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.
Exhibit 1
FEC RESOURCES INC.
Condensed Interim Financial
Statements
For the three and six
months ended June 30, 2019
(Expressed in United States
dollars)
Unaudited
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements for FEC have been prepared by management in accordance with International Financial Reporting Standards. These
financial statements, which are the responsibility of management are unaudited and have not been reviewed by the Company’s auditors. The Company’s Audit Committee and Board of Directors has reviewed and approved these interim financial statements.
The Company’s independent auditor has not performed a review of these interim condensed financial statements in accordance with the disclosure requirements of National
Instrument 51-102 released by the Canadian Securities Administrators.
FEC RESOURCES INC.
CONDENSED STATEMENT OF FINANCIAL POSITION
Expressed in United States Dollars
UNAUDITED
LIABILITIES
Current liabilities
Shareholders’ Equity
The accompanying notes to the interim condensed consolidated financial statements are an integral part of these statements.
SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:
FEC RESOURCES INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Expressed in United States Dollars
UNAUDITED
The accompanying notes to the condensed interim financial statements are an integral part of these statements.
FEC RESOURCES INC.
CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY
Expressed In United States Dollars
UNAUDITED
For the six months ended June 30, 2019
For the six months ended June 30, 2018
The accompanying notes to the condensed interim financial statements are an integral part of these statements.
FEC RESOURCES INC.
CONDENSED STATEMENTS OF CASH FLOWS
Expressed in United States Dollars
UNAUDITED
Changes in working capital related to operating activities
The accompanying notes to the condensed interim financial statements are an integral part of these statements.
FEC RESOURCES INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2019
(Stated in United States Dollars)
Note 1 Corporate Information
FEC Resources Inc. (“FEC” or the “Company”) was incorporated under the laws of Alberta, Canada and is a holding Company with an interest in Forum Energy Limited (“FEP”). The Company is listed in
the United States on the OTC Pink (“OTC Pink”), having the symbol FECOF.
At June 30, 2019, the Company has a 6.8% interest in FEP.
The principal address of the Company is Suite 2300, Bentall 5, 550 Burrard Street, Vancouver, BC, V6C 2B5. The Company’s ultimate parent company is PXP Energy Corporation (formerly Philex
Petroleum Corporation) (“PXP”) with a registered office at 27 Brixton Street, Barangay Kapitolyo, Pasig City, Metro Manila, Philippines 1603.
Note 2 Basis of Preparation
These condensed interim financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”). The financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and have been prepared using the same accounting policies and methods as were used for the Company’s Annual Financial
Statements for the years ended December 31, 2018 and 2017. These condensed interim financial statements should be read in conjunction with the Company’s annual financial statements dated December 31, 2018.
The condensed interim financial statements were authorized for issue by the Board of Directors on August 23, 2019.
The financial statements have been prepared on a historical cost basis and are presented in United States dollars, which is also the Company’s functional currency.
The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying
the Company’s 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 3.
FEC RESOURCES INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2019
(Stated in United States Dollars)
Note 2 Basis of Preparation (continued)
As a holding company with an interest in FEP, the Company’s business is indirectly subject to risks inherent in oil and gas exploration and development operations. In
addition, there are risks associated with FEP’s stage of operations and the foreign jurisdiction in which it or FEP may operate or invest. The Company has identified certain risks pertinent to its investment including: exploration and reserve
risks, uncertainty of reserve estimates, ability to exploit successful discoveries, drilling and operating risks, title to properties, costs and availability of materials and services, capital markets and the requirement for additional capital,
market perception, loss of or changes to production sharing, joint venture or related agreements, economic, political and sovereign risks, possibility of less developed legal systems, corporate and regulatory formalities, environmental regulation,
reliance on strategic relationships, market risk, competition, dependence on key personnel, volatility of future oil and gas prices and foreign currency risk. The Company has an accumulated deficit since inception of $18,053,430.
Management considers that the current economic environment is difficult and the outlook for holding companies invested in oil and gas exploration companies presents significant challenges in
terms of raising funds through issuance of shares. To the extent necessary, the Company has relied on its ability to raise funds via dispositions of quantities of its shareholdings in FEP to PXP under terms that are consistent with the best
interests of shareholders, in order to finance its operations. The Company has been successful in disposing quantities of its shareholdings in FEP in previous fiscal years. However, there can be no assurance the Company will continue to be able to
dispose of quantities of its shares in FEP under suitable terms. Currently management has no plans to sell any additional FEP shares.
Since the delisting of FEP from the London Stock Exchange, there is no liquidity via a public market for the FEP shares. As the Company is wholly reliant on the information disclosed by PXP
concerning the business of FEP and also reliant on information permitted for release through a common director, the Company may not be able to obtain information necessary to facilitate a wider sales process and may be reliant on significant
shareholders of PXP for the disposition of its FEP shares. Management is looking at all options which may include raising funds to operate and participate in future FEP financings and this may be done by way of debt or equity financings. Given
the current share price of the Company, any financings may be dilutive for some or all of the existing shareholders.
