TIDMCAZA
RNS Number : 5916F
Caza Oil & Gas, Inc.
13 November 2015
November 13, 2015
Caza Oil & Gas, Inc.
CAZA OIL & GAS ANNOUNCES THIRD QUARTER RESULTS
AND RECENT EVENTS
HOUSTON, TEXAS (Marketwire - November 13, 2015) - Caza Oil &
Gas, Inc. ("Caza" or the "Company") (TSX:CAZ) (AIM:CAZA) provides
its unaudited financial results for the three-months ended
September 30, 2015 ("Q3 2015" or the "Quarter"). The Company's
revenues are down, owing to lower commodity prices during the
period and reduced production volumes as a result of the Company's
prudent decision to cut back on capital expenditures until
operational costs adjust to appropriately reflect the current
pricing environment and/or prices rebound allowing for greater
return on investment.
Unaudited Third Quarter Financial Results
-- Caza's revenues from oil and natural gas sales decreased 32%
to US$1,996,350 compared to US$2,941,812 in Q2 2015. This also
represents a decrease of 72% for Q3 2015 from US$7,244,752 for the
comparative period in 2014.
-- Adjusted EBITDA decreased 32% to US$2,513,206 compared to
US$3,721,726 in Q2 2015. This represents a decrease of 44% for Q3
2015 from an adjusted EBITDA of US$4,514,389 for the comparative
period in 2014.
-- Caza's oil and natural gas liquids (NGL) production decreased
21% to 46,323 bbls compared to 58,847 bbls in Q2 2015. This
represents a decrease of 47% for Q3 2015 from 87,901 bbls for the
comparative period in 2014.
-- The Company's oil and NGL production increased to 85% of the
Company's combined oil and natural gas production in Q3 2015 from
79% in Q3 2014, which is a slight decrease from 87% in Q2 2015.
-- Caza's natural gas production decreased 6% to 50,027 Mcf
compared to 53,060 Mcf in Q2 2015. This also represents a decrease
of 64% for Q3 2015 from 140,402 Mcf for the comparative period in
2014.
-- Average net production volumes decreased 20% to 594Boe/d
compared to 744 Boe/d in Q2 2015. This represents a decrease of 51%
for Q3 2015 from 1,210 Boe/d for the comparative period in
2014.
-- Operating net back decreased 35% to US$19.31 compared to
US$29.52 in Q2 2015. This represents a decrease of 62% for Q3 2015
from US$51.43 for the comparative period in 2014.
-- The average oil price received by Caza decreased 21% to
US$39.79 per bbl compared to US$50.36 per bbl in Q2 2015. This
represents a decrease of 52% during Q3 2015 from US$83.04 per bbl
during the comparative period in 2014.
-- The average natural gas price received by Caza increased 2%
to US$3.04 per Mcf compared to US$2.99 per Mcf in Q2 2015. This
represents a decrease of 16% during Q3 2015 from US$3.62 per Mcf
during the comparative period in 2014.
-- The average combined price received by Caza in Q3 2015
decreased 16% to US$36.52 per Boe compared to US$43.46 per Boe in
Q2 2015. This represents a decrease of 44% during Q3 2015 from
US$65.09 per Boe during the comparative period in 2014.
-- Caza had a cash and cash equivalents balance of US$1,807,338
as of September 30, 2015 compared to US$2,438,024 at June 30, 2015.
The Company has drawn an aggregate of US$45MM from the Note
Purchase Agreement with Apollo Investment Corporation, an
investment fund managed by Apollo Investment Management.
Third Quarter Recent Events
-- On September 30, 2015, the Company and Apollo Investment
Corporation ("Apollo"), an investment fund managed by Apollo
Investment Management, executed a Forbearance and Reservation of
Rights Agreement (the "Forbearance Agreement"), pursuant to which
Apollo agreed, subject to certain customary limitations and
conditions, to forbear from exercising certain of its rights and
remedies under that certain Note Purchase Agreement (the "Note
Agreement") dated May 23, 2013, between Apollo and Caza, with
respect to the Company's breach of certain financial and other
covenants until October 31, 2015, subject to earlier
termination.
