|
|
|
(1,610 |
) |
|
(1,625 |
) |
|
(3,284 |
) |
|
(3,894 |
) |
Other income |
|
|
|
2 |
|
|
5 |
|
|
3 |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) for the period |
|
|
|
(1,608 |
) |
|
(1,620 |
) |
|
(3,281 |
) |
|
(3,872 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be subsequently reclassified to profit or
loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
|
954 |
|
|
538 |
|
|
1,864 |
|
|
702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
(654 |
) |
|
(1,082 |
) |
|
(1,417 |
) |
|
(3,170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share - basic and
diluted(1) |
|
14 |
|
(0.04 |
) |
|
(0.05 |
) |
|
(0.09 |
) |
|
(0.12 |
) |
(1) Basic and diluted income (loss) per common share
based on the weighted average number of common shares outstanding during the
period, which has been adjusted retroactively to reflect the effects of the
one-for-five share consolidation (note 12).
DXI ENERGY INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY
(Unaudited) |
|
Share |
|
|
Contributed |
|
|
|
|
|
|
|
|
|
|
(thousands of Canadian dollars, except number of
shares) |
|
Capital |
|
|
Surplus |
|
|
Deficit |
|
|
AOCI(L)* |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Balance as at January 1,
2015 |
|
97,132 |
|
|
9,674 |
|
|
(98,042 |
)
|
|
1,621 |
|
|
10,385 |
|
Issue of shares on
exercise of options |
|
11 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Contributed surplus reallocated on
exercise
of options |
|
4 |
|
|
(4 |
)
|
|
|
|
|
|
|
|
- |
|
Stock-based compensation |
|
|
|
|
747 |
|
|
|
|
|
|
|
|
747 |
|
Loss |
|
|
|
|
|
|
|
(3,281 |
)
|
|
|
|
|
(3,281 |
)
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
1,864 |
|
|
1,864 |
|
Balance as at September 30, 2015 |
|
97,147 |
|
|
10,417 |
|
|
(101,323 |
) |
|
3,485 |
|
|
9,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1,
2014 |
|
90,274 |
|
|
9,150 |
|
|
(90,839 |
)
|
|
514 |
|
|
9,099 |
|
Shares issued via private
placements, net of
issuance costs |
|
1,922 |
|
|
|
|
|
|
|
|
|
|
|
1,922 |
|
Shares
issued via acquisition of property,
net of
issuance costs |
|
1,889 |
|
|
|
|
|
|
|
|
|
|
|
1,889 |
|
Issue of shares on
exercise of options and
warrants |
|
2,232 |
|
|
|
|
|
|
|
|
|
|
|
2,232 |
|
Contributed surplus reallocated on
exercise
of warrants |
|
70 |
|
|
|
|
|
|
|
|
|
|
|
70 |
|
Contributed surplus
reallocated on exercise
of options |
|
746 |
|
|
(746 |
) |
|
|
|
|
|
|
|
- |
|
Stock-based compensation |
|
|
|
|
925 |
|
|
|
|
|
|
|
|
925 |
|
Loss |
|
|
|
|
|
|
|
(3,872 |
) |
|
|
|
|
(3,872 |
) |
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
702 |
|
|
702 |
|
Balance as at September 30, 2014 |
|
97,133 |
|
|
9,329 |
|
|
(94,711 |
) |
|
1,216 |
|
|
12,967 |
|
* Accumulated other comprehensive income (loss)
DXI ENERGY INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited) |
|
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
(thousands of Canadian dollars) |
|
Notes |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) for the period |
|
|
|
(1,608 |
) |
|
(1,620 |
) |
|
(3,281 |
) |
|
(3,872 |
) |
Adjustment for
items not affecting cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization,
depletion and impairment losses |
|
|
|
1,703 |
|
|
834 |
|
|
2,945 |
|
|
2,264 |
|
Stock based compensation |
|
|
|
139 |
|
|
404 |
|
|
747 |
|
|
925 |
|
Non-cash financing
expenses |
|
|
|
147 |
|
|
81 |
|
|
426 |
|
|
886 |
|
Non-cash foreign exchange on financial contract liability |
|
|
|
236 |
|
|
194 |
|
|
447 |
|
|
208 |
|
Loss on settlement
of loan facility |
|
|
|
- |
|
|
- |
|
|
- |
|
|
388 |
|
Loss on disposal of E&E assets |
|
|
|
- |
|
|
- |
|
|
- |
|
|
389 |
|
(Gain) loss on
disposal of property and equipment |
|
|
|
- |
|
|
(45 |
) |
|
6 |
|
|
(1,980 |
) |
Change in fair value of derivative liability |
|
|
|
- |
|
|
94 |
|
|
(216 |
) |
|
390 |
|
Change in fair
value of warrant liability |
|
|
|
(92 |
) |
|
(18 |
) |
|
(677 |
) |
|
686 |
|
Amortization of deferred leasehold inducement |
|
|
|
- |
|
|
(12 |
) |
|
- |
|
|
(17 |
) |
Loss on financial contract
liability |
|
|
|
103 |
|
|
338 |
|
|
299 |
|
|
338 |
|
Cash flows from (used in) operations |
|
|
|
628 |
|
|
250 |
|
|
696 |
|
|
605 |
|
Changes in operating working capital |
|
14 |
|
(30 |
) |
|
(759 |
) |
|
(3 |
) |
|
(1,059 |
) |
Total Cash Flows from (used
in) Operating Activities |
|
|
|
598 |
|
|
(509 |
) |
|
693 |
|
|
(454 |
) |
CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
- |
|
|
20 |
|
|
5 |
|
|
(12 |
) |
E&E expenditures |
|
|
|
(31 |
) |
|
(11 |
) |
|
(50 |
) |
|
(95 |
) |
Additions to
property and equipment |
|
|
|
(2,611 |
) |
|
(112 |
) |
|
(4,452 |
) |
|
(1,368 |
) |
Proceeds from sale of E&E
assets |
|
|
|
- |
|
|
- |
|
|
- |
|
|
412 |
|
Proceeds from
sale of property and equipment |
|
|
|
- |
|
|
- |
|
|
- |
|
|
4,136 |
|
Changes in investing working capital |
|
14 |
|
2,248 |
|
|
(248 |
) |
|
(3,139 |
) |
|
(617 |
) |
Total Cash Flows from (used
in) Investing Activities |
|
|
|
(394 |
) |
|
(351 |
) |
|
(7,636 |
) |
|
2,456 |
|
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance
(repayment) of bank credit facility |
|
|
|
(660 |
) |
|
(270 |
) |
|
(1,052 |
) |
|
(610 |
) |
Advance (repayment) of loans
from related parties |
|
|
|
300 |
|
|
- |
|
|
6,800 |
|
|
- |
|
Advance
(repayment) of loan facility |
|
|
|
- |
|
|
- |
|
|
- |
|
|
(3,820 |
) |
Advance (repayment) of financial
contract liability |
|
|
|
- |
|
|
(105 |
) |
|
- |
|
|
(763 |
) |
Shares issued on
exercise of warrants and options |
|
|
|
- |
|
|
602 |
|
|
- |
|
|
2,232 |
|
Shares issued for cash, net of
share issue costs |
|
|
|
11 |
|
|
1,541 |
|
|
11 |
|
|
2,226 |
|
Changes in financing working capital |
|
14 |
|
- |
|
|
4 |
|
|
- |
|
|
52 |
|
Total Cash Flows from (used
in) Financing Activities |
|
|
|
(349 |
) |
|
1,772 |
|
|
5,759 |
|
|
(683 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CHANGE IN CASH AND CASH EQUIVALENTS |
|
|
|
(145 |
) |
|
912 |
|
|
(1,184 |
) |
|
1,319 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
|
176 |
|
|
912 |
|
|
1,215 |
|
|
505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
|
|
31 |
|
|
1,824 |
|
|
31 |
|
|
1,824 |
|
Supplemental cash flow information - Note 14
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014
|
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 1 CORPORATE INFORMATION
DXI Energy Inc. (the Company) is a public company trading on
the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX),
under the symbol DXI. The Company is in the business of exploring and
developing energy properties with a focus on oil and gas in North America. On
March 9, 2011, the Company changed its name from Dejour Enterprises Ltd. to
Dejour Energy Inc. On October 27, 2015, the Company changed its name from Dejour
Energy Inc. to DXI Energy Inc. The address of its registered office is 598 999
Canada Place, Vancouver, British Columbia.
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Dejour Energy (USA) Corp.
(Dejour USA), incorporated in Nevada, Dejour Energy (Alberta) Ltd. (DEAL),
incorporated in Alberta, Wild Horse Energy Ltd. (Wild Horse), incorporated in
Alberta, and 0855524 B.C. Ltd., incorporated in British Columbia. All
intercompany transactions are eliminated upon consolidation.
The interim condensed consolidated financial statements are
presented in Canadian dollars, which is also the functional currency of the
parent company. These interim condensed consolidated financial statements were
authorized and approved for issuance by the Audit Committee on November 4, 2015.
NOTE 2 BASIS OF PRESENTATION
(a) Basis of presentation
The interim condensed consolidated financial statements for the
nine months period ended September 30, 2015 have been prepared in accordance
with IAS 33 Earnings per Share and IAS 34 Interim Financial Reporting.
These interim results do not include all the information
required for the full annual financial statements, and should be read in
conjunction with the audited consolidated financial statements of the Company
for the year ended December 31, 2014.
(b) Going concern
The financial statements were prepared on a going concern
basis. The going concern basis assumes that the Company will continue in
operation for the foreseeable future and will be able to realize its assets and
discharge its liabilities and commitments in the normal course of business. The
Company has a working capital deficiency of $11.2 million, which includes a
Credit Facility in DEAL of $0.9 million and loans from related parties of $6.8
million with repayment due in December 2015, and accumulated deficit of $101.3
million. Excluding the non-cash warrant liability of $0.1 million, the adjusted
working capital deficiency was $11.1 million.
On November 24, 2014 and amended on March 16, 2015 and July 6,
2015, the Company renewed the Credit Facility with its Bank for a maximum of
$1.7 million. Monthly principal payments of $100,000 are due and payable on July
28, 2015 and commencing on the 28th of each month thereafter. As at
September 30, 2015, the maximum amount of the credit facility was $1.4 million
of which $902,000 was drawn. As at September 30, 2015, DEAL was in compliance
with its working capital ratio requirement.
The Companys ability to continue as a going concern is
dependent upon attaining profitable operations and the continued financial
support of the non-arms length lenders who have provided the Company with
sufficient capital in 2015 to meet capital expenditure commitments and continue
exploration and development activities. There is no assurance that these
activities will be successful. These material uncertainties cast substantial
doubt upon the Companys ability to continue as a going concern. These
consolidated financial statements do not reflect the adjustments to the carrying
values of assets and liabilities, the reported revenues and expenses, and the
balance sheet classifications used that would be necessary if the going concern
assumptions were not appropriate.
5
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 2 BASIS OF PRESENTATION (continued)
(c) Basis of measurement
The interim condensed consolidated financial statements have
been prepared on the historical cost basis except for certain financial
liabilities that are measured at fair value, as explained in the accounting
policies in the Companys annual consolidated financial statements.
(d) Use of estimates and
judgments
The preparation of interim condensed consolidated financial
statements in compliance with IFRS requires management to make certain critical
accounting estimates. It also requires management to exercise judgment in
applying the Companys accounting policies. The areas involving a higher degree
of judgment or complexity, or areas where assumptions and estimates are
significant to the financial statements are disclosed in note 4 to the Companys
annual consolidated financial statements.
(e) Functional and
presentation currency
Subsidiaries measure items using the currency of the primary
economic environment in which the entity operates with entities having a
functional currency different from the parent company, translated into Canadian
dollars.