Management has concluded that the combination of these circumstances casts substantial doubt on the ability of the Company to continue as a going concern; therefore, the Company may be unable to
realize its assets and discharge its liabilities in the normal course of business.
FEC RESOURCES INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2019
(Stated in United States Dollars)
These interim condensed financial statements have been prepared using the same accounting policies and methods of computation as the annual financial statements for the year ended December 31,
2018. In addition, these interim condensed financial statements have been prepared using the same critical accounting estimates and judgments as the annual financial statements for the year ended December 31, 2018. Accordingly, the interim
condensed financial statements should be read in conjunction with the financial statements for the year ended December 31, 2018.
Note 4 Standards, Amendments and Interpretations
The Company has prepared its consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents
standards and interpretations approved by the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations
Committee (“SIC’s”). The consolidated financial statements have been prepared in accordance with IFRS standards and interpretations effective as of June 30, 2019.
New and amended IFRS standards that are effective for the current year
IFRS 16 Leases
IFRS 16, Leases (“IFRS 16”) will replace IAS 17, "Leases". IFRS 16 specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model,
requiring the recognition of assets and liabilities for all leases, unless the lease term is 12 months or less or the underlying asset has a low value. The standard is effective for annual periods beginning on or after January 1, 2019. The
Company does not have any lease agreements and the adoption of this standard did not impact its financial statements.
IFRIC 23 Uncertainty Over Income Tax Treatments
IFRIC 23 Uncertainty over income tax treatments issued by the IASB in June 2017, provides guidance as to when it is appropriate to recognize a current tax asset when the taxation
authority requires an entity to make an immediate payment related to an amount in dispute. This interpretation applies for annual reporting periods beginning on or after January 1, 2019. The adoption of IFRIC 23 did not have any impact on the
Company’s financial statements
FEC RESOURCES INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2019
(Stated in United States Dollars)
Note 5 Share Capital
The Company is authorized to issue an unlimited number of common shares without par value; and
The Company is authorized to issue an unlimited number of Class A and Class B preferred convertible redeemable voting shares without par value.
Issued:
No preferred shares have been issued since the Company’s inception.
The reserves recorded in equity on the Company’s balance sheet include Contributed Surplus and Deficit.
Contributed Surplus is used to recognize the value of stock option grants prior to exercise.
Deficit is used to record the Company’s change in deficit from earnings and losses from period to period.
Note 6 Related Party Transactions and Balances
During the three month period ended June 30, 2019 general and administrative expenses included key management personnel compensation totaling $24,000 (2018: $24,000).
Note 7 Nature
of Expenses
FEC RESOURCES INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2019
(Stated in United States Dollars)
Note 7 Nature of Expenses (continued)
8, Earnings (Loss) Per Share
Weighted Average Number of Common Shares
Note 9 Investment in FEP
i) Investment in FEP
The investment in FEP is summarized as follows:
As at June 30, 2019 the Company’s interest in FEP was 6.80% (December 31, 2018 – 6.80%).
FEP’s assets consist of interests in various petroleum service contracts (SC) in the Philippines, the most significant of which in terms of Prospective Resources is SC 72. On March 2, 2015, the
Philippine Department of Energy (“DOE”) granted a force majeure on SC 72 because the contract area falls within the territorial disputed area of the West Philippine Sea. Under the terms of the force majeure, all exploration work at SC 72 was
immediately suspended until the DOE notifies FEP that it re-commence exploration.
Determination of fair value
The investment in FEP represents an investment in a private company for which there is no active market and for which there are no publicly available quoted market prices. The Company has
classified its investment in FEP as Level 3 in the fair value hierarchy.
FEC RESOURCES INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2019
(Stated in United States Dollars)
Note 9 Investment in Forum Energy Limited (”FEP”) (continued)
For purposes of determining fair value of the investment in FEP, the Company considered valuation techniques described in IFRS 13 – Fair Value Measurement. In respect of the investment in FEP,
management considered the fair value of $1,665,000 previously recorded under IAS 32 – Financial Instruments to be indicative of the fair value of the investment in FEP upon the adoption of IFRS 9 as there have been no changes in the circumstances
that would change management’s assessment of fair value.
There were no transfers between level 3 and the other levels in the hierarchy during the period ended June 30, 2019.
Note 10 Segmental Reporting
The Company has one reportable operating segment which is primarily the business of exploration and development of oil and gas and other mineral related opportunities, through companies in which
the Company invests.
Exhibit 2
FEC RESOURCES INC. (the “Company”)
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 2019
(all funds in US dollars unless otherwise stated)
THE FOLLOWING MANAGEMENT DISCUSSION AND ANALYSIS IS PROVIDED AS OF AUGUST 23, 2019 AND SHOULD BE READ IN CONJUNCTION WITH THE
CONDENSED INTERIM FINANCIAL STATEMENTS AND NOTES FOR THE QUARTER ENDED JUNE 30, 2019 AND THE AUDITED FINANCIAL STATEMENTS AND NOTES FOR THE YEAR ENDED DECEMBER 31, 2018. THOSE FINANCIAL STATEMENTS HAVE BEEN PREPARED IN ACCORDANCE WITH
INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”).