-- On October 30, 2015, the Company and Apollo executed an
Amended and Restated Forbearance and Reservation of Rights
Agreement (the "Amended Forbearance Agreement"), which replaced the
Forbearance Agreement in its entirety, and pursuant to which Apollo
agreed, subject to certain customary limitations and conditions, to
forbear from exercising certain of its rights and remedies under
the Note Agreement with respect to the Company's breach of certain
financial and other covenants until November 30, 2015, subject to
earlier termination. The Amended Forbearance Agreement provides
that if Apollo determines in its sole discretion that the Company
and its operating subsidiary are not diligently pursuing a
transaction substantially similar to the Potential Transaction (see
below for details of the Potential Transaction) during the
forbearance period, Apollo may, by three days' advance written
notice, shorten the forbearance period so that it ends on the
latter of November 15, 2015, or the third day after such notice is
delivered.
-- As announced on October 1, 2015, and November 2, 2015, the
Company is in advanced discussions with a third party regarding a
potential equity financing of the Company (the "Potential
Transaction"). In connection with such discussions, the Company has
agreed to a short period of exclusivity with such counterparty. The
proposed terms of the Potential Transaction are subject to, among
other things, continued negotiation, a due diligence period, board
approval, and the entry of the parties into definitive agreements.
Given the number of conditions to the consummation of the Potential
Transaction, there can be no certainty that the Potential
Transaction will be concluded on acceptable terms. Furthermore,
although the Company has had the continued support of Apollo during
the course of these discussions, there can be no certainty that the
Potential Transaction will close or that Apollo will continue to
grant ongoing forbearance.
If the Potential Transaction is consummated, it is likely to
take the form of an equity investment in the Company which, given
the current oil and gas commodity pricing environment, is likely to
subject the Company's existing shareholders to significant
dilution.
Copies of the Company's unaudited financial statements for the
third quarter ended September 30, 2015, and the accompanying
management's discussion and analysis are available on SEDAR at
www.sedar.com and the Company's website at www.cazapetro.com.
About Caza
Caza is engaged in the acquisition, exploration, development and
production of hydrocarbons in the following regions of the United
States of America through its subsidiary, Caza Petroleum, Inc.:
Permian Basin (Southeast New Mexico and West Texas) and Texas and
Louisiana Gulf Coast (on-shore).
For further information, please contact:
Caza Oil & Gas, Inc.
Michael Ford, CEO +1 432 682 7424
John McGoldrick, Chairman +351 282 471 010 (Portugal)
Cenkos Securities plc
Neil McDonald +44 131 220 6939 (Edinburgh)
Nick Tulloch +44 131 220 9772 (Edinburgh)
Vigo Communications
Chris McMahon +44 20 7016 9572
The Toronto Stock Exchange has neither approved nor disapproved
the information contained herein.
In accordance with AIM Rules - Guidance Note for Mining, Oil and
Gas Companies, the information contained in this announcement has
been reviewed and approved by Anthony B. Sam, Vice President
Operations of Caza who is a Petroleum Engineer and a member of The
Society of Petroleum Engineers.
ADVISORY STATEMENT
Information in this news release that is not current or
historical factual information may constitute forward-looking
information within the meaning of securities laws. Such information
is often, but not always, identified by the use of words such as
"seek", "anticipate", "plan", "schedule", "continue", "estimate",
"expect", "may", "will", "project", "predict", "potential",
"intend", "could", "might", "should", "believe", "develop", "test",
"anticipation" and similar expressions. In particular, information
regarding production revenue, future drilling or completion
operations, additional drilling targets, future drilling activity
in the Bone Springs play, the ability to take advantage of price
realignments or changes in commodity prices, production and revenue
growth, available sources of financing, the completion of any
transactions, or the terms thereof, under negotiation contained in
this news release constitutes forward-looking information within
the meaning of securities laws.
Implicit in this information, are assumptions regarding the
future budgets and costs, success and timing of drilling
operations, rig availability, projected production, revenue and
expenses, future commodity prices and drilling costs, well
performance and the ability to successfully negotiate and obtain
financing on acceptable terms. These assumptions, although
considered reasonable by the Company at the time of preparation,
may prove to be incorrect. Readers are cautioned that actual future
operations, operating results, availability of financing and
economic performance of the Company are subject to a number of
risks and uncertainties, including general economic, market and
business conditions and could differ materially from what is
currently expected as set out above.
For more exhaustive information on these risks and uncertainties
you should refer to the Company's most recently filed annual
information form which is available at www.sedar.com and the
Company's website at www.cazapetro.com. You should not place undue
importance on forward-looking information and should not rely upon
this information as of any other date. While we may elect to, we
are under no obligation and do not undertake to update this
information at any particular time except as may be required by
securities laws.
Caza Oil & Gas, Inc.