NOTE 3 EXPLORATION AND EVALUATION (E&E) ASSETS
|
|
Canadian Oil |
|
|
United States |
|
|
|
|
|
|
and Gas |
|
|
Oil and Gas |
|
|
|
|
|
|
Interests |
|
|
Interests |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Cost: |
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
|
70 |
|
|
18,298 |
|
|
18,368 |
|
Additions |
|
4 |
|
|
116 |
|
|
120 |
|
Change in decommissioning provision |
|
192 |
|
|
- |
|
|
192 |
|
Disposals |
|
- |
|
|
(3,758 |
) |
|
(3,758 |
) |
Foreign currency
translation and other |
|
- |
|
|
1,192
|
|
|
1,192
|
|
Balance at December 31, 2014 |
|
266 |
|
|
15,848 |
|
|
16,114 |
|
Additions |
|
2 |
|
|
48 |
|
|
50 |
|
Change in decommissioning provision |
|
2 |
|
|
- |
|
|
2 |
|
Foreign currency
translation and other |
|
- |
|
|
2,359
|
|
|
2,359
|
|
Balance at September 30, 2015 |
|
270 |
|
|
18,255 |
|
|
18,525 |
|
6
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 3 EXPLORATION AND EVALUATION (E&E) ASSETS
(continued)
|
|
Canadian Oil |
|
|
United States |
|
|
|
|
|
|
and Gas |
|
|
Oil and Gas |
|
|
|
|
|
|
Interests |
|
|
Interests |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Accumulated impairment losses: |
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
|
- |
|
|
(15,087 |
) |
|
(15,087 |
) |
Impairment losses |
|
- |
|
|
(88 |
) |
|
(88 |
) |
Disposals |
|
- |
|
|
3,028 |
|
|
3,028 |
|
Foreign currency translation and other |
|
- |
|
|
(860 |
) |
|
(860 |
) |
Balance at December 31, 2014 |
|
- |
|
|
(13,007 |
) |
|
(13,007 |
) |
Impairment losses (Note 5) |
|
- |
|
|
(30 |
) |
|
(30 |
) |
Foreign currency
translation and other |
|
- |
|
|
(1,932 |
) |
|
(1,932 |
)
|
Balance at September 30, 2015 |
|
- |
|
|
(14,969 |
) |
|
(14,969 |
) |
|
|
Canadian Oil |
|
|
United States |
|
|
|
|
|
|
and Gas |
|
|
Oil and Gas |
|
|
|
|
|
|
Interests |
|
|
Interests |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Carrying amounts: |
|
|
|
|
|
|
|
|
|
At December 31, 2014 |
|
266 |
|
|
2,841 |
|
|
3,107 |
|
At September 30, 2015 |
|
270 |
|
|
3,286 |
|
|
3,556 |
|
Exploration and evaluation (E&E) assets consist of the
Companys exploration projects which are pending the determination of proven
reserves.
During the nine months ended September 30, 2015, the Company
capitalized $20,000 (September 30, 2014 $92,000) of general and administrative
costs related to its US oil and gas interests.
The Company determined that there were no indicators of
impairment for its Canadian and U.S. oil and gas interests or no indicators of
impairment reversal for its Canadian and U.S. oil and gas interests at September
30, 2015.
7
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 4 PROPERTY AND EQUIPMENT
|
|
Canadian Oil |
|
|
United States |
|
|
|
|
|
|
|
|
|
and Gas |
|
|
Oil and Gas |
|
|
Corporate and |
|
|
|
|
|
|
Interests |
|
|
Interests |
|
|
Other Assets |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
|
24,550 |
|
|
14,279 |
|
|
325 |
|
|
39,154 |
|
Additions |
|
6,898 |
|
|
250 |
|
|
13 |
|
|
7,161 |
|
Change in decommissioning provision |
|
733 |
|
|
81 |
|
|
- |
|
|
814 |
|
Disposals |
|
- |
|
|
(5,493 |
) |
|
(121 |
) |
|
(5,614 |
) |
Foreign currency
translation and other |
|
- |
|
|
853
|
|
|
2 |
|
|
855
|
|
Balance at December 31, 2014 |
|
32,181 |
|
|
9,970 |
|
|
219 |
|
|
42,370 |
|
Additions |
|
1,045 |
|
|
3,406 |
|
|
1 |
|
|
4,452 |
|
Change in decommissioning provision |
|
50 |
|
|
12 |
|
|
- |
|
|
62 |
|
Disposals |
|
- |
|
|
- |
|
|
(38 |
) |
|
(38 |
) |
Foreign currency translation and other |
|
- |
|
|
1,623 |
|
|
(4 |
) |
|
1,619 |
|
Balance at
September 30, 2015 |
|
33,276 |
|
|
15,011 |
|
|
178 |
|
|
48,465 |
|
|
|
Canadian Oil |
|
|
United States |
|
|
|
|
|
|
|
|
|
and Gas |
|
|
Oil and Gas |
|
|
Corporate and |
|
|
|
|
|
|
Interests |
|
|
Interests |
|
|
Other Assets |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Accumulated amortization, depletion and
impairment |
|
|
|
|
|
|
|
|
|
|
|
|
losses: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
|
(17,333 |
) |
|
(1,157 |
) |
|
(278 |
) |
|
(18,768 |
) |
Amortization and depletion |
|
(2,447 |
) |
|
(402 |
) |
|
(18 |
) |
|
(2,867 |
) |
Impairment losses |
|
(3,560 |
) |
|
- |
|
|
- |
|
|
(3,560 |
) |
Disposals |
|
- |
|
|
705 |
|
|
108 |
|
|
813 |
|
Foreign currency translation and other |
|
- |
|
|
(78 |
) |
|
(1 |
) |
|
(79 |
) |
Balance at December 31, 2014 |
|
(23,340 |
) |
|
(932 |
) |
|
(189 |
) |
|
(24,461 |
) |
Amortization and depletion (Note 5) |
|
(1,875 |
) |
|
(34 |
) |
|
(6 |
) |
|
(1,915 |
) |
Impairment losses (Note 5) |
|
(1,000 |
) |
|
- |
|
|
- |
|
|
(1,000 |
) |
Disposals |
|
- |
|
|
- |
|
|
33 |
|
|
33 |
|
Foreign currency
translation and other |
|
- |
|
|
(167 |
) |
|
4 |
|
|
(163 |
) |
Balance at September 30, 2015 |
|
(26,215 |
) |
|
(1,133 |
) |
|
(158 |
) |
|
(27,506 |
) |
|
|
Canadian Oil |
|
|
United States |
|
|
|
|
|
|
|
|
|
and Gas |
|
|
Oil and Gas |
|
|
Corporate and |
|
|
|
|
|
|
Interests |
|
|
Interests |
|
|
Other Assets |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Carrying amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2014 |
|
8,841 |
|
|
9,038 |
|
|
30 |
|
|
17,909 |
|
At September 30, 2015 |
|
7,061 |
|
|
13,878 |
|
|
20 |
|
|
20,959 |
|
8
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 4 PROPERTY AND EQUIPMENT (continued)
During the nine months ended September 30, 2015, the Company
capitalized $123,000 (September 30, 2014 $80,000) of general and
administrative costs related to its Canadian oil and gas interests. During the
nine months ended September 30, 2015, the Company capitalized $60,000 (September
30, 2014 $247,000) of general and administrative costs related to its US oil
and gas interests.
The Company determined that there were no indicators of
impairment for its U.S. oil and gas interests at September 30, 2015. The Company
recorded an impairment charge of $1,000,000 in determining the carrying value of
its Canadian oil and gas interests at September 30, 2015. The charge reflects
recent worldwide declines in oil prices partially offset by a 69% increase in
related oil production.
NOTE 5 AMORTIZATION, DEPLETION AND IMPAIRMENT
LOSSES
|
|
Nine
months ended September 30 |
|
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
Exploration and Evaluation Assets (E
& E assets) |
|
|
|
|
|
|
Impairment losses (Note 3) |
|
30 |
|
|
88 |
|
|
|
|
|
|
|
|
Property and Equipment (D & P assets) |
|
|
|
|
|
|
Amortization and
depletion (Note 4) |
|
1,915 |
|
|
2,176 |
|
Impairment losses (Note 4) |
|
1,000 |
|
|
- |
|
|
|
2,945 |
|
|
2,264 |
|
NOTE 6 BANK CREDIT FACILITY
On June 5, 2014 and amended on June 27, 2014, DEAL renewed its
Credit Facility with the Bank for a maximum amount of $2.9 million. Effective
July 1, 2014, the Credit Facility reduces by $100,000 per month. Interest on the
loan is Prime + 3% payable monthly and the amount outstanding is payable on
demand any time. Collateral for the Credit Facility is provided by a $10.0
million first floating charge over all the assets of DEAL, a general assignment
of DEALs book debts and a $10.0 million debenture with a first floating charge
over all the assets of the Company. Additionally, an amount of US$385,000 was
deposited in the Companys US$ account with the Bank at June 30, 2014 upon the
Banks request to be applied to DEALs general operations.
On July 29, 2014, DEAL renewed the Credit Facility with its
Bank for a maximum of $2.8 million, reducing $100,000 per month, each through
November 1, 2014. As part of the renewal, the Company can utilize the US$385,000
on deposit with its Bank at June 30, 2014 on the operations and capital programs
of DEAL at the Companys discretion. Further, on November 24, 2014 and amended
on March 16, 2015 and July 6, 2015, DEAL renewed the Credit Facility with its
Bank for a maximum of $1.7 million. Monthly principal payments of $100,000 are
due and payable on July 28, 2015 and commencing on the 28th of each
month thereafter. As at September 30, 2015, the maximum amount of the credit
facility was $1.4 million of which $902,000 was drawn.
Under the terms of the Credit Facility, DEAL is required to
maintain a working capital ratio of greater than 1:1 at all times. The working
capital ratio is defined as the ratio of (i) current assets (including any
undrawn and authorized availability under the Credit Facility) less unrealized
hedging gains to (ii) current liabilities (excluding the current portion of
outstanding balances of the facility) less unrealized hedging losses. As at
September 30, 2015, DEAL was in compliance of its working capital ratio
requirement.
9
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 7 LOANS FROM RELATED PARTIES
(a) Loan from Hodgkinson
Equity Corporation (HEC)
On March 12, 2015, as amended on May 6, 2015, June 22, 2015 and
September 28, 2015, the Company issued a promissory note for up to $4,500,000 to
HEC, a private company controlled by the CEO of the Company. The promissory note
is secured by all assets of Dejour USA, and bears interest at the Canadian prime
rate plus 5% per annum. The principal and interest are repayable by the earlier
of (i) within 10 business days of receipt of written demand from HEC for the
repayment and (ii) June 10, 2015 or such later date to which the term of the
promissory note may be extended. On May 6, 2015, the due date of the loan was
extended to September 30, 2015. On September 28, 2015, the due date of the loan
was further extended to December 31, 2015. Upon an event of default, all the
indebtedness under the promissory note becomes due and payable and the interest
rate is immediately increased to the Canadian prime rate plus 8.5% per annum. As
at September 30, 2015, the maximum $4.5 million had been advanced to the
Company.
(b) Loan from Hodgkinson
Ventures Inc. (HVI)
On June 22, 2015, as amended on September 28, 2015, the Company
issued a promissory note for up to $2,000,000 to HVI, a private company
associated with the CEO of the Company, on a pari passu basis with the loan
from HEC (note 7(a)). The promissory note is secured by all assets of Dejour
USA, and bears interest at the Canadian prime rate plus 5% per annum. The
principal and interest are repayable on or before September 30, 2015. On
September 28, 2015, the due date of the loan was extended to December 31, 2015.
Upon an event of default, all the indebtedness under the promissory note become
due and payable and the interest rate is immediately increased to the Canadian
prime rate plus 8.5% per annum. As at September 30, 2015, the maximum $2.0
million had been advanced to the Company.
(c) Loan from a director and
officer of the Company and his spouse
On September 15, 2015, the Company issued a grid promissory
note of up to $1,000,000 to a director and officer of the Company and his
spouse. The promissory note bears interest at 12% per annum. The principal and
interest accrued on the loan are repayable on or before December 31, 2015. As at
September 30, 2015, $300,000 had been advanced to the Company.