Forward-Looking Statements
Certain statements in this MD&A, including statements regarding the Company’s current funds on hand being able to secure the Company for the foreseeable future, and
the Company’s ability to raise new money by way of loans or the issuance of new shares to meet its working capital needs and future plans and objectives of the Company are forward-looking information that involve various risks and uncertainties.
There can be no assurance that such statements will prove to be accurate; actual results and future events could differ materially from those anticipated in such statements. Material risk factors that could cause actual results to differ
materially from the forward-looking information include unforeseen expenses which the Company may incur and which expenses could cause current funds on hand to not be adequate to secure the Company for the foreseeable future, or arrange debt or
equity financing if required to meet working capital needs and other risks and uncertainties as disclosed under the heading “Risk Factors” herein. The Company has assumed that it would not be incurring significant expenses in the short term that
would exceed its current funds on hand. The reader is also cautioned that should Forum Energy find it necessary to raise capital to fund its current and future business, the Company’s interest in Forum Energy may be diluted because the Company
is not entitled to participate in such financings and currently does not have the resources to participate if provided the opportunity to do so. The reader is cautioned that assumptions used in the preparation of such information, while
considered reasonable by the Company at the time, may prove to be incorrect. The Company has no policy for updating forward-looking information beyond the procedures required under applicable securities laws.
Overall Performance
Forum Energy Limited (“Forum Energy”)
As at June 30, 2019 the Company held 5,550,000 shares representing a 6.80% interest (6.80% at December 31, 2018) of the capital of Forum Energy, a private company, which has participating
interests in 11 oil and gas blocks in the Philippines through various subsidiaries. Forum Energy’s subsidiaries are
Forum Energy Philippines Corporation (“FEPCO”), Forum (GSEC101) Ltd. and Forum Exploration Inc.
(66.67% owned). Forum Energy and the Company are both ultimately under the control of PXP Energy Corporation (“PXP”) and are therefore affiliates.
The following information related to PXP or Forum Energy has been provided to the Company by PXP or Forum Energy , as the Company does not have direct knowledge of such information.
PXP holds a 78.98% controlling interest in Forum Energy, with 72.18% held directly and 6.80% held indirectly through its 54.99% shareholding of the Company. Forum Energy is a company incorporated under the laws of
England and Wales with focus on the Philippines and has: (a) a 70% operating interest in SC 72 Recto Bank, which covers the Sampaguita natural gas discovery in offshore West Palawan, held through Forum (GSEC 101) Limited; (b) a 66.67% operating
interest in SC 40 North Cebu held through Forum Exploration, Inc.; and (c) minority interests in the SC 6 and SC 14 sub-blocks in offshore Northwest Palawan, including a 2.27% interest in the producing Galoc field, held through FEPCO.
A summary of Forum Energy’s interests are as follows:
*Ceased production on 01 April 2019.
Following is a brief description of the properties of Forum Energy together with production details where appropriate.
SC 72 Recto Bank
Forum Energy’s principal asset is a 70% participating interest in Service Contract 72 (“SC 72”) (previously Geophysical Survey and Exploration Contract No. 101 (“GSEC101”)), a petroleum license
located in the Recto Bank offshore west of Palawan Island, the Philippines. The remaining 30% of SC 72 is owned by Monte Oro Resources & Energy Inc., a company incorporated in the Philippines, who is involved in a joint venture with Forum
Energy with respect to SC 72 (the “JV”).
On February 15, 2010, the GSEC 101 licence was converted to Service Contract 72 and Forum Energy immediately conducted geological and geophysical works to further evaluate the block and to fulfill its commitment
to the government. SC 72 covers 8,800 square kilometers, which is 85% of the area covered by GSEC 101.
Exploration in the area began in 1970, and in 1976, gas was discovered in the Sampaguita structure following the drilling of a well. To date, a total of three wells have been drilled at the southwest end of the
structure. Two of the wells tested gas at rates warranting further exploration.
In early 2011, Forum Energy acquired 2,202 line-km of 2D seismic, gravity, and magnetic data over SC 72 to further define leads. Also, 565 square kilometers of 3D seismic data were acquired
over the Sampaguita field.
The 2D seismic data were reprocessed in 2013 and were subsequently interpreted, aided by gravity-magnetics data that were interpreted by Fugro (in 2012) and Cosine, Ltd. (in 2015). In 2015, Arex Energy produced a
report on the North Bank area and estimated the prospective resources to be significant enough to continue with exploration of the concession.