Condensed Consolidated Statements of Financial Position
(MORE TO FOLLOW) Dow Jones Newswires
November 13, 2015 02:00 ET (07:00 GMT)
(Unaudited) (In United States Dollars)
September December 31,
30,
2015 2014
---------------------------------------------- ------------- --------------
Assets
Current
Cash and cash equivalents (Note 7 (c)) $1,807,338 $5,160,943
Restricted cash (Note 10) 415,846 428,614
Accounts receivable 1,832,266 7,531,803
Derivative assets (Note 9) 2,252,336 6,031,350
Prepaid and other 483,622 650,507
------------- --------------
6,791,408 19,803,217
Exploration and evaluation assets (Note
2) 7,186,973 6,247,564
Petroleum and natural gas properties and
equipment (Note 3) 49,890,520 70,914,961
------------- --------------
$63,868,901 $96,965,742
------------- --------------
Liabilities
Current
Accounts payable and accrued liabilities $5,852,317 $21,356,234
Notes payable (Note 11) 43,221,927 42,366,370
Derivative liabilities (Notes 10) 123,154 292,088
Decommissioning liabilities (Note 4) - 95,500
------------- --------------
49,197,398 64,110,192
Notes payable (Note 12) 3,604,390 -
Decommissioning liabilities (Note 4) 1,374,186 1,508,155
------------- --------------
54,175,974 65,618,347
Total Equity
Share capital (Note 5(b)) 90,964,254 90,326,588
Warrants (Note 5(b)) 156,365 156,365
Share based compensation reserve 11,175,515 11,091,817
Deficit (87,189,264) (67,061,796)
------------- --------------
Equity attributable to owners of the Company 15,106,870 34,512,974
Non-controlling interests (5,413,943) (3,165,579)
------------- --------------
Total equity 9,692,927 31,347,395
------------- --------------
$63,868,901 $96,965,742
------------- --------------
See accompanying notes to the condensed consolidated financial
statements and note 1 concerning going concern
Caza Oil & Gas, Inc.
Condensed Consolidated Statements of Net Loss and Comprehensive
Loss
(Unaudited) (In United States Dollars)
Three months ended Nine months ended
September 30, September 30,
2015 2014 2015 2014
----------------------------------------- --------------- -------------- -------------- -------------
Revenues
Petroleum and natural gas $1,996,350 $7,244,752 $8,305,376 $18,122,308
--------------- -------------- -------------- -------------
Interest income 140 3 403 179
--------------- -------------- -------------- -------------
1,996,490 7,244,755 8,305,779 18,122,487
--------------- -------------- -------------- -------------
Expenses (Income)
Production 940,526 1,520,217 3,028,947 3,958,564
General and administrative 1,236,731 1,304,113 3,593,544 4,207,853
Depletion and depreciation (Note
3) 1,417,752 2,392,364 4,972,897 5,800,461
Financing costs (Note 13) 2,228,602 1,896,472 5,697,062 5,040,372
Other expense (income) (66,858) 217,191 (161,169) (452,494)
Exploration and evaluation impairment
(Note 2) - - - 322,752
Development and producing impairment
(Note 3) 17,451,220 - 17,451,220 -
Loss on disposal of assets - 8,710,713 (509,445) 8,710,713
Realized loss on risk management
contracts (Note 9) (2,673,112) 101,453 (7,170,459) 521,066
Unrealized loss (gain) on risk
management contracts (Note 9) (747,101) (1,153,996) 3,779,014 (25,664)
--------------- -------------- -------------- -------------
19,787,760 14,988,527 30,681,611 28,083,624
--------------- -------------- -------------- -------------
Net loss and comprehensive loss $(17,791,270) $(7,743,772) $(22,375,832) $(9,961,135)
--------------- -------------- -------------- -------------
Attributable to:
Owners of the Company (16,119,712) (6,958,204) (20,127,468) (8,907,341)
Non-controlling interests (1,671,558) (785,568) (2,248,364) (1,053,794)
--------------- -------------- -------------- -------------
$(174,791,270) $(7,743,772) $(22,375,832) $(9,961,135)
--------------- -------------- -------------- -------------
Net loss per share
- basic and diluted ($) (0.07) (0.04) (0.09) (0.05)
--------------- -------------- -------------- -------------
Weighted average shares outstanding
- basic and diluted (1) 247,072,290 214,210,273 242,082,533 207,564,037
--------------- -------------- -------------- -------------
(1) The options and warrants have been excluded from the diluted
loss per share computation as they are anti-dilutive
See accompanying notes to the condensed consolidated financial
statements
Caza Oil & Gas, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited) (In United States Dollars)