NOTE 8 WARRANT LIABILITY
Warrants that have their exercise prices denominated in
currencies other than the Companys functional currency of Canadian dollars,
other than agents warrants, are accounted for as derivative financial
liabilities. These warrants are recorded at the fair value at each reporting
date with the change in fair value for the period recorded in profit or loss for
the period.
|
|
# |
|
|
$ |
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
|
4,259,545 |
|
|
324 |
|
Granted, investor warrants |
|
1,200,000 |
|
|
355 |
|
Warrants expired |
|
(1,540,000 |
) |
|
(2 |
) |
Change in fair
value |
|
- |
|
|
78
|
|
Balance at December 31, 2014 |
|
3,919,545 |
|
|
755 |
|
Change in fair
value |
|
- |
|
|
(677 |
) |
Balance at September 30, 2015 |
|
3,919,545 |
|
|
78 |
|
10
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 9 DERIVATIVE LIABILITY
An embedded derivative liability in the amount of $Nil related
to 1,318,333 incentive share purchase warrants attached to the original $3.5
million loan facility (repaid in full on June 30, 2014) was realized in full
with the expiry of the warrants on July 22, 2015.
The derivative liability was carried at fair value through
profit and loss and the instrument was re-measured at each reporting date using
an option pricing model. For the nine months ended September 30, 2015, the
Company recorded an unrealized gain on the derivative liability of $216,000
(nine months ended September 30, 2014 - $390,000 loss). The following key inputs
to obtain the valuation:
As at |
|
September 30, 2015 |
|
|
December 31, 2014 |
|
Exercise price |
$ |
1.20 |
|
$ |
1.20 |
|
Share price |
$ |
0.85 |
|
$ |
1.05 |
|
Expected volatility |
|
23% |
|
|
69% |
|
Expected life |
|
0.1 year |
|
|
0.6 year |
|
Dividends |
|
0.0% |
|
|
0.0% |
|
Risk-free interest
rate |
|
0.5%
|
|
|
1.0%
|
|
NOTE 10 DECOMMISSIONING LIABILITY
|
|
Canadian |
|
|
United
States |
|
|
|
|
|
|
Oil and Gas |
|
|
Oil and Gas |
|
|
|
|
|
|
Properties (1) |
|
|
Properties (1) |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Balance at January 1, 2014 |
|
1,092 |
|
|
120 |
|
|
1,212 |
|
Change in estimated future cash flows |
|
370 |
|
|
6 |
|
|
376 |
|
Additions |
|
2,076 |
|
|
76 |
|
|
2,152 |
|
Disposals |
|
- |
|
|
(104 |
) |
|
(104 |
) |
Actual costs incurred and other |
|
- |
|
|
11 |
|
|
11 |
|
Unwinding of
discount |
|
59
|
|
|
3 |
|
|
62
|
|
Balance at December 31, 2014 |
|
3,597 |
|
|
112 |
|
|
3,709 |
|
Change in estimated future cash flows |
|
52 |
|
|
5 |
|
|
57 |
|
Additions |
|
- |
|
|
8 |
|
|
8 |
|
Actual costs incurred and other |
|
- |
|
|
19 |
|
|
19 |
|
Unwinding of discount |
|
37 |
|
|
2 |
|
|
39 |
|
Balance at
September 30, 2015 |
|
3,686 |
|
|
146 |
|
|
3,832 |
|
(1) relates to property and equipment (note 4)
The present value of the decommissioning liability was
calculated using the following weighted average inputs:
|
|
Canadian Oil |
|
|
United
States |
|
|
|
and Gas |
|
|
Oil and Gas |
|
|
|
Properties |
|
|
Properties |
|
As at September 30, 2015: |
|
|
|
|
|
|
Discount rate |
|
1.42% |
|
|
2.21% |
|
Inflation rate |
|
2.00% |
|
|
2.00% |
|
|
|
|
|
|
|
|
As at December 31, 2014: |
|
|
|
|
|
|
Discount rate |
|
1.71% |
|
|
2.20% |
|
Inflation rate |
|
2.00% |
|
|
2.00% |
|
11
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 11 FINANCIAL CONTRACT LIABILITY
On December 31, 2012, Dejour USA entered into a financial
contract with a U.S. oil and gas drilling fund (Drilling Fund) to fund the
drilling of up to three wells and the completion of up to four wells in the
State of Colorado. The Drilling Fund contributed US$6.5 million cash to earn
working interests in production from the wellbores ranging from 55.56% to 77.78%
before payout and 44.44% to 58.33% after payout. This amount was subsequently
increased by US$500,000 to US$7,000,000 with the Companys consent.
The December 31, 2012 financial contract states the Drilling
Fund has the right to require Dejour USA to purchase its working interests in
the wellbores for cash in September 2016, 36-months after the final well in the
4-well program is placed in production. The repurchase price is based on a
predetermined formula which ensures the Drilling Fund earns a minimum return,
compounded annually and applied on a monthly basis, on 75% of its original
US$7,000,000 investment over the 36-month period. Accordingly, the Company
considered the transaction to be a financial contract as the risks and rewards
of ownership were not substantially transferred to the Drilling Fund and, on
December 31, 2012, the Company recorded the transaction in its accounts by
increasing property and equipment and financial contract liability by
US$6,500,000 on its balance sheet. This amount was subsequently increased to
US$7,000,000.
On June 30, 2014, the financial contract was amended and the
Drilling Fund agreed to retain its working interest in the wells as at September
30, 2016, should it exercise its right to require Dejour USA to pay the minimum
return calculated in accordance with the provisions of the contract. In
determining the minimum return to be paid, the Drilling Fund agreed to deduct
the residual reserve value of its working interest in the 4 wellbores at
September 30, 2016. The parties also agreed to have a third party engineering
firm calculate the residual value of the reserves in accordance with industry
accepted valuation standards.
Finally, the parties agreed to limit the cash consideration to
be paid by Dejour USA, should it be required to pay the minimum return provided
for in the December 31, 2012 contract to US$3,000,000. Additional consideration,
if any, may be paid by Dejour USA by an assignment of a working interest in
certain proven assets at a jointly owned oil and gas property in Colorado
applying an industry-standard valuation approach.
The June 30, 2014 amendment transferred the risks of ownership
of the 4 wellbores back to the Drilling Fund and the financial contract
liability was adjusted to reflect the present value of the amount owing to the
Drilling Fund under the financial contract at September 30, 2016 ($7,070,000),
net of the present value of the residual reserves ($3,198,000), or $3,872,000,
as follows:
|
|
$ |
|
Balance at January 1, 2014 (US$5,755) |
|
6,121 |
|
Loan advance during the year (US$181) |
|
210 |
|
Accretion expense (US$388) |
|
450 |
|
Foreign exchange
loss |
|
351
|
|
|
|
7,132 |
|
Less: |
|
|
|
(a) Net
operating income (US$846) |
|
(982 |
) |
(b) Adjustment to
financial contract liability (US$3,117) |
|
(3,411 |
) |
Balance at December 31, 2014 (US$2,361) |
|
2,739 |
|
Accretion expense (US$306) |
|
408 |
|
Foreign exchange loss |
|
426 |
|
|
|
3,573 |
|
Add: Adjustment to financial contract liability (US$234)
|
|
299 |
|
Balance at
September 30, 2015 (US$2,901) |
|
3,872 |
|
12
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 12 SHARE CAPITAL
Authorized
The Company is authorized to issue an unlimited number of
common voting shares, an unlimited number of first preferred shares issuable in
series, and an unlimited number of second preferred shares issuable in
series. No preferred shares have been issued and the terms of preferred
shares have not been defined.
Issued and outstanding
|
|
# of shares |
|
|
$of shares |
|
Balance at January 1, 2014 |
|
29,783,274 |
|
|
90,274 |
|
Issue of shares on exercise of warrants and options |
|
2,177,153 |
|
|
2,232 |
|
Derivative liability reallocated on
exercise of warrants |
|
- |
|
|
70 |
|
Contributed surplus reallocated on exercise of options |
|
- |
|
|
746 |
|
Shares issued via acquisition of property,
net of issuance costs |
|
1,920,000 |
|
|
1,890 |
|
Shares issued via
private placement, net of issuance costs |
|
2,600,000 |
|
|
1,920
|
|
Balance at December 31, 2014 |
|
36,480,427 |
|
|
97,132 |
|
Issue of shares on exercise of options |
|
14,295 |
|
|
11 |
|
Contributed surplus reallocated on exercise
of options |
|
- |
|
|
4 |
|
Adjustment due to
fractional rounding |
|
(371 |
) |
|
- |
|
Balance at September 30, 2015 |
|
36,494,351 |
|
|
97,147 |
|
On October 30, 2015, the Companys common shares were
consolidated on a one-for-five basis. All shares and per share amounts in these
consolidated financial statements have been adjusted retroactively for all
periods presented to reflect the effects of the share consolidation.
NOTE 13 STOCK OPTIONS AND SHARE PURCHASE WARRANTS
(a) Stock Options
The Stock Option Plan (the Plan) is a 10% rolling plan
pursuant to which the number of common shares reserved for issuance is 10% of
the Companys issued and outstanding common shares as constituted on the date of
any grant of options.
The Plan provides for the grant of options to purchase common
shares to eligible directors, senior officers, employees and consultants of the
Company (Participants). The exercise periods and vesting periods of options
granted under the Plan are to be determined by the Company with approval from
the Board of Directors. The expiration of any option will be accelerated if the
participants employment or other relationship with the Company terminates. The
exercise price of an option is to be set by the Company at the time of grant but
shall not be lower than the market price (as defined in the Plan) at the time of
grant.
13
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 13 STOCK OPTIONS AND SHARE PURCHASE WARRANTS
(continued)
(a) Stock Options (continued)
The following table summarizes information about outstanding
stock option transactions:
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
average |
|
|
|
options |
|
|
exercise price |
|
|
|
|
|
|
$ |
|
Balance at January 1, 2014 |
|
2,124,500 |
|
|
1.00 |
|
Options granted |
|
3,397,801 |
|
|
1.25 |
|
Options exercised (Note 12) |
|
(2,037,153 |
) |
|
1.00 |
|
Options forfeited |
|
(510,828 |
) |
|
1.00 |
|
Options expired |
|
(34,000 |
) |
|
1.00 |
|
Balance at December 31, 2014 |
|
2,940,320 |
|
|
1.25 |
|
Options granted |
|
694,295 |
|
|
0.80 |
|
Options exercised (Note 12) |
|
(14,295 |
) |
|
0.80 |
|
Options forfeited |
|
(7,863 |
) |
|
1.30 |
|
Balance at
September 30, 2015 |
|
3,612,457 |
|
|
1.20 |
|
Details of the stock options as at September 30, 2015 are as
follows:
|
|
Outstanding |
|
|
Exercisable |
|
|
|
Weighted average |
|
|
Weighted average |
|
|
|
Number |
|
|
exercise |
|
|
contractual |
|
|
Number |
|
|
exercise |
|
|
contractual |
|
|
|
of
options |
|
|
price |
|
|
life
(years) |
|
|
of
options |
|
|
price |
|
|
life
(years) |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
$0.75 to $0.90 |
|
691,250 |
|
|
0.80 |
|
|
1.49 |
|
|
691,250 |
|
|
0.80 |
|
|
1.49 |
|
$1.00 to $1.25 |
|
656,250 |
|
|
1.00 |
|
|
3.01 |
|
|
535,625 |
|
|
1.00 |
|
|
3.01 |
|
$1.30 |
|
1,652,517 |
|
|
1.30 |
|
|
1.53 |
|
|
1,180,370 |
|
|
1.30 |
|
|
1.53 |
|
$1.45 |
|
612,440 |
|
|
1.45 |
|
|
1.88 |
|
|
382,775 |
|
|
1.45 |
|
|
1.88 |
|
|
|
3,612,457 |
|
|
1.20 |
|
|
1.85 |
|
|
2,790,020 |
|
|
1.15 |
|
|
1.85 |
|
The fair value of the options issued during the period was
estimated using the Black Scholes option pricing model with the following
weighted average inputs:
For the nine months ended September 30 |
2015 |
2014 |
|
|
|
Fair value at grant date |
$ 0.25 |
$ 0.70 |
|
|
|
Exercise price |
$ 0.80 |
$ 1.45 |
Share price |
$ 0.80 |
$ 1.45 |
Expected volatility |
76.85% |
89.32% |
Expected option life |
1.12 years |
2.06 years |
Dividends |
0.0% |
0.0% |
Risk-free interest
rate |
0.49% |
1.07%
|
Expected volatility is based on historical volatility and
average weekly stock prices were used to calculate volatility. Management
believes that the annualized weekly average of volatility is the best measure of
expected volatility. A weighted average forfeiture rate of 5.37% (2014 6.16%)
is used when recording stock based compensation.