SC 72 has been under Force Majeure since 15 December 2014 due to the West Philippine Sea maritime dispute between the Republic of the Philippines and China. Forum Energy will have 20 months
upon lifting of the Force Majeure to drill two commitment wells. The total cost of drilling these wells depends on a number of factors, the Company’s management estimates the total work to be between US$70 million and US$100 million. It is
important to note that until an agreement has been reached as anticipated under the MOU referred to below with a Chinese partner, Forum Energy’s share of the cost cannot be determined.
On July 12, 2016, the Permanent Court of Arbitration in the Hague ruled in favor of the Philippines against China over territorial disputes in the West Philippine Sea. However, China has
rejected the ruling. Although there are ongoing discussions between the two countries, it is uncertain when or how the matter of the maritime dispute will be settled with regards to SC 72.
In October 2018, Forum Energy started the Broadband and Pre-Stack Depth Migration (”PSDM”) reprocessing of the Sampaguita 3D seismic data with DownUnder GeoSolutions (“DUG”), a company based in
Perth, Australia, as contractor. The Sampaguita 3D was acquired in 2011 and has an area of 565 sq km. The reprocessing work was completed in June 2019 and costs around US$490,000 including quality control supervision. The 2019 work program and
budget submitted to the DOE includes 3D seismic reprocessing and seismic interpretation followed by a contingent geotechnical survey over the proposed well locations to be drilled upon lifting of the Force Majeure.
On November 20, 2018, a Memorandum of Understanding (“MOU”) was signed between the Philippines and China governments which aims to develop a framework for oil and gas exploration in the West
Philippines Sea. It was reported that an agreement under this MOU would be reached within twelve months of its signing. To date there have been no official announcements regarding the progress made.
On December 21, 2018, Forum Energy through Forum (GSEC101) Limited, sent a formal request to the DOE in the Philippines to lift the Force Majeure imposed on SC 72. A contingent revised work
program and budget covering 2019-2020 was submitted at the same time which included drilling of two wells and the acquisition of seismic in the North Bank area. As at the date of this Management Discussion and Analysis, neither Forum Energy nor
Forum (GSEC101) Limited have received a decision from the DOE.
SC 40 North Cebu
A 100% operating interest in SC 40 is held by Forum Energy’s 66.67% owned subsidiary Forum Exploration Inc.
SC 40 is located in the Visayan Basin in the central part of the Philippine Archipelago and covers an area of 340,000 hectares in the northern part of Cebu Island and adjacent offshore areas.
It contains the Libertad gas field and several other prospects.
A land gravity survey was conducted in the municipalities of Daanbantayan and Medellin from April 2 to 27, 2018. A total of 94 gravity stations were acquired at a spacing of 200m to 500m. The
survey was divided into two (2) parts: grid and traverse. The grid program was designed with the objective of locating the apex of a high trend in the Dalingding area that was identified in previous gravity surveys. The traverse program, on the
other hand, aimed to define faults through forward modeling and determine whether the mapped central depression is a graben or a trough.
The interpretation of the gravity data will be carried out in two stages. The first stage is a 3D inverse grid depth modeling which was undertaken by contractor Cosine Ltd. The final report for
this work was submitted in late 2018. The second stage is a detailed stratigraphic 3D multi-sectional model to be done in-house by the Forum Energy technical team under Cosine’s quality control supervision. This latter stage is ongoing. The
results will be correlated later with seismic data, where possible.
SC 14 C-1 Galoc
Block C-1 Galoc has an area of 164 square kilometers and contains the producing Galoc Oil Field.
Gross production for 2018 averaged 3,198 bopd [2017 – 4,003 bopd]. FEPCO’s share is approximately 73 bopd [2017 – 91 bopd]. For 1H 2019, the average gross production was 2,088 bopd [2018 –
3,376 bopd] wherein FEPCO’s share is approximately 48 bopd [2018 – 77 bopd].
On July 12, 2018, Tamarind Galoc Pte Ltd, a subsidiary of Singapore-based Tamarind Resources, acquired Nido Petroleum’s subsidiaries Galoc Production Company WLL (GPC) and Nido Production
(Galoc) Pte Ltd, giving Tamarind 55.88% equity and operatorship of the Galoc Field.
Production forecasted for 2019 is approximately 970,000 barrels of oil. Three (3) liftings are scheduled for 2019. The first lifting was completed on January 5, 2019 with a volume of 380,512
bbls. The second lifting was completed on June 1, 2019 with a volume of 305,697 bbls. The final lifting will be in October 2019 with targeted volume of 350,000 bbls.
The Consortium is determined in extending the field life and optimizing the production performance of the Galoc Field. GPC spearheads the ongoing fabrication of a Condensate Recovery Unit (“CRU”) that will be
installed onboard the Floating Production, Storage, and Offloading (“FPSO”) tanker that is capable of recovering 15-20 barrels of condensate for every 1 million cubic feet of gas produced, while reducing Greenhouse Gas (CO2) emissions
by 20-30%.
SC 6A Octon
SC 6A Octon covers an area of 1,080 square kilometers and contains the Octon field.