For the nine month periods ended September 2015 2014
30,
-------------------------------------------------- -------------- -------------
OPERATING
Net loss $(22,375,832) $(9,961,135)
Adjustments for items not affecting cash:
Depletion and depreciation 4,972,897 5,800,461
Unwinding of the discount (Note 4) 27,136 26,542
Share-based compensation 125,506 371,290
Non-cash financing costs 1,245,787 1,460,699
Unrealized currency gain 12,768 13,917
Unrealized loss (gain) on risk management
contracts 3,779,014 (25,664)
Exploration and evaluation impairment - 322,752
Impairment of petroleum and natural gas
properties 17,451,220 -
(Gain)/Loss on disposal of assets (509,445) 8,710,713
Interest income (403) (179)
Changes in derivative liabilities and
other (210,738) (864,522)
Changes in non-cash working capital (Note
7(a)) 2,951,861 (6,345,906)
-------------- -------------
Cash flows from / (used in) operating
activities 7,469,771 (491,032)
-------------- -------------
FINANCING
Proceeds from issuance of shares - 9,368,418
Proceeds from the issuance of notes payable
and warrants (Note 12) 4,000,000 10,000,000
Note principal payments (98,416) (1,505,149)
Finance costs paid (Notes 12 and 13) (49,759) (740,000)
Interest received 403 179
Changes in non-cash working capital (Note
7(a)) 150,196 (229,903)
-------------- -------------
(MORE TO FOLLOW) Dow Jones Newswires
November 13, 2015 02:00 ET (07:00 GMT)
Cash flow from financing activities 4,002,424 16,893,545
-------------- -------------
INVESTING
Exploration and evaluation expenditures
(Note 2) (1,845,021) (28,804,776)
Development and production expenditures
(Note 3) (719,502) (311,015)
Purchase of office furniture and equipment
(Note 3) - (47,942)
Proceeds from sale of assets 478,274 1,555,000
Changes in non-cash working capital (Note
7(a)) (12,739,551) 117,100
-------------- -------------
Cash flows used in investing activities (14,825,800) (27,491,633)
-------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,353,605) (11,089,120)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 5,160,943 18,495,086
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,807,338 $7,405,966
-------------- -------------
See accompanying notes to the condensed consolidated financial
statements
Caza Oil & Gas, Inc.
Condensed Consolidated Statements of Changes in Equity
(In United States Dollars)
For the nine month periods ended September 2015 2014
30,
--------------------------------------------------- ----------------- -------------------
Share Capital
Balance, beginning of period $90,326,588 $77,967,487
Common shares issued 637,666 12,359,101
Balance, end of period 90,964,254 90,326,588
----------------- -------------------
Warrants
Balance, beginning of period 156,365 156,365
Issued - -
Balance, end of period 156,365 156,365
Share based compensation reserve
Balance, beginning of period 11,091,817 10,480,968
Share-based compensation 83,697 371,290
Balance, end of period 11,175,515 10,852,258
----------------- -------------------
Deficit
Balance, beginning of period (67,061,796) (60,759,064)
Net loss allocated to the owners of the
Company (20,127,468) (8,907,341)
----------------- -------------------
Balance, end of period (87,189,264) (69,666,405)
----------------- -------------------
Non-Controlling Interests
Balance, beginning of period (3,165,579) (2,403,833)
Net loss allocated to non-controlling interests (2,248,364) (1,053,794)
Balance, end of period (5,413,943) (3,457,627)
----------------- -------------------
Total Equity $9,692,927 $28,211,179
----------------- -------------------
See accompanying notes to the condensed
consolidated financial statements
1. Basis of Presentation and Going Concern Discussion
Caza Oil & Gas, Inc. ("Caza" or the "Company") was
incorporated under the laws of British Columbia on June 9, 2006 for
the purposes of acquiring shares of Caza Petroleum, Inc. ("Caza
Petroleum"). The Company and its subsidiaries are engaged in the
exploration for and the development, production and acquisition of,
petroleum and natural gas reserves. The Company's common shares are
listed for trading on the Toronto Stock Exchange trading as the
symbol "CAZ" and AIM stock exchange "AIM" as the symbol "CAZA". The
corporate headquarters of the Company is located at 10077 Grogan's
Mill Road, Suite 200, The Woodlands, Texas 77380 and the registered
office of the Company is located at Suite 2300, 550 Burrard Street
Vancouver, British Columbia, V6C 2B5.