14
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 13 STOCK OPTIONS AND SHARE PURCHASE WARRANTS
(continued)
(b) Share Purchase Warrants (continued)
The following table summarizes information about warrant
transactions:
|
|
Number
of |
|
|
Weighted average |
|
|
|
warrants |
|
|
exercise price |
|
|
|
|
|
|
$ |
|
Balance at January 1, 2014 |
|
7,268,860 |
|
|
2.00 |
|
Warrants granted |
|
1,200,000 |
|
|
2.05 |
|
Warrants exercised |
|
(140,000 |
) |
|
1.20 |
|
Warrants expired
|
|
(2,362,410 |
) |
|
2.45
|
|
Balance at December 31, 2014 |
|
5,966,450 |
|
|
2.10 |
|
Warrants expired
|
|
(1,318,333 |
) |
|
1.20
|
|
Balance at September 30, 2015 |
|
4,648,117 |
|
|
2.50 |
|
Details of the share purchase warrants as at September 30, 2015
are as follows:
|
|
Outstanding |
|
|
Exercisable |
|
|
|
Weighted average |
|
|
Weighted average |
|
|
|
Number |
|
|
exercise |
|
|
Contractual |
|
|
Number |
|
|
exercise |
|
|
contractual |
|
|
|
of
warrants |
|
|
price |
|
|
life
(years) |
|
|
of
warrants |
|
|
price |
|
|
life
(years) |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
$0.40 |
|
728,571 |
|
|
2.00 |
|
|
0.13 |
|
|
728,571 |
|
|
2.00 |
|
|
0.13 |
|
$0.35 US |
|
1,200,000 |
|
|
2.35 |
|
|
0.25 |
|
|
1,200,000 |
|
|
2.35 |
|
|
0.25 |
|
$0.40 US |
|
2,719,546 |
|
|
2.65 |
|
|
1.68 |
|
|
2,719,546 |
|
|
2.65 |
|
|
1.68 |
|
|
|
4,648,117 |
|
|
2.50 |
|
|
1.07 |
|
|
4,648,117 |
|
|
2.50 |
|
|
1.07 |
|
Warrants that have their exercise prices denominated in
currencies other than the Companys functional currency of Canadian dollars are
accounted for as derivative financial liabilities, other than agents warrants.
NOTE 14 SUPPLEMENTAL INFORMATION
(a) Changes in working capital consisted of
the following:
|
|
Three months ended September 30 |
|
|
Nine
months ended September 30 |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Changes in non-cash working capital: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
2,557 |
|
|
460 |
|
|
(1,244 |
) |
|
(52 |
) |
Prepaids and deposits |
|
14 |
|
|
(56 |
) |
|
87 |
|
|
(48 |
) |
Accounts payable and accrued liabilities |
|
(353 |
) |
|
(1,407 |
) |
|
(1,985 |
) |
|
(1,524 |
) |
|
|
2,218 |
|
|
(1,003 |
) |
|
(3,142 |
) |
|
(1,624 |
) |
Comprised of: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
(30 |
) |
|
(759 |
) |
|
(3 |
) |
|
(1,059 |
) |
Investing activities |
|
2,248 |
|
|
(248 |
) |
|
(3,139 |
) |
|
(617 |
) |
Financing activities |
|
- |
|
|
4 |
|
|
- |
|
|
52 |
|
|
|
2,218 |
|
|
(1,003 |
) |
|
(3,142 |
) |
|
(1,624 |
) |
Other cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
147 |
|
|
36 |
|
|
259 |
|
|
364 |
|
Income taxes paid |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
15
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 14 SUPPLEMENTAL INFORMATION (continued)
(b) Per share amounts:
Basic loss per share amounts has been calculated by dividing
the net loss for the year attributable to the shareholders of the Company by
the weighted average number of common shares outstanding. Stock options and
share purchase warrants were excluded from the calculation. The basic and
diluted net loss per share is the same as the stock options and share purchase
warrants were anti-dilutive. The following table summarizes the common shares
used in calculating basic and diluted net loss per common share:
|
|
Three months ended |
|
|
Nine
months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
36,493,480 |
|
|
35,647,748 |
|
|
36,489,643 |
|
|
32,150,888 |
|
Diluted |
|
36,493,480 |
|
|
35,647,748 |
|
|
36,489,643 |
|
|
32,150,888 |
|
NOTE 15 RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2015 and 2014, the
Company entered into the following transactions with related parties:
(a) |
Compensation awarded to key management included a total
of salaries and consulting fees of $355,000 (2014 - 628,000) and non-cash
stock-based compensation expense of $473,000 (2014 - $612,000). Key
management includes the Companys officers and directors. The salaries and
consulting fees are included in general and administrative expenses.
Included in accounts payable and accrued liabilities at September 30, 2015
is $200,000 (December 31, 2014 - $200,000) owing to the two officers of
the Company. |
|
|
(b) |
Included in interest and other income is $Nil (2014 -
$14,000) received from the companies controlled by officers of the Company
for rental income. |
|
|
(c) |
Included in financing expenses is $193,000 (2014 - $Nil)
paid to the CEO of the Company and his spouse or the companies controlled
by or associated with the CEO of the Company for the interest expenses
related to the loans from related parties (note
7). |
16
DXI ENERGY INC. |
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS |
For the Nine Months Ended September 30, 2015 and 2014 |
(All tabular amounts are expressed in thousands of
Canadian dollars unless otherwise noted) |
|
NOTE 16 OPERATING SEGMENTS
Segment information is provided on the basis of geographic
segments as the Company manages its business through two geographic regions
Canada and the United States. The two geographic segments presented reflect the
way in which the Companys management reviews business performance. The
Companys revenue and losses of each geographic segment are as follows:
|
|
Canada |
|
|
United
States |
|
|
Total |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Three months ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
1,776 |
|
|
1,222 |
|
|
24 |
|
|
696 |
|
|
1,800 |
|
|
1,918 |
|
Segmented income (loss) |
|
(1,287 |
) |
|
(2,150 |
) |
|
(321 |
) |
|
530 |
|
|
(1,608 |
) |
|
(1,620 |
) |
Amortization, depletion and impairment losses |
|
1,691 |
|
|
553 |
|
|
12 |
|
|
281 |
|
|
1,703 |
|
|
834 |
|
Interest expense |
|
147 |
|
|
36 |
|
|
134 |
|
|
64 |
|
|
281 |
|
|
100 |
|
Capital expenditures |
|
130 |
|
|
2,084 |
|
|
2,517 |
|
|
34 |
|
|
2,647 |
|
|
2,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
4,758 |
|
|
4,783 |
|
|
87 |
|
|
1,564 |
|
|
4,845 |
|
|
6,347 |
|
Segmented income (loss) |
|
(2,078 |
) |
|
(4,122 |
) |
|
(1,203 |
) |
|
250 |
|
|
(3,281 |
) |
|
(3,872 |
) |
Amortization, depletion and impairment
losses |
|
2,880 |
|
|
1,784 |
|
|
65 |
|
|
480 |
|
|
2,945 |
|
|
2,264 |
|
Interest expense |
|
259 |
|
|
628 |
|
|
387 |
|
|
320 |
|
|
646 |
|
|
948 |
|
Capital expenditures |
|
1,048 |
|
|
4,564 |
|
|
3,464 |
|
|
339 |
|
|
4,512 |
|
|
4,903 |
|
NOTE 17 SEASONALITY OF OPERATIONS
There are factors causing quarterly variances that may not be
reflective of the Companys future performance. These include, but are not
limited to weather conditions, oil and gas production, drilling activities which
are affected by oil and natural gas commodity prices, global economic
environment, as well as unexpected production curtailment caused by activities
such as plant shutdown work. As the Company has operations in the United States,
the consolidated financial results may vary between periods due to the effect of
foreign exchange fluctuations in translating the expenses of its operations in
the United States to Canadian dollars. As a result, quarterly operating results
should not be relied upon as any indication of results for any future period.
NOTE 18 SUBSEQUENT EVENT
On October 27, 2015, the Company changed its name from Dejour
Energy Inc. to DXI Energy Inc. In conjunction with the name change, the Company
consolidated its common shares on a 1 for 5 basis.
The share consolidation is effective October 30, 2015. However,
in accordance with IAS 33, the Companys share capital, stock options, share
purchase warrants and warrant liability as at September 30, 2015, together with
basic and diluted loss per share for the current and comparative periods have
been presented based on the post-consolidation number of shares.
17
(formerly operating as Dejour Energy
Inc.)
MANAGEMENTS DISCUSSION AND
ANALYSIS
For the Three and Nine Months Ended September 30,
2015
Date of Report: November 5, 2015
INTRODUCTION
The Company was incorporated under the law of Ontario, Canada,
on March 29, 1968 under the name "Dejour Mines Limited". By articles of
amendment dated October 30, 2001, the issued common shares were consolidated on
the basis of one (1) new share for every fifteen (15) old shares and the name of
the company was changed to Dejour Enterprises Ltd. On June 6, 2003, the
shareholders approved a resolution to complete a one new share for three old
share consolidation, which became effective on October 1, 2003. In 2005, the
Company was continued into the province of British Columbia under the
Business Corporations Act (British Columbia). On March 9, 2011, the
Company changed its name from Dejour Enterprises Ltd. to Dejour Energy Inc. On
October 27, 2015, the Company changed its name from Dejour Energy Inc. to DXI
Energy Inc.
The head office of DXI Energy is located at 598 999 Canada
Place, Vancouver, British Columbia, V6C 3E1, and its registered and records
office is located at 25th Floor, 700 West Georgia Street, Vancouver, British
Columbia, V7Y 1B3. The common shares of DXI Energy are listed for trading on the
Toronto Stock Exchange (TSX), on the New York Stock Exchange
(NYSE) under the symbol DXI.
The following managements discussion and analysis (MD&A)
is dated November 5, 2015 and should be read in conjunction with the Companys
unaudited interim condensed consolidated financial statements and notes thereto
for the three and nine months ended September 30, 2015 and its audited
consolidated financial statements and MD&A for the year ended December 31,
2014.
Additional information relating to DXI Energy can be found on
SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS
This document contains expectations, beliefs, plans, goals,
objectives, assumptions, information, and statements about future events,
conditions, results of operations or performance that constitute
forward-looking information or forward-looking statements (collectively,
forward-looking statements) under applicable securities laws. Undue reliance
should not be placed on forward-looking statements. Forward-looking statements
are based on current expectations, estimates and projections that involve a
number of risks and uncertainties, which could cause actual results to differ
materially from those anticipated by the Company and described in the
forward-looking statements. We caution that the foregoing list of risks and
uncertainties is not exhaustive. Events or circumstances could cause actual
dates to differ materially from those estimated or projected and expressed in,
or implied by, these forward-looking statements. The forward-looking statements
contained in this document are made as of the date hereof and the Company does
not intend, and does not assume any obligation, to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise unless expressly required by applicable securities laws.
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The information set out herein with respect to forecasted 2015
results is financial outlook within the meaning of applicable securities laws.
The purpose of this financial outlook is to provide readers with disclosure
regarding DXI Energys reasonable expectations as to the anticipated results of
its proposed business activities for 2015. Readers are cautioned that this
financial outlook may not be appropriate for other purposes.
NON-IFRS MEASURES
This document contains certain financial measures, as described
below, which do not have standardized meanings prescribed by International
Reporting Standards (IFRS). As these measures are commonly used in the oil and
gas industry, the Company believes that their inclusion is useful to investors.