In 2018, Philodrill completed the seismic interpretation/mapping work on the northern sector of the block using the PSDM volume. The evaluation focused on the Malajon, Salvacion, and Saddle
Rock prospects. The Malajon and Saddle Rock closures were previously tested by wells which encountered good oil shows in the Galoc Clastic Unit (GCU) interval. However, no tests were conducted in this interval due to operational constraints.
The 2019 work program includes the completion of seismic attribute analysis of the North Block of SC 6A to characterize the target reservoirs and determine their distribution in terms of
porosity, thickness, and lithology. Philodrill will then conduct resource analysis, including computation of reserves, and preliminary well design and cost to mature a drilling location in the area.
A potential farminee has submitted a farm-in proposal to the JV that includes the formulation of a Field Development Plan for the Octon discovery via a tieback to the Galoc Intrepid FPSO. In
return for the carry up to First Oil, the farminee will earn 55.88% interest in and assume operatorship of SC 6A. Forum and PXP’s interests will be reduced to 2.45% each upon completion of the farm-in. Development of the Octon field will only be
economical if tied-back to Galoc’s production facilities located just 8 km away. A draft farm-in agreement has been drafted and currently being negotiated by the SC 6A Consortium with the farminee.
SC 6B Bonita
SC 6B Bonita covers an area of 533 square kilometers and contains the Bonita field.
An in-house evaluation completed by Operator Philodrill in early 2016 shows the East Cadlao Prospect has marginal resources which cannot be developed on a “stand-alone” basis. However, it
remains prospective being near the Cadlao Field, which lies in another contract area. In view of this, the JV has requested for the reconfiguration of SC 6B to append the Cadlao Field for possible joint development in the future. On March 14,
2018, the DOE approved the annexation of Cadlao Block to SC 6B. Subsequently, a seismic reprocessing program over East Cadlao and Cadlao Field will now be undertaken.
On 28 June 2018, Philodrill received DOE’s approval for the assignment of Trans-Asia’s relinquished participating interest in SC 6B to the remaining JV partners. As a result, Forum Energy’s
interest in SC 6B has increased to 8.182%.
Manta Oil Company Limited has indicated an interest to farm-in to the SC 6B and was given until August 15, 2019 to submit all necessary documents required for the Farm-in Agreement and
operatorship transfer from Philodrill. Manta will carry the JV up to the first oil to earn 70% ownership. Forum’s interest will then decline to 2.4526% after farm-in completion.
Cadlao has an estimated Recoverable Reserves (P50) of 6.32 MMBO while East Cadlao has an estimated In-Place Prospective Resources of 3.59 MMBO (Best Case). Manta previously submitted an
18-month work program that includes 3D seismic interpretation, reservoir modelling, and preparation of a new plan of development for both fields. The work will start once the farm-in is approved. The existing JV members will also be carried free
in the cost of these studies.
SC 14A [Nido], SC 14B [Matinloc] & SC14B-1 [N. Matinloc]
Total production from the three fields for 2018 was 94,790 barrels (2017 - 125,755) for an average of 260 bopd (2017 – 345). The portion of production attributable to Forum Energy was 9,722
barrels (2017 – 13,538). Production in the Nido, Matinloc, and North Matinloc continued only until April 2019. From January to April 2019, the total production was 22,172 barrels [January to April 2018 – 38,671 barrels] for an average of 185
bopd [January to April 2018 – 322 bopd]. For January to April 2019, the production attributable to Forum Energy was 1,938 barrels [January to April 2018 – 4,059 barrels]. The Nido Field accounted for 93.06% of the total and the Matinloc Field
contributed the remaining 6.94%. Shell Philippines remained as the sole buyer for the crude.
In late 2018, the SC 14A and 14B joint ventures approved the plan to plug and abandon (P&A) the remaining nine (9) wells at the Nido, Matinloc, and North Matinloc Fields within the second
quarter of 2019. These fields have already reached their end of life, having been in production since the late 70’s-early 80’s.
From April to May 2019, seven (7) production wells in Nido (3 out of 5), Matinloc (3), and North Matinloc (1) were successfully plugged and abandoned. The two remaining Nido wells, A1 and A2,
were only partially abandoned due to difficulties encountered during operations. The P&A of these wells will be completed in 2020.
Partial stripping of production equipment on the AW, BW, AP, and Matinloc Platforms commenced in June 2019. DND-AFP has indicated an interest to take-over the Nido and Matinloc Platforms in
later in 2019. Discussions are ongoing among DOE, Philodrill and DND on the details of the planned takeover.
SC14C-2 West Linapacan
Block C-2 has an area of 176.5 square kilometers and contains the West Linapacan “A” and “B” structures.
In 2018, the joint venture headed by Philodrill completed mapping and interpretation work on the 3D seismic data that was reprocessed in 2014. The study focused on the West Linapacan “B”
structure, which was drilled in 1991. The JV is studying options to develop the field.