The condensed consolidated financial statements (the "Financial
Statements") were prepared in accordance with IAS 34 - Interim
Financial Reporting using accounting policies consistent with
International Financial Reporting Standards ("IFRS"). Caza's
presentation currency is the United States ("U.S.") dollar as the
majority of its transactions are denominated in this currency.
These Financial Statements should be read in conjunction with
the Company's audited annual consolidated financial statements as
at and for the year ended December 31, 2014, which outline the
Company's significant accounting policies in Note 2 thereto, as
well as the Company's critical accounting judgments and key sources
of estimation uncertainty, which have been applied consistently in
these Financial Statements. The note disclosure requirements of
annual consolidated financial statements provide additional
disclosures to that required for the Financial Statements.
These condensed consolidated financial statements were approved
for issuance by the Board of Directors on November 10, 2015.
For the nine month period ended September 30, 2015 the Company
incurred a net loss of $22,375,832 (year ended December 31, 2014 -
net loss of $7,064,478). The Company also had a net working capital
deficit of $42,405,990 (December 31, 2014 - $44,306,975) and
accumulated deficit of $87,189,264 (December 31, 2014 -
$67,061,796). These factors result in a material uncertainty which
casts significant doubt upon the Company's ability to continue as a
going concern.
Please see Note 11 for a discussion on the Company's covenants.
Due to current economic conditions and prices, compliance of
financial covenants is highly dependent on realized oil pricing in
2015. The Company is currently not in compliance with all financial
covenants and sustained low WTI prices could cause the Company to
not be in compliance with all financial covenants through 2015. The
Company is proactive in managing debt levels and seeking out other
financing alternatives to be able to be in compliance with its
financial covenants. Please see note 14 for additional
information.
These financial statements have been prepared on a going concern
basis, under which the Company is assumed to be able to realize its
assets and discharge its liabilities in the normal course of
operations. The Company's ability to continue as a going concern is
dependent upon its ability to raise capital, restructure its debt,
maintain positive cash flow and/or the continued support of its
lenders. There is no certainty that such events will occur and that
sources of financing will be obtained on terms acceptable to
management. These material uncertainties cast significant doubt
about the Company's ability to continue as a going concern.
These consolidated financial statements do not reflect
adjustments that would be necessary if the going concern
assumptions were not appropriate. If the going concern basis was
not appropriate for these consolidated financial statements, then
adjustments would be necessary in the carrying value of property
and equipment, liabilities, the reported expenses, and the
classifications used in the statement of financial position. Such
adjustments could be material.
2. Exploration and evaluation assets
September 30, December 31, 2014
2015
----------------------------------------------------------------- ---- -------------- ------------------
Balance, beginning of period $6,247,564 $7,843,846
Additions to exploration and evaluation assets 1,845,021 38,773,781
Transfers to petroleum and natural gas properties and equipment (901,443) (39,198,678)
Other adjustments (4,169) -
Disposals - (125,510)
Impairment - (1,045,875)
Balance, end of period $7,186,973 $6,247,564
----------------------------------------------------------------------- -------------- ------------------
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During the period ended December 31, 2014, the Company impaired
expired leases in the amount of $1,045,875 relating to expiring
leasehold in Southern Louisiana and East Texas and the plugging of
the CML 35 State 3H non-operated well located in New Mexico.