The reader is cautioned that these amounts may not be directly comparable to
measures for other companies where similar terminology is used. Operating
netback is calculated by deducting royalties and operating and transportation
expenses from gross oil and gas revenues. Cash Flows from operations is
calculated by adding back settlement of decommissioning liabilities and change
in operating working capital to cash flows from operating activities. Operating
netback and cash flows from operations are used by DXI Energy as key measures of
performance and are not intended to represent operating profits nor should they
be viewed as an alternative to income or loss or other measures of financial
performance, cash flows from operating activities calculated in accordance with
IFRS.
The following table reconciles cash flows from operating
activities to cash flows from operations, a non-IFRS measure:
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
(CA$
thousands) |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Cash flows from (used in) operating
activities |
|
598 |
|
|
(509 |
) |
|
693 |
|
|
(454 |
) |
Change in
operating working capital |
|
30 |
|
|
759 |
|
|
3 |
|
|
1,059 |
|
Cash flows from (used in) operations |
|
628 |
|
|
250 |
|
|
696 |
|
|
605 |
|
OTHER MEASUREMENTS
All dollar amounts are referenced in Canadian dollars, except
when noted otherwise. Some numbers in this MD&A have been rounded to the
nearest thousand for discussion purposes. Where amounts are expressed on a
barrel of oil equivalent (BOE) basis, natural gas volumes have been converted
to oil equivalence at six thousand cubic feet per barrel. The term BOE may be
misleading, particularly if used in isolation. A BOE conversion ratio six
thousand cubic feet per barrel is based on an energy equivalency conversion
method primarily applicable at a burner tip and does not represent a value
equivalency at the wellhead. Natural gas liquids (NGLs) in this discussion
include condensate, propane, butane, and ethane.
TSX:DXI;NYSEMKT:DXI |
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CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The timely preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual
results may differ materially from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are reviewed and for any future years affected. Significant judgments, estimates and
assumptions made by management in these financial statements are outlined in note 4 of the December 31, 2014 annual financial statements. There have been no significant changes in the Company’s critical accounting estimates and judgments
applied during the interim period ended September 30, 2015 relative to the most recent annual financial statements as at and for the year ended December 31, 2014.
DISCLOSURE CONTROLS OVER FINANCIAL REPORTING
The Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have designed, or caused to be designed under their supervision, disclosure controls and procedures as defined in National Instrument 52-109 of the
Canadian Securities Administrators, to provide reasonable assurance that: (i) material information relating to the Company is made known to the CEO and the CFO by others, particularly during the period in which the interim filings are being
prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time
periods specified in securities legislation.
The CEO and the CFO have evaluated the effectiveness of DXI Energy’s disclosure controls and procedures as at September 30, 2015 and have concluded that such disclosures and procedures are effective.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The CEO and CFO have designed, or caused to be designed under their supervision, internal controls over financial reporting as defined in National Instrument 52-109 of the Canadian Securities Administrators, in order 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 is required to disclose any change in the Company’s internal controls over financial reporting that occurred from July 1, 2015 to September 30, 2015 that has materially affected, or is reasonably likely to materially affect, the
Company’s internal controls over financial reporting. No material changes were identified during the period.
TSX:DXI;NYSEMKT:DXI |
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The CEO and CFO have evaluated the effectiveness of DXI Energy’s internal controls over financial reporting as at September 30, 2015 and have concluded that such internal controls over financial reporting are effective.
Due to its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. In addition, projections or any evaluation relating to the effectiveness of future periods are subject to the risk that controls may
become inadequate as a result of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
WHISTLEBLOWER POLICY
Effective December 28, 2007, the Company’s Audit Committee adopted resolutions that authorized the establishment of procedures for complaints received regarding accounting, internal controls or auditing matters, and for a confidential,
anonymous submission procedure for employees and consultants who have concerns regarding questionable accounting or auditing matters. The implementation of the whistleblower policy is in accordance with the new requirements pursuant to Multilateral
Instrument 52-110 Audit Committees, national Policy 58-201 Corporate Governance Guidelines and National Instrument 58-101 Disclosure of Corporate Governance Practices.
GROWTH STRATEGY
The Company implements a full cycle exploration and development program and, at the same time, opportunistically seeks to acquire assets with exploitation potential. To complement this strategy, the Company has retained a team of experienced and
qualified personnel to act quickly on new opportunities.
SHARE CONSOLIDATION AND SUBSEQUENT EVENT
On June 29, 2015, the Company’s shareholders approved the consolidation of its issued and outstanding common shares on the basis of one (1) post-consolidation common share for every five (5) pre-consolidation common shares. The Company’s
common shares began trading on a post-consolidation basis on the NYSE and TSX on October 30, 2015. All share and per share information in this document gives effect to the share consolidation on a retroactive basis, unless otherwise indicated.
TSX:DXI;NYSEMKT:DXI |
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RESULTS OF OPERATIONS
FINANCIAL AND OPERATING HIGHLIGHTS
During the three months ended September 30, 2015, the Company:
1. |
Extended the $6.5 million bridge financing from a
Director and Officer ($4.5 million) and a company associated with the
Director and Officer ($2.0 million) in their current form until December
31, 2015; |
|
|
2. |
Increased oil and natural gas production by 68% to 643
BOE/d from 382 BOE/d for the comparative period ended September 30, 2014;
and |
|
|
3. |
Reduced G&A expenses per BOE by 66% to $7.25 per BOE
from $21.57 per BOE for the comparative period ended September 30,
2014. |
REVENUE
Third Quarter 2015
vs. Third Quarter 2014 |
|
Three
Months Ended September 30 |
|
|
|
|
(CA$ thousands,
except as otherwise noted) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
Production Volumes: |
|
|
|
|
|
|
|
|
|
Oil and natural gas liquids (bbls/d) |
|
385 |
|
|
210 |
|
|
83% |
|
Natural gas
(mcf/d) |
|
1,546 |
|
|
1,036 |
|
|
49% |
|
Total (BOE/d) |
|
643 |
|
|
382 |
|
|
68% |
|
|
|
|
|
|
|
|
|
|
|
Average realized prices: |
|
|
|
|
|
|
|
|
|
Oil and natural gas liquids ($/bbl) |
|
52.63 |
|
|
96.07 |
|
|
-45% |
|
Natural gas ($/mcf) |
|
2.28 |
|
|
4.28 |
|
|
-47% |
|
Total ($/BOE) |
|
37.01 |
|
|
64.30 |
|
|
-42% |
|
|
|
|
|
|
|
|
|
|
|
Revenue, before royalties: |
|
|
|
|
|
|
|
|
|
Oil and natural gas liquids |
|
1,865 |
|
|
1,853 |
|
|
1% |
|
Natural gas |
|
324 |
|
|
404 |
|
|
-20% |
|
Total |
|
2,189 |
|
|
2,257 |
|
|
-3% |
|
For the three months ended September 30, 2015 (Q3 2015),
total revenue, before royalties, decreased by $68,000 or, 3%, due to a decline
in combined average realized prices. This was offset by the increase in oil and
natural gas production for the quarter.
The increase in oil production for Q3 2015 is related to the
commencement of production from the new oil well at Woodrush in January 2015,
combined with the added production from enhancements to the waterflood
operation.
TSX:DXI;NYSEMKT:DXI |
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The increase in natural gas production for Q3 2015 is related
to the commencement of production from the new gas well at Woodrush in January
2015.
Year-to-date 2015
vs. Year-to-date 2014 |
|
Nine
months ended September 30 |
|
|
|
|
(CA$ thousands,
except as otherwise noted) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
Production Volumes: |
|
|
|
|
|
|
|
|
|
Oil and natural gas liquids (bbls/d) |
|
320 |
|
|
189 |
|
|
69% |
|
Natural gas (mcf/d) |
|
1,425 |
|
|
1,841 |
|
|
-23% |
|
Total (BOE/d) |
|
558 |
|
|
496 |
|
|
12% |
|
|
|
|
|
|
|
|
|
|
|
Average realized prices: |
|
|
|
|
|
|
|
|
|
Oil and natural gas liquids ($/bbl) |
|
55.91 |
|
|
92.52 |
|
|
-40% |
|
Natural gas
($/mcf) |
|
2.38 |
|
|
5.71 |
|
|
-58% |
|
Total ($/BOE) |
|
38.17 |
|
|
56.48 |
|
|
-32% |
|
|
|
|
|
|
|
|
|
|
|
Revenue, before royalties: |
|
|
|
|
|
|
|
|
|
Oil and natural gas liquids |
|
4,887 |
|
|
4,775 |
|
|
2% |
|
Natural gas |
|
924 |
|
|
2,864 |
|
|
-68% |
|
Total |
|
5,811 |
|
|
7,639 |
|
|
-24% |
|
For the nine months ended September 30, 2015, total revenue,
before royalties, decreased by $1,828,000 or, 24%, due to a decline in combined
average realized prices and a reduction in natural gas production resulting from
the sale of 65% of the Companys working interest in its core U.S. natural gas
property on June 30, 2014. This was partially offset by the commencement of
production from two new wells at Woodrush in January 2015.
The increase in oil production for the nine months ended
September 30, 2015 is related to the commencement of production from the new oil
well at Woodrush in January 2015, combined with the added production from
enhancements to the waterflood operation.
The decrease in natural gas production for the nine months
ended September 30, 2015 is partially related to the disposition of 65% of the
Companys working interest in its core natural gas property in the eastern
portion of Piceance Basin of Colorado on June 30, 2014 and the turnaround of
the McMahon gas plant near Ft. St. John, British Columbia in June 2015 for
approximately 40 days.
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OIL OPERATIONS
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
($/bbl) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
Oil and NGL's revenue, realized price |
|
52.63 |
|
|
96.07 |
|
|
-45% |
|
|
55.91 |
|
|
92.52 |
|
|
-40% |
|
Royalties |
|
(10.75 |
) |
|
(16.20 |
) |
|
-34% |
|
|
(10.78 |
) |
|
(15.77 |
) |
|
-32% |
|
Operating and transportation expenses |
|
(11.74 |
) |
|
(27.93 |
) |
|
-58% |
|
|
(14.89 |
) |
|
(26.48 |
) |
|
-44% |
|
Operating netback |
|
30.14 |
|
|
51.94 |
|
|
-42% |
|
|
30.24 |
|
|
50.27 |
|
|
-40% |
|
The average price received for oil sales decreased by 45% and
40% for the three and nine months ended September 30, 2015, relative to the
corresponding periods of the prior year. The decrease in DXI Energys average
realized oil price reflected lower benchmark prices in Canada and the rest of
the world.
Average oil royalties for the three and nine months ended September
30, 2015 were lower, relative to the corresponding periods of 2014, due to lower
average oil prices received in both periods.
Operating and transportation expenses for the three and nine
months ended September 30, 2015 were lower compared to the corresponding periods
of 2014. The decline in per unit operating and transportation expenses resulted
from the allocation of fixed operating costs over a higher oil production
volume.
NATURAL GAS OPERATIONS
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
($/mcf) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
Gas revenue, realized price |
|
2.28 |
|
|
4.28 |
|
|
-47% |
|
|
2.38 |
|
|
5.71 |
|
|
-58% |
|
Royalties |
|
(0.07 |
) |
|
(0.28 |
) |
|
-75% |
|
|
(0.06 |
) |
|
(0.95 |
) |
|
-94% |
|
Operating and transportation expenses |
|
(2.47 |
) |
|
(3.55 |
) |
|
-30% |
|
|
(3.15 |
) |
|
(3.77 |
) |
|
-16% |
|
Operating netback |
|
(0.26 |
) |
|
0.45 |
|
|
-158% |
|
|
(0.83 |
) |
|
0.99 |
|
|
-184% |
|
Barrel of oil equivalent netback ($/BOE) |
|
(1.57 |
) |
|
2.71 |
|
|
-158% |
|
|
(5.00 |
) |
|
5.94 |
|
|
-184% |
|
The average price received for gas sales decreased by 47% and
58% for the three and nine months ended September 30, 2015, relative to the
corresponding periods of the prior year. The decrease in DXI Energys average
realized gas prices reflected lower benchmark prices in northeastern British
Columbia and northwestern Alberta, Canada, due to National Energy Board (NEB)
imposed repairs to four key TransCanada Pipeline Ltd. (TCPL) pipelines in the
region. On December 19, 2014, the NEB ordered TCPL to repair the pipelines
resulting in a 400 Mmcf/d reduction in pipeline capacity for producers in the
region, including the Company. This situation prevailed through September 30,
2015. The temporary closures have resulted in a temporary excess of gas supply
in the immediate region with resultant lower producer prices.