The SC 14C2 and SC 74 consortia have a joint Rock Physics and Quantitative Interpretation (QI) studies over the West Linapacan and Linapacan areas using existing 3D seismic and well data. The
initial phase was carried out and completed in June 2019 by Ikon Science in Kuala Lumpur, Malaysia. The next phase is an Inversion Study using a pilot area of at least 30 sq. km. The total project cost will be shared 50-50 by the two consortia.
Other sub-blocks in SC6 and SC14
Forum Energy will continue to participate in these sub-blocks which are mostly in the exploration phase.
Forum Energy Objectives and Strategy
The core objective of Forum Energy is to maximize the potential of its investments and its current licences to generate income, whilst at the same time continuing to reduce administrative
expenses.
Forum Energy plans to achieve this by:
Risk factors specific to Forum Energy
The Company is exposed to certain risk factors which are specific to its investment in Forum Energy. These include the following:
For further details regarding Forum Energy, see its 2017 financial statement package at https://beta.companieshouse.gov.uk/company/05411224/filing- history
Please note that Forum Energy is not required to file its financial statement package with Companies House in the UK until September 30 following the end of its fiscal year which is December
31. Accordingly, the Forum Energy financial statement package for 2018 is not expected to be available until Q3 of 2019.
Selected Annual Financial Information
Results of Operations
The accounts show a loss for the quarter ended June 30, 2019 of $110,031 or $0.00 per share, versus a loss of $95,440, for the same period in 2018. The difference was mainly because of the
increase in professional fees $15,801.
General and Administration expense were $111,731 for the quarter ended June 30, 2019 versus $97,846 for the same period in 2018. Overall expenses were higher than those
experienced in the previous year mainly due to an increase in professional fees. Professional fees were $32,740 for the quarter ended June 30, 2019 versus $16,939 for the same period in the previous year due to costs resulting from a shareholder
complaint. Listing and filing fees were $9,266 for the quarter ended June 30, 2019 versus $12,300 for the same period in the previous year. The decrease was due to the fees associated with the application for the removal of the cease trade
order aginst the Company in Alberta and British Columbia in 2018. For the quarter ended June 30, 2019 foreign exchange loss was $2,656 versus $206 for the quarter ended June 30, 2018.
The Company’s current assets were $102,682 at June 30, 2019 versus $237,591 for the year ended December 31, 2018. The difference is mainly a result of the higher cash
balance on December 31, 2018. The Company’s assets reflect the investment in Forum Energy on a fair value basis. The fair value of the investment in Forum Energy is reflected at $1,665,000 or US$0.30 per share.
The investment in Forum Energy represents an investment in a private company for which there is no active market and for which there are no publicly available quoted market prices. The Company has classified its
investment in Forum energy as Level 3 in the fair value hierarchy.
For purposes of determining fair value of the investment in Forum Energy, the Company considered valuation techniques described in IFRS 13 – Fair Value Measurement. In respect of the investment in Forum energy,
management considered the fair value of $1,665,000 previously recorded under IAS 32 – Financial Instruments to be indicative of the fair value of the investment in Forum Energy upon the adoption of IFRS 9 as there have been no changes in the
circumstances that would change management’s assessment of fair value.
The determination of fair value was based upon the most recent third party financing that took place while SC 72 was under force majeure.
There were no transfers between level 3 and the other levels in the hierarchy during the period ended June 30, 2019.
PROPERTY, PLANT AND EQUIPMENT
Summary of Quarterly Results
Selected Financial Data
(in ‘000, except EPS)
Liquidity
The Company’s working capital position at June 30, 2019 was $71,782 versus $181,769 at December 31, 2018 and shareholders’ equity was $1,737,030 at June 30, 2019 (December 31, 2018: $1,847,061).
Management considers that the current economic environment is difficult and the outlook for oil and gas exploration companies presents significant challenges in terms of raising funds through
issuance of shares. In the past to the extent necessary, the Company has relied on its ability to raise funds via the disposal of quantities of its shareholdings in Forum Energy to PXP under terms that are consistent with the best interests of
all shareholders, in order to finance its operations.
Management currently believes that it is in the best interest of all shareholders that management explores the issuance of new shares or debt to fund its future operations.
The Company is not required to contribute any capital to any of the projects in which it has an indirect or direct interest.
Cash used in operating activities for the quarter ended June 30, 2019 was $129,547 versus $83,199 for the same period in 2018 mainly as a result of the differences described above.
Second Quarter
During the second quarter, there were no significant events. The Company experienced only basic operating costs. The Company does not experience seasonal fluctuations in its business and there were no dispositions
of any business segments
Since the Company has no revenue, the Company will need to continue to raise funds through either debt, equity or the sale of assets in order to continue its operations or participate in other projects. The
Company currently has no plans to sell any more of its Forum Energy shares and will be reliant on debt or equity issuances for future funding requirements.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements in existence as of this date.
Transactions with Related Parties
During the quarter ended June 30, 2019, general and administrative expenses included key management personnel compensation totaling $24,000 (2018: $24,000).
Critical Accounting Estimates and Judgments
The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.
The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income/loss in the period of the change, if the change affects that period only, or in the period of the
change and future periods, if the change affects both.
The determination of the fair value of the Company’s investment in Forum energy is a significant accounting estimate.
Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in the financial
statements within the next financial year are discussed below:
i) Deferred tax assets and liabilities
Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax
determination is uncertain. We recognize liabilities and contingencies for anticipated tax audit issues based on our current understanding of the tax law. For matters where it is probable that an adjustment will be made, we record our best
estimate of the tax liability including the related interest and penalties in the current tax provision. We believe we have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially
different outcome than the amount included in the tax liabilities.
Standards, Amendments and Interpretations Not Yet Effective
The Company has prepared its consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents standards and interpretations approved by
the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations Committee (“SIC’s”). The consolidated financial
statements have been prepared in accordance with IFRS standards and interpretations effective as of June 30, 2019.
New and amended IFRS standards that are effective for the current year
IFRS 16 Leases
IFRS 16, Leases (“IFRS 16”) will replace IAS 17, "Leases". IFRS 16 specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring the
recognition of assets and liabilities for all leases, unless the lease term is 12 months or less or the underlying asset has a low value. The standard is effective for annual periods beginning on or after January 1, 2019 with early adoption
being permitted if IFRS 15, has also been applied. The Company does not have any lease agreements and the adoption of this standard did not impact its financial statements.
IFRIC 23 Uncertainty Over Income Tax Treatments
IFRIC 23 Uncertainty over income tax treatments issued by the IASB in June 2017, provides guidance as to when it is appropriate to recognize a current tax asset when the taxation authority requires
an entity to make an immediate payment related to an amount in dispute. This interpretation applies for annual reporting periods beginning on or after January 1, 2019. The adoption of IFRIC 23 did not have any impact on the Company’s financial
statements.
Financial Instruments and Risk Management
The Company is exposed through its operations to the following financial risks:
In common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s objectives, policies and processes for managing those risks
and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout this management discussion and analyis.
There have been no substantive changes in the Company’s exposure to financial instrument risks, its objectives, polices and processes for managing those risks or the methods used to measure them from previous years
unless otherwise stated in the note.
General Objectives, Policies and Procedures
The Board of Directors has overall responsibility for the determination of the Company’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the
authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company’s finance function. The Board of Directors receive quarterly reports from the Company’s Chief Financial Officer
through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. Further details regarding these policies are
set out below.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices are comprised of foreign currency
risk, interest rate risk and equity and commodity price risk.
Foreign currency exchange risk
The Company is exposed to foreign currency fluctuations for general and administrative transactions denominated in Canadian Dollars. The majority of the Company’s cash is kept in U.S.
dollars. As at June 30, 2019, the Company had an insignificant amount of cash denominated in Canadian dollars that was subject to exchange rate fluctuations between the Canadian dollar and the U.S. dollar. As at June 30, 2019, the Company held
an insignificant amount of financial liabilities denominated in Canadian dollars that would be subject to exchange rate fluctuations between Canadian dollars and U.S. dollars.
The Company maintains cash deposits in one chartered Canadian bank which, from time to time, exceed the amount of depositors insurance available in each respective account. Management
assesses the financial condition of this bank and believes that the possibility of any credit loss is minimal. The maximum exposure of credit risk is the Company’s cash deposit $99,444 (December 31, 2018: $228,991) and receivables of $2,468
(December 31, 2018: $2,045).
Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company does not generate cash from operations but rather, the Company will, from
time to time, issue shares via equity placements, borrow funds from an affiliated company or undertake to sell a portion of its investment in the shares of Forum Energy should it be necessary to raise funds.
At this time, the Company has no new business plans and if it continues to act as a holding company of Forum Energy shares, there is a risk it will receive no return from that investment
unless alternate sources of funding are found.
The Company manages liquidity by maintaining cash balances available to meet its anticipated operational needs. Liquidity requirements are managed based on expected cash flow to ensure that
there is adequate capital to meet short-term and long-term obligations. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and
its growth plans. At June 30, 2019 the Company’s accounts payable and accrued liabilities were $30,900, all of which fall due for payment within twelve months of the date of the statement of financial position.
The carrying values of accounts payable and accrued liabilities approximate their fair values due to the relatively short periods to maturity of the instruments.
d) Dilution risk
As discussed elsewhere in this MD&A, there is a risk of continued dilution of the Company’s interest in Forum Energy should it either need to sell shares of Forum Energy to raise operating
funds, or not participate in any future share issuance financings undertaken by Forum Energy. Currently there are no plans to sell any of the Company’s Forum Energy shares to fund opertations. There is a risk that shareholders may be diluted
should the Company need to raise additional operating funds through debt or equity financings.