TSX:DXI;NYSEMKT:DXI |
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Average gas royalties for the three and nine months ended
September 30, 2015 were significantly lower compared to the corresponding
periods of the prior year. This was due to lower average gas prices received in
the nine months ended September 30, 2015.
Average operating and transportation expenses paid for the
three and nine months ended September 30, 2015 were lower compared to the
corresponding periods of the prior year. The decrease in per unit operating and
transportation expenses was because higher water hauling costs were incurred for
the natural gas wells at Kokopelli in 2014. This was offset by the costs
associated with the reactivation of one of the gas wells at Drake/Woodrush in
February 2015 and higher contractual pipeline transportation costs associated
with a new contract signed on November 1, 2014.
FINANCING EXPENSES
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
(CA$ thousands,
except per BOE) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
Interest on bank credit facility |
|
18 |
|
|
35 |
|
|
-49% |
|
|
66 |
|
|
107 |
|
|
-38% |
|
Interest on loans from related parties |
|
129 |
|
|
- |
|
|
100% |
|
|
193 |
|
|
- |
|
|
100% |
|
Interest on financial contract liability |
|
134 |
|
|
64 |
|
|
109% |
|
|
387 |
|
|
320 |
|
|
21% |
|
Accretion of loan facility |
|
- |
|
|
- |
|
|
0% |
|
|
- |
|
|
521 |
|
|
-100% |
|
Other financing expenses |
|
43 |
|
|
33 |
|
|
30% |
|
|
78 |
|
|
65 |
|
|
20% |
|
|
|
324 |
|
|
132 |
|
|
145% |
|
|
724 |
|
|
1,013 |
|
|
-29% |
|
Average debt outstanding |
|
7,786 |
|
|
2,341 |
|
|
233% |
|
|
5,910 |
|
|
2,654 |
|
|
123% |
|
Average interest
rate on debt |
|
7.6% |
|
|
6.0% |
|
|
26% |
|
|
8.0% |
|
|
5.4% |
|
|
49% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
per BOE (1) |
|
2.49 |
|
|
0.99 |
|
|
150% |
|
|
1.70 |
|
|
0.79 |
|
|
115% |
|
(1) Interest expense used in the calculation of ``Interest
expense per BOE`` includes interest on bank credit facility and loans from
related parties.
Interest expense related to the Companys bank credit facility
for the three and nine months ended September 30, 2015 was lower compared to the
corresponding periods of the prior year. The decrease was due to lower average
bank debt outstanding.
GENERAL AND ADMINISTRATIVE (G&A) EXPENSES
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
(CA$ thousands,
except per BOE) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
Salary and benefits |
|
114 |
|
|
127 |
|
|
-10% |
|
|
357 |
|
|
716 |
|
|
-50% |
|
Other G&A
expenses |
|
378 |
|
|
692 |
|
|
-45% |
|
|
1,465 |
|
|
2,060 |
|
|
-29% |
|
Gross G&A expenses |
|
492 |
|
|
819 |
|
|
-40% |
|
|
1,822 |
|
|
2,776 |
|
|
-34% |
|
Capitalized G&A expenses |
|
(52 |
) |
|
(48 |
) |
|
8% |
|
|
(137 |
) |
|
(326 |
) |
|
-58% |
|
Overhead recoveries |
|
(11 |
) |
|
(12 |
) |
|
-8% |
|
|
(55 |
) |
|
(75 |
) |
|
-27% |
|
Total net G&A expenses |
|
429 |
|
|
759 |
|
|
-43% |
|
|
1,630 |
|
|
2,375 |
|
|
-31% |
|
$
per BOE |
|
7.25 |
|
|
21.57 |
|
|
-66% |
|
|
10.71 |
|
|
17.54 |
|
|
-39% |
|
TSX:DXI;NYSEMKT:DXI |
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Salary and benefits decreased by 10% and 50% for the three and
nine months ended September 30, 2015, relative to the corresponding periods of
the prior year. The decrease was due to a termination of all salaried employees
at the Companys office in Denver, Colorado as part of the June 30, 2014 sale of
a controlling working interest in the Kokopelli project to the Companys
Kokopelli partner and new Operator of the project. This also contributed to
the lower gross G&A expenses for the three and nine months ended September
30, 2015.
STOCK BASED COMPENSATION
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
(CA$ thousands,
except per BOE) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
Stock based compensation expense |
|
139 |
|
|
404 |
|
|
-66% |
|
|
747 |
|
|
925 |
|
|
-19% |
|
$ per BOE |
|
2.35 |
|
|
11.48 |
|
|
-80% |
|
|
4.91 |
|
|
6.83 |
|
|
-28% |
|
The variance in share based compensation (SBC) expenses is
mainly driven by the timing and valuation of new stock option grants. Lower
share prices in the nine months ended September 30, 2015 contributed to the
decrease in SBC expenses for the three and nine months ended September 30,
2015.
AMORTIZATION, DEPLETION AND IMPAIRMENT LOSSES
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
(CA$ thousands,
except per BOE) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
Amortization and depletion |
|
703 |
|
|
815 |
|
|
-14% |
|
|
1,915 |
|
|
2,176 |
|
|
-12% |
|
Impairment losses |
|
1,000 |
|
|
19 |
|
|
5163% |
|
|
1,030 |
|
|
88 |
|
|
1070% |
|
Total amortization, depletion and
impairment losses |
|
1,703 |
|
|
834 |
|
|
104% |
|
|
2,945 |
|
|
2,264 |
|
|
30% |
|
$ per BOE |
|
28.80 |
|
|
23.70 |
|
|
21% |
|
|
19.35 |
|
|
16.72 |
|
|
16% |
|
The decrease in amortization and depletion for the three and
nine months ended September 30, 2015 was primarily due to lower depletion
recorded for the four wells at Kokopelli due to lower production after
disposition of 65% of the Companys working interest on June 30, 2014. This was
offset by higher depletion for producing oil and gas wells at Drake/Woodrush as
a result of higher production after the two new wells commenced production in
January 2015.
The increase in impairment losses in the three and nine months
ended September 30, 2015 was mainly due to the write-down of the carrying value
of the Woodrush oilfield to $6,900,000 as at September 30, 2015. The write-down
reflects a decline in oil prices during the third quarter of 2015.
TSX:DXI;NYSEMKT:DXI |
10 |
www.dxienergy.com |
LOSS FOR THE PERIOD
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
(CA$ thousands,
except per share amounts and BOE) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
Income (loss) |
|
(1,608 |
) |
|
(1,620 |
) |
|
-1% |
|
|
(3,281 |
) |
|
(3,872 |
) |
|
-15% |
|
$ per common share, basic |
|
(0.04 |
) |
|
(0.05 |
) |
|
0% |
|
|
(0.09 |
) |
|
(0.12 |
) |
|
0% |
|
$ per common share, fully diluted |
|
(0.04 |
) |
|
(0.05 |
) |
|
0% |
|
|
(0.09 |
) |
|
(0.12 |
) |
|
0% |
|
$ per BOE |
|
(27.19 |
) |
|
(46.04 |
) |
|
-41% |
|
|
(21.55 |
) |
|
(28.60 |
) |
|
-25% |
|
The 15% decrease in the loss for the nine months ended
September 30, 2015 is primarily due to lower operating and transportation
expenses, G&A expenses and financing expenses. This was offset by lower
revenues and the recognition of $1.9 million gain on disposition of property and
equipment in June 2014.
CASH FLOWS FROM OPERATIONS
|
|
Three
months ended September 30 |
|
|
Nine
months ended September 30 |
|
(CA$ thousands,
except per share amounts and BOE) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
Cash flow from (used in) operations |
|
628 |
|
|
250 |
|
|
151% |
|
|
696 |
|
|
605 |
|
|
15% |
|
$ per common share, basic |
|
0.02 |
|
|
0.01 |
|
|
0% |
|
|
0.02 |
|
|
0.02 |
|
|
0% |
|
$ per common share, fully diluted |
|
0.01 |
|
|
0.01 |
|
|
0% |
|
|
0.02 |
|
|
0.01 |
|
|
0% |
|
$ per BOE |
|
10.62 |
|
|
7.11 |
|
|
49% |
|
|
4.57 |
|
|
4.47 |
|
|
2% |
|
Cash flows from operations for the current quarter increased
substantially, compared to the same quarter of 2014 as a result of lower general
and administrative expenses for the quarter.
Cash flows from operations for the nine months ended September
30, 2015 increased, compared to the nine months ended September 30, 2014 as a
result of lower general and administrative expenses for the period.
Cash flows from operations is impacted by production, prices
received, royalties paid, operating and transportation expenses and general and
administrative expenses.
CAPITAL EXPENDITURES
DXI Energy is committed to future growth through its strategy
to implement a full-cycle exploration and development program, augmented by
strategic acquisitions with exploitation upside.
During the nine months ended September 30, 2015, the Company
successfully completed and tied into production the two new wells that were
recently drilled at its Woodrush property, north of Fort St. John, British
Columbia. Further, the Company successfully drilled, cased and completed eight
natural gas wells in its Kokopelli development project in Colorado. The Company
has a 25% working interest in this project.
TSX:DXI;NYSEMKT:DXI |
11 |
www.dxienergy.com |
Additions to property and equipment and exploration and
evaluation assets:
|
|
Nine
months ended September 30, 2015 |
|
|
Nine
months ended September 30, 2014 |
|
(CA$
thousands) |
|
$ |
|
|
% of
total |
|
|
$ |
|
|
% of
total |
|
|
%
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land acquisition and retention |
|
68 |
|
|
1.5% |
|
|
88 |
|
|
6.0% |
|
|
-23% |
|
Drilling and completion (1) |
|
3,251 |
|
|
72.2% |
|
|
551 |
|
|
37.7% |
|
|
490% |
|
Facility and pipelines |
|
977 |
|
|
21.7% |
|
|
452 |
|
|
30.9% |
|
|
116% |
|
Capitalized general and administrative |
|
205 |
|
|
4.6% |
|
|
360 |
|
|
24.6% |
|
|
-43% |
|
Other assets |
|
1 |
|
|
0.0% |
|
|
12 |
|
|
0.8% |
|
|
-92% |
|
Total |
|
4,502 |
|
|
100.0% |
|
|
1,463 |
|
|
100.0% |
|
|
208% |
|
(1) excludes non-cash capital expenditures of $1,520,000
related to the acquisition of certain property and equipment in March 2014
CAPITAL RESOURCES AND LIQUIDITY
DXI Energy manages its capital structure to support current and
future business plans and periodically adjusts the structure in response to
changes in economic conditions and the risk characteristics of its underlying
assets and operations. DXI Energy may adjust its capital structure by issuing
shares, altering debt levels, modifying capital programs, acquiring or disposing
of assets or participating in joint ventures.
|
|
September 30, 2015 December 31, 2014 |
|
|
|
|
(CA$
thousands) |
|
$ |
|
|
$ |
|
|
%
change |
|
Adjusted working capital
deficit(1) |
|
763 |
|
|
1,554 |
|
|
-51% |
|
Bank credit facility |
|
902 |
|
|
1,955 |
|
|
-54% |
|
Loans from related parties, net of "cash
calls receivable" funded by the loans |
|
5,634 |
|
|
0 |
|
|
100% |
|
Financial contract
liability |
|
3,872 |
|
|
2,739 |
|
|
41% |
|
Net debt (2) |
|
11,171 |
|
|
6,248 |
|
|
|
|
Share capital |
|
97,147 |
|
|
97,132 |
|
|
0% |
|
Contributed surplus and accumulated other
comprehensive income |
|
13,902 |
|
|
11,295 |
|
|
23% |
|
Deficit |
|
(101,323 |
) |
|
(98,042 |
) |
|
3% |
|
Total Capital |
|
20,897 |
|
|
16,633 |
|
|
|
|
(1) |
Accounts payable and accrued liabilities less cash and
cash equivalents, accounts receivable (excluding cash calls receivable),
and prepaids |
|
|
(2) |
Excludes warrant liability and decommissioning
liability |
Adjusted Working Capital
As at September 30, 2015 (CA$ thousands) |
|
$ |
|
Working capital deficit |
|
(11,249 |
) |
Non-cash warrant
liability |
|
78
|
|
Adjusted working capital deficit |
|
(11,171 |
) |
Add: Bank credit facility |
|
902 |
|
Add: Loans from related parties, net of
cash calls receivable funded by the loans |
|
5,634 |
|
Add: Financial
contract liability |
|
3,872
|
|
Adjusted working capital deficit (excluding
bank credit facility, net loans from related parties and financial
contract liability) |
|
(763 |
) |
TSX:DXI;NYSEMKT:DXI |
12 |
www.dxienergy.com |
The adjusted working capital deficit at September 30, 2015 includes $31,000 of cash and cash equivalents, $683,000 of accounts receivable (excluding cash calls receivable of $1,166,000), $54,000 of prepaids and deposits, and
$1,531,000 of accounts payable and accrued liabilities. The 51% decrease in working capital deficit from December 31, 2014 to September 30, 2015 is primarily due to the settlement of the invoices associated with the drilling and completion of
the 2 new wells at the Company’s Woodrush property during the nine months ended September 30, 2015.
DXI Energy expects to fund operations and capital expenditures with cash flows from operations, drawings on its bank credit facilities, drawings on its loans from related parties, existing cash and cash equivalents and by accessing the capital
markets, as required.
Going Concern, Bank Credit Facility and Loans from Related Parties
The financial statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and
commitments in the normal course of business.
On June 5, 2014 and amended on June 27, 2014, DEAL renewed its Credit Facility with its Bank for a maximum amount of $2.9 million. Effective July 1, 2014, the Credit Facility reduces by $100,000 per month. Interest on the loan is Prime + 3%
payable monthly and the amount outstanding is payable on demand any time. Collateral for the Credit Facility is provided by a $10.0 million first floating charge over all the assets of DEAL, a general assignment of DEAL’s book debts and a
$10.0 million debenture with a first floating charge over all the assets of the Company. Additionally, an amount of US$385,000 was deposited in the Company’s US$ account with the Bank at June 30, 2014 upon the Bank’s request
to be applied to DEAL’s general operations.
On July 29, 2014, the Company renewed the Credit Facility with its Bank for a maximum of $2.8 million, reducing $100,000 per month through November 1, 2014, the next review date. As part of the renewal, the Company can utilize the
US$385,000 on deposit with its Bank at June 30, 2014 on the operations and capital programs of DEAL at the Company’s discretion. Further, on November 24, 2014 and amended on March 16, 2015 and July 6, 2015, the Company renewed the Credit
Facility with its Bank for a maximum of $1.7 million. Monthly principal payments of $100,000 are due and payable on July 28, 2015 and commencing on the 28th of each month thereafter. As at September 30, 2015, the maximum amount of
the credit facility was $1.4 million of which $902,000 was drawn.
Under the terms of the Credit Facility, DEAL is required to maintain a working capital ratio of greater than 1:1 at all times. The working capital ratio is defined as the ratio of (i) current assets (including any undrawn and authorized availability
under the Credit Facility) less unrealized hedging gains to (ii) current liabilities (excluding the current portion of outstanding balances of the facility) less unrealized hedging losses. As at September 30, 2015, DEAL was in compliance with its
working capital ratio requirement.
TSX:DXI;NYSEMKT:DXI |
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On March 12, 2015, as amended on May 6, 2015 and June 22, 2015, the Company issued a promissory note for up to $4,500,000 to Hodgkinson Equities Corp. (“HEC”), a private company controlled by the CEO of the Company. The promissory
note is secured by all assets of Dejour USA, and bears interest at the Canadian prime rate plus 5% per annum. The principal and interest are repayable by the earlier of (i) within 10 business days of receipt of written demand from HEC for the
repayment and (ii) June 10, 2015 or such later date to which the term of the promissory note may be extended. On May 6, 2015, the due date of the loan was extended to September 30, 2015. On September 28, 2015, the due date of the loan was further
extended to December 31, 2015. Upon an event of default, all the indebtedness under the promissory note become due and payable and the interest rate is immediately increased to the Canadian prime rate plus 8.5% per annum. As at September 30, 2015,
the maximum $4.5 million had been advanced to the Company.
On June 22, 2015, the Company issued a promissory note for up to $2,000,000 to Hodgkinson Ventures Inc. (“HVI”), a private company associated with the CEO of the Company, on a “pari passu” basis with the loan from HEC.
The promissory note is secured by all assets of Dejour USA, and bears interest at the Canadian prime rate plus 5% per annum. The principal and interest are repayable on or before September 30, 2015. On September 28, 2015, the due date of the loan
was extended to December 31, 2015. Upon an event of default, all the indebtedness under the promissory note become due and payable and the interest rate is immediately increased to the Canadian prime rate plus 8.5% per annum. As at September 30,
2015, the maximum $2.0 million had been advanced to the Company.
On September 15, 2015, the Company issued a grid promissory note of up to $1,000,000 to a director and officer of the Company and his spouse. The promissory note bears interest at 12% per annum. The principal and interest accrued on the loan
are repayable on or before December 31, 2015. As at September 30, 2015, $300,000 had been advanced to the Company.
The Company’s ability to continue as a going concern is dependent upon attaining profitable operations and the continued financial support of the non-arm’s length lenders who have provided the Company with sufficient capital in 2015 to
meet capital expenditure commitments and continue exploration and development activities. There is no assurance that these activities will be successful. These material uncertainties cast substantial doubt upon the Company’s ability to
continue as a going concern. These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used that would be
necessary if the going concern assumptions were not appropriate.
Financial Contract Liability
On December 31, 2012, Dejour USA entered into a financial contract with a U.S. oil and gas drilling fund (“Drilling Fund”) to fund the drilling of up to three wells and the completion of up to four wells in the State of Colorado. The
Drilling Fund contributed US$6.5 million cash to earn working interests in production from the wellbores ranging from 55.56% to 77.78% before payout and 44.44% to 58.33%
after payout. This amount was subsequently increased by US$500,000 to US$7,000,000 with the Company’s consent.
TSX:DXI;NYSEMKT:DXI |
14 |
www.dxienergy.com |
The December 31, 2012 financial contract states the Drilling Fund has the right to require Dejour USA to purchase its working interests in the wellbores for cash in September 2016, 36-months after the final well in the 4-well program is placed on
production. The repurchase price is based on a predetermined formula which ensures the Drilling Fund earns a minimum return, compounded annually and applied on a monthly basis, on 75% of its original US$7,000,000 investment over the 36-month
period. Accordingly, the Company considered the transaction to be a financial contract as the risks and rewards of ownership were not substantially transferred to the Drilling Fund and, on December 31, 2012, the Company recorded the transaction in
its accounts by increasing property and equipment and financial contract liability by US$6,500,000 on its balance sheet. This amount was subsequently increased to US$7,000,000.
On June 30, 2014, the financial contract was amended and the Drilling Fund agreed to retain its working interest in the wells as at September 30, 2016, should it exercise its right to require Dejour USA to pay the minimum return calculated in
accordance with the provisions of the contract. In determining the minimum return to be paid, the Drilling Fund agreed to deduct the residual reserve value of its working interest in the 4 wellbores at September 30, 2016. The parties also agreed to
have a third party engineering firm calculate the residual value of the reserves in accordance with industry-accepted valuation standards.
Finally, the parties agreed to limit the cash consideration to be paid by Dejour USA, should it be required to pay the minimum return provided for in the December 31, 2012 contract to US$3,000,000. Additional consideration, if any, may be paid
by Dejour USA by an assignment of a working interest in certain proven assets at a jointly owned oil and gas property in Colorado applying an industry-standard valuation approach.
The June 30, 2014 amendment transferred the risks of ownership of the 4 wellbores back to the Drilling Fund and the financial contract liability was adjusted to reflect the present value of the amount owing to the Drilling Fund under the financial
contract at September 30, 2016 ($7,070,000), net of the present value of the residual reserves ($3,198,000), or $3,872,000, as follows:
TSX:DXI;NYSEMKT:DXI |
15 |
www.dxienergy.com |
|
|
$ |
|
Balance at January 1, 2014 (US$5,755) |
|
6,121 |
|
Loan advance during the year (US$181) |
|
210 |
|
Accretion expense (US$388) |
|
450 |
|
Foreign exchange
loss |
|
351
|
|
|
|
7,132 |
|
Less: |
|
|
|
(a) Net operating income
(US$846) |
|
(982 |
) |
(b) Adjustment to financial contract
liability (US$3,117) |
|
(3,411 |
)
|
Balance at December 31, 2014 (US$2,361) |
|
2,739 |
|
Accretion expense (US$306) |
|
408 |
|
Foreign exchange loss |
|
424 |
|
|
|
3,571 |
|
Add: Adjustment to financial contract liability (US$234)
|
|
301 |
|
Balance at
September 30, 2015 (US$2,901) |
|
3,872
|
|
CAPITAL RESOURCES
During the nine months ended September 30, 2015, the Company
incurred $1.0 million to complete and tie into production the 2 infill wells
that were drilled in December 2014, in Northeastern, British Columbia. In the
U.S., the Company paid $4.6 million for the ongoing Kokopelli development
program in Colorado and it is related to the drilling, casing and completion of
eight natural gas wells. These wells are expected to tie into production in the
first quarter of 2016.
CONTRACTUAL OBLIGATIONS
As of September 30, 2015, the Company has obligations to make
future payments, representing contracts and other commitments that are known and
committed.
(CA$ thousands) |
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
Thereafter |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Operating lease obligations |
|
31 |
|
|
99 |
|
|
51 |
|
|
13 |
|
|
- |
|
|
Nil |
|
|
194 |
|
Bank credit facility |
|
902 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Nil |
|
|
902 |
|
Loans from related parties |
|
6,800 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
Nil |
|
|
6,800 |
|
Financial contract
liability(1) |
|
- |
|
|
3,872 |
|
|
- |
|
|
- |
|
|
- |
|
|
Nil |
|
|
3,872 |
|
Total |
|
7,733 |
|
|
3,971 |
|
|
51 |
|
|
13 |
|
|
- |
|
|
Nil |
|
|
11,768 |
|
(1) |
This represents the Companys obligations over the
36-month put option period until it expires. See Note 11 to the
consolidated financial statements for details. |
RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2015 and 2014, the
Company entered into the following transactions with related parties:
TSX:DXI;NYSEMKT:DXI |
16 |
www.dxienergy.com |
(a) |
Compensation awarded to key management included a total of salaries and consulting fees of $355,000 (2014 - 628,000) and non-cash stock-based compensation expense of $473,000 (2014 - $612,000). Key management includes
the Company’s officers and directors. The salaries and consulting fees are included in general and administrative expenses. Included in accounts payable and accrued liabilities at September 30, 2015 is $200,000 (December 31, 2014 -
$200,000) owing to the two officers of the Company.
|
| |
(b) |
Included in interest and other income is $Nil (2014 - $14,000) received from the companies controlled by officers of the Company for rental income.
|
| |
(c) |
Included in financing expenses is $193,000 (2014 - $Nil) paid to the CEO of the Company and his spouse or the companies controlled by or associated with the CEO of the Company for the interest expenses related to the loans
from related parties (note 7).
|
| |
(d) |
On March 12, 2015, as amended on May 6, 2015 and June 22, 2015, the Company issued a promissory note for up to $4,500,000 to HEC, a private company controlled by the CEO of the Company. The promissory note is secured by all
assets of Dejour USA, and bears interest at the Canadian prime rate plus 5% per annum. The principal and interest are repayable by the earlier of (i) within 10 business days of receipt of written demand from HEC for the repayment and (ii) June 10,
2015 or such later date to which the term of the promissory note may be extended. On May 6, 2015, the due date of the loan was extended to September 30, 2015. On September 28, 2015, the due date of the loan was further extended to December 31, 2015.