Other Risk Factors
As a holding company with an interest in Forum Energy, the Company’s business is indirectly subject to risks inherent in oil and gas exploration and development operations. In addition, there
are risks associated with Forum Energy’s stage of operations and the foreign jurisdiction in which it or Forum Energy may operate or invest. The Company has identified certain risks pertinent to its investment including: exploration and reserve
risks, uncertainty of reserve estimates, ability to exploit successful discoveries, drilling and operating risks, title to properties, costs and availability of materials and services, capital markets and the requirement for additional capital,
market perception, loss of or changes to production sharing, joint venture or related agreements, economic and sovereign risks, possibility of less developed legal systems, corporate and regulatory formalities, environmental regulation, reliance
on strategic relationships, market risk, competition, dependence on key personnel, volatility of future oil and gas prices and foreign currency risk.
Since the delisting of Forum Energy from the London Stock Exchange, there is no liquidity via a public market for the Forum Energy shares. As the Company is wholly
reliant on the information disclosed by PXP concerning the business of Forum Energy and also reliant on information permitted for release through a common director, the Company may not be able to obtain information necessary to facilitate a wider
sales process and may be reliant on significant shareholders of PXP for the disposition of its Forum Energy shares . Management is looking at all options which may include raising funds to operate and participate in future Forum Energy
financings and this may be done by way of debt or equity financings. Given the current share price of the Company, any financings may be extremely dilutive.
Capital Management
The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide an adequate return to shareholders.
The capital of the Company consists of the items included in shareholders’ equity and cash net of debt obligations.. Currently the Company has no debt. The Company’s Board of Directors approves management’s annual
capital expenditures plans and reviews and approves any material debt borrowing plans proposed by the Company’s management.
As at June 30, 2019, the company had no externally imposed capital requirements nor were there any changes in the company’s approach to capital management during the year.
General and administration
The following table shows the detailed breakdown of the components of general and administration expenditures.
General and administrative expenses include
Other MD&A Requirements
Disclosure of Outstanding Share Data
As At June 30, 2019
There were no options outstanding as at June 30, 2019.
There were no warrants outstanding as at June 30, 2019.
Additional information on the Company is available at www.sedar.com.
SC72 is located in an area which is subject to a maritime dispute between the Chinese and the Philippine governments. Forum Energy has been unable to proceed with
the SC72 exploration work programme due to this maritime dispute. On March 4, 2015 the DOE imposed a Force Majeure on SC72 because the contract area falls within the disputed area of the West Philippine Sea which is the subject of an United
Nations arbitration process between the Republic of Philippines and the People’s Republic of China.
Under the terms of the Force Majeure, all exploration work at SC72 is immediately suspended (effective from 15 December 2014) until the DOE notifies the Company that it may commence drilling. As a result, the
second sub-phase of SC72 was put on hold until further notice.
The terms of the second sub-phase and all subsequent sub-phases will be extended by the term of the Force Majeure.
On November 20, 2018, a Memorandum of Understanding (“MOU”) was signed between the Philippines and China governments which aims to develop a framework for oil and gas exploration in the West
Philippines Sea. Whilst this is a positive development at this time SC72 remains subject to the Force Majeure order.
On December 21, 2018, Forum Energy Limited through Forum (GSEC101) Limited sent a formal request to the DOE to lift the Force Majeure imposed on SC 72. A contingent revised work program and
budget covering 2019 - 2020 was submitted at the same time which included drilling of two wells and the acquisition of 3D seismic data in the North Bank area. The outcome is unknown as at the date of this amended Management Discussion and
Analysis.
Forum Energy anticipates lower revenues from the Galoc oil field due to the Galoc-4 shut-in and normal decline in production of other wells as Galoc reaches its end of life. The recent
collapse in the price of oil will affect profitability and revenues for the coming months and until oil prices rebound. At the beginning of the year Forum Energy anticipated Galoc would be profitable for another 2 to 3 years. The Galoc field
may yet go into Phase III development in the near future. However, this remains a contingent programme. Until oil prices rebound and the consortium decides to go ahead with the approved work program Phase III will remain on hold. To date there
has been no update on whether it will proceed or not.
As was highlighted in the latest audited financial statements, the Company has limited cash resources and will require additional capital to allow it to continue to trade or
invest in new projects. The Company is currently reviewing the available options.
Looking Forward
This discussion contains "forward looking statements" as per Section 21E of the US Securities and Exchange Act of 1934, as amended. Although the Company believes that
the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Management is currently reviewing many options and there is no assurance that they
will not make decisions other than those now contemplated. The Company is subject to political risks and operational risks identified in documents filed with the Securities and Exchange Commission, including changing and depressed oil prices,
unsuccessful drilling results, change of government and political unrest in its main area of operations.
Exhibit 3
FORM 52‑109FV2
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, Paul Wallace, President and Chief Executive Officer of FEC Resources Inc., certify the following:
Date: August 23, 2019
Exhibit 4
FORM 52‑109FV2
CERTIFICATION OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, Paul Wallace, Chief Financial Officer of FEC Resources Inc., certify the following:
|
1.
|
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of FEC Resources Inc. (the
“issuer”) for the interim period ended June 30, 2019.
|
|
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.
|
Date: August 23, 2019