Upon an event of default, all the indebtedness under the promissory note become due and payable and the interest rate is immediately increased to the Canadian prime rate plus 8.5% per annum. As at September 30, 2015, the maximum $4.5 million had
been advanced to the Company.
|
| |
|
On June 22, 2015, the Company issued a promissory note for up to $2,000,000 to HVI, a private company associated with the CEO of the Company, on a “pari passu” basis with the loan from HEC. The promissory note is
secured by all assets of Dejour USA, and bears interest at the Canadian prime rate plus 5% per annum. The principal and interest are repayable on or before September 30, 2015. On September 28, 2015, the due date of the loan was extended to December
31, 2015. Upon an event of default, all the indebtedness under the promissory note become due and payable and the interest rate is immediately increased to the Canadian prime rate plus 8.5% per annum. As at September 30, 2015, the maximum $2.0
million had been advanced to the Company.
|
| |
|
On September 15, 2015, the Company issued a grid promissory note of up to $1,000,000 to a director and officer of the Company and his spouse. The promissory note bears interest at 12% per annum. The principal and interest
accrued on the loan are repayable on or before December 31, 2015. As at September 30, 2015, $300,000 had been advanced to the Company.
|
TSX:DXI;NYSEMKT:DXI |
17 |
www.dxienergy.com |
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no material undisclosed off-balance sheet
arrangements that have or are reasonably likely to have, a current or future
effect on our results of operations or financial condition at September 30,
2015.
SUMMARY OF QUARTERLY RESULTS
The following table summarizes key financial and operating
information by quarter for the past eight quarters ending September 30, 2015:
(CA$ thousands, except per unit amounts) |
|
2015 Q3 |
|
|
2015 Q2 |
|
|
2015 Q1 |
|
|
2014 Q4 |
|
|
2014 Q3 |
|
|
2014 Q2 |
|
|
2014 Q1 |
|
|
2013 Q4 |
|
Gross oil and gas revenues |
|
2,189 |
|
|
2,152 |
|
|
1,470 |
|
|
1,410 |
|
|
2,257 |
|
|
2,597 |
|
|
2,785 |
|
|
2,354 |
|
Net income (loss)(1) |
|
(1,608 |
) |
|
(503 |
) |
|
(1,169 |
) |
|
(3,331 |
) |
|
(1,620 |
) |
|
730 |
|
|
(2,982 |
) |
|
4,350 |
|
Per share - basic ($/common share)
|
|
(0.04 |
) |
|
0.00 |
|
|
(0.05 |
) |
|
(0.10 |
) |
|
(0.05 |
) |
|
0.00 |
|
|
(0.10 |
) |
|
0.15 |
|
Per share - fully diluted ($/common share) |
|
(0.04 |
) |
|
0.00 |
|
|
(0.05 |
) |
|
(0.10 |
) |
|
(0.05 |
) |
|
0.00 |
|
|
(0.10 |
) |
|
0.11 |
|
Total assets |
|
26,741 |
|
|
27,505 |
|
|
24,264 |
|
|
23,274 |
|
|
25,349 |
|
|
22,661 |
|
|
28,485 |
|
|
25,499 |
|
Average production (BOE/d) |
|
643 |
|
|
514 |
|
|
514 |
|
|
310 |
|
|
382 |
|
|
561 |
|
|
546 |
|
|
620 |
|
Average realized price ($/BOE) |
|
37.01 |
|
|
46.02 |
|
|
31.74 |
|
|
48.78 |
|
|
64.30 |
|
|
50.91 |
|
|
56.65 |
|
|
41.58 |
|
Operating netback ($/BOE) |
|
17.46 |
|
|
22.70 |
|
|
4.83 |
|
|
12.79 |
|
|
29.71 |
|
|
14.75 |
|
|
26.39 |
|
|
17.55 |
|
Netback as a percentage of sales |
|
47% |
|
|
49% |
|
|
15% |
|
|
26% |
|
|
46% |
|
|
29% |
|
|
47% |
|
|
42% |
|
(1) |
Net income (loss) per share amounts for the periods
presented have been adjusted on a retroactive basis to reflect the October
30, 2015 one-for-five share consolidation. |
The fluctuations in DXI Energys revenue and income (loss) from
quarter to quarter are primarily caused by variations in production volumes,
realized oil and natural gas prices and the related impact on royalties and
operating and transportation expenses. Please refer to the Results of Operations
section of this MD&A for detailed discussion of changes from the
3rd quarter of 2015 to the 3rd quarter of 2014, and to the Companys
previously issued interim and annual MD&A for changes in prior quarters.
BUSINESS RISKS
DXI Energys exploration and production activities are
concentrated in the Northeastern B.C. portion of the competitive Western
Canadian Sedimentary Basin and the Piceance Basin of Central United States,
where activity is highly competitive and includes a variety of different sized
companies ranging from smaller junior producers and intermediate and senior
producers to the much larger integrated petroleum companies. DXI Energy is
subject to a number of risks which are also common to other organizations
involved in the oil and gas industry. Such risks include finding and developing
oil and gas reserves at economic costs, estimating amounts of recoverable
reserves, production of oil and gas in commercial quantities, marketability of
oil and gas produced, fluctuations in commodity prices, financial and liquidity
risks and environmental and safety risks.
In order to reduce exploration risk, DXI Energy employs highly
qualified and motivated professional employees who have demonstrated the ability
to generate quality proprietary geological and geophysical prospects. To maximize drilling success, DXI Energy explores in
areas that afford multi-zone prospect potential, targeting a range of shallower
low to moderate risk prospects with some exposure to select deeper high-risk
prospects with high-reward opportunities.
TSX:DXI;NYSEMKT:DXI |
18 |
www.dxienergy.com |
DXI Energy has retained an independent engineering consulting
firm that assists the Company in evaluating recoverable amounts of oil and gas
reserves. Values of recoverable reserves are based on a number of variable
factors and assumptions such as commodity prices, projected production, future
production costs and government regulation. Such estimates may vary from actual
results.
The Company mitigates its risk related to producing
hydrocarbons through the utilization of the most advanced technology and
information systems. In addition, DXI Energy strives to operate the majority of
its prospects, thereby maintaining operational control. The Company does rely on
its partners in jointly owned properties that Dejour does not operate.
DXI Energy is exposed to market risk to the extent that the
demand for oil and gas produced by the Company exists within Canada and the
United States. External factors beyond the Companys control may affect the
marketability of oil and gas produced. These factors include commodity prices
and variations in the Canada-United States currency exchange rate, which in turn
respond to economic and political circumstances throughout the world. Oil prices
are affected by worldwide supply and demand fundamentals while natural gas
prices are affected by North American supply and demand fundamentals. DXI Energy
may periodically use futures and options contracts to hedge its exposure against
the potential adverse impact of commodity price volatility.
Exploration and production for oil and gas is very capital
intensive. As a result, the Company relies on equity markets as a source of new
capital. In addition, DXI Energy utilizes bank financing to support ongoing
capital investment. Funds from operations also provide DXI Energy with capital
required to grow its business. Equity and debt capital is subject to market
conditions and availability may increase or decrease from time to time. Funds
from operations also fluctuate with changing commodity prices.
SAFETY AND ENVIRONMENT
Oil and gas exploration and production can involve
environmental risks such as pollution of the environment and destruction of
natural habitat, as well as safety risks such as personal injury. The Company
conducts its operations with high standards in order to protect the environment
and the general public. DXI Energy maintains current insurance coverage for
comprehensive and general liability as well as limited pollution liability. The
amount and terms of this insurance are reviewed on an ongoing basis and adjusted
as necessary to reflect current corporate requirements, as well as industry
standards and government regulations.
TSX:DXI;NYSEMKT:DXI |
19 |
www.dxienergy.com |
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, Robert Hodgkinson, Chief Executive Officer of DXI Energy
Inc. (formerly operating as Dejour Energy Inc.), certify the following:
1. |
Review: I have reviewed the interim
financial report and interim MD&A (together, the interim filings) of
DXI Energy Inc. (the issuer) for the interim period ended September 30,
2015. |
|
|
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim filings do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings. |
|
|
3. |
Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report
together with the other financial information included in the interim
filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and
for the periods presented in the interim filings. |
|
|
4. |
Responsibility: The issuers other
certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (DC&P) and internal
control over financial reporting (ICFR), as those terms are defined in
National Instrument 52-109 Certification of Disclosure in Issuers
Annual and Interim Filings, for the issuer. |
|
|
5. |
Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying
officer(s) and I have, as at the end of the period covered by the interim
filings |
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that |
|
|
|
|
|
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
|
|
|
|
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
|
|
|
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers
GAAP. |
5.1 |
Control framework: The control framework
the issuers other certifying officer(s) and I used to design the issuers
ICFR is the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) framework. |
|
|
5.2 |
ICFR material weakness relating to design:
N/A |
|
|
5.3 |
Limitation on scope of design:
N/A |
|
|
6. |
Reporting changes in ICFR: The issuer has
disclosed in its interim MD&A any change in the issuers ICFR that
occurred during the period beginning on July 1, 2015 and ended on
September 30, 2015 that has materially affected, or is reasonably likely
to materially affect, the issuers ICFR. |
Date: November 5, 2015
/*signed*/ |
|
Robert Hodgkinson |
|
CEO |
|
1
Form 52-109F2
Certification of Interim Filings
Full Certificate
I, David Matheson, Chief Financial Officer of DXI Energy Inc.
(formerly operating as Dejour Energy Inc.), certify the following:
1. |
Review: I have reviewed the interim
financial report and interim MD&A (together, the interim filings) of
DXI Energy Inc. (the issuer) for the interim period ended September 30,
2015. |
|
|
2. |
No misrepresentations: Based on my
knowledge, having exercised reasonable diligence, the interim filings do
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the interim filings. |
|
|
3. |
Fair presentation: Based on my knowledge,
having exercised reasonable diligence, the interim financial report
together with the other financial information included in the interim
filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and
for the periods presented in the interim filings. |
|
|
4. |
Responsibility: The issuers other
certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (DC&P) and internal
control over financial reporting (ICFR), as those terms are defined in
National Instrument 52-109 Certification of Disclosure in Issuers
Annual and Interim Filings, for the issuer. |
|
|
5. |
Design: Subject to the limitations, if any,
described in paragraphs 5.2 and 5.3, the issuers other certifying
officer(s) and I have, as at the end of the period covered by the interim
filings |
|
(a) |
designed DC&P, or caused it to be designed under our
supervision, to provide reasonable assurance that |
|
|
|
|
|
|
(i) |
material information relating to the issuer is made known
to us by others, particularly during the period in which the interim
filings are being prepared; and |
|
|
|
|
|
|
(ii) |
information required to be disclosed by the issuer in its
annual filings, interim filings or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized and
reported within the time periods specified in securities legislation;
and |
|
|
|
|
|
(b) |
designed ICFR, or caused it to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with the issuers
GAAP. |
5.1 |
Control framework: The control framework
the issuers other certifying officer(s) and I used to design the issuers
ICFR is the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) framework. |
|
|
5.2 |
ICFR material weakness relating to design:
N/A |
|
|
5.3 |
Limitation on scope of design:
N/A |
|
|
6. |
Reporting changes in ICFR: The issuer has
disclosed in its interim MD&A any change in the issuers ICFR that
occurred during the period beginning on July 1, 2015 and ended on
September 30, 2015 that has materially affected, or is reasonably likely
to materially affect, the issuers ICFR. |
Date: November 5, 2015
/*signed*/ |
|
David Matheson |
|
CFO |
|
1
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