3. Petroleum and natural gas properties and equipment
Development & Production ("D&P")
Cost Assets Corporate Assets Total
-------------------------------------- -------------------------------------- --------------------- -------------
Balance, December 31, 2013 $73,541,238 $830,076 $74,371,314
Additions 2,817,135 48,558 2,865,693
Disposal of assets (29,428,930) - (29,428,930)
Transfers from E&E 39,198,678 - 39,198,678
-------------------------------------- -------------------------------------- --------------------- -------------
Balance, December 31, 2014 86,128,121 878,634 87,006,755
Additions 719,502 - 719,502
Disposal of assets (5,027,801) - (5,027,801)
Other adjustments (68,641) - (68,641)
Transfers from E&E 901,443 - 901,443
Balance, September 30, 2015 $82,652,624 $878,634 $83,531,258
-------------------------------------- -------------------------------------- --------------------- -------------
Accumulated Depletion, Depreciation
and Impairment D&P Assets Corporate Assets Total
-------------------------------------- -------------------------------------- --------------------- -------------
Balance, December 31, 2013 $26,940,071 $813,127 $27,753,198
Depletion and depreciation 7,523,843 13,572 7,537,415
Disposal of assets (19,198,819) - (19,198,819)
Balance, September 30, 2015 $15,265,095 $826,699 $16,091,794
Depletion and depreciation 4,965,456 7,441 4,972,897
Disposal of assets (4,875,174) - (4,875,174)
Impairment 17,451,221 - 17,451,221
Balance, September 30, 2015 $32,806,598 $834,140 $33,640,738
-------------------------------------- -------------------------------------- --------------------- -------------
Carrying amounts
At December 31, 2014 $70,863,026 $51,935 $70,914,961
At September 30, 2015 $49,846,026 $44,494 $49,890,520
The Company reviewed each CGU comprising its property and
equipment at September 30, 2015 for indicators of impairment and
recorded a $17,451,220 impairment loss associated with the New
Mexico CGU due to declining commodity prices. Further declines to
commodity prices could result in additional impairment charges in
the future.
4. Decommissioning Liabilities
The following is the continuity schedule of the obligation
associated with the retirement of oil and gas properties for the
nine month period ended September 30, 2015 and year ended December
31, 2014:
2015 2014
--------------------------------------- ----------- -----------
Decommissioning liabilities, beginning
of period $1,603,655 $972,634
Obligations incurred 12,479 501,676
Revision in estimated cash flows
and discount rate (199,152) 365,625
Obligations settled and disposed (69,932) (272,475)
Unwinding of the discount 27,136 36,195
----------------------------------------- ----------- -----------
Decommissioning liabilities, end
of period $1,374,186 $1,603,655
Current portion - 95,500
----------------------------------------- ----------- -----------
Long-term decommissioning liabilities $1,374,186 $1,508,155
----------------------------------------- ----------- -----------
The undiscounted amount of cash flows, required over the
estimated reserve life of the underlying assets, to settle the
obligation, adjusted for inflation, is estimated at $2,943,918
(December 31, 2014 - $3,254,986). The September 30, 2015 obligation
was calculated using a risk free discount rate of 2.5 percent
(December 31, 2014 - 2.5%) and an inflation rate of 3 percent (2014
- 3%). The Company expects these obligations to be settled in
approximately 1 to 41 years.
5. Share Capital and Warrants
(a) Authorized
Unlimited number of voting common shares.
(b) Issued
September 30, 2015 December 31, 2014
Number $ Number $
--------------------------- ----------- ----------- ----------- -----------
Opening balance common
shares 236,355,884 $90,326,588 182,965,097 $77,967,487
Stock issuances 19,217,076 637,666 53,390,787 12,359,101
Exercise of stock options - - - -
Balance, end of period 255,572,960 90,964,254 236,355,884 $90,326,588
--------------------------- ----------- ----------- ----------- -----------
Opening balance warrants 3,584,557 $156,365 3,584,557 156,365
Common share warrants
issued - - - -
--------------------------- ----------- ----------- ----------- -----------
1,055,224 warrants are exercisable at $0.33 and expire on
November 23, 2015 and 2,529,333 warrants are exercisable at $0.17
and expire on November 1, 2016.
(c) Stock options
A summary of the Company's stock option plan as the nine month
period ended September 30, 2015 and year end December 31, 2014
presented below:
September 30, 2015 December 31, 2014
----------------------- -----------------------
Weighted Weighted
average average
Number of Exercise Number of exercise
Stock Options options price options price
---------------------------- ----------- ---------- ----------- ----------
Beginning of period 16,385,000 $0.28 15,985,000 $0.28
Granted - - 500,000 $0.22
Exercised - - - -
Forfeited 1,170,000 $0.28 100,000 $0.28
---------------------------- ----------- ---------- ----------- ----------
End of period 15,215,000 $0.28 16,385,000 $0.28
---------------------------- ----------- ---------- ----------- ----------
Exercisable, end of period 13,124,996 $0.28 14,071,661 $0.29
---------------------------- ----------- ---------- ----------- ----------
(d) Long term incentive plan
The Company's 2014-2016 Inventive Performance Program consists
of three measurement periods of one, two and three years ending at
each of the respective years 2014 through 2016. Performance awards
are payable after the end of each year, based on a specified
percentage of each participant's salary determined by the amount of
the total shareholder return of the Company during each measurement
period compared to the total shareholder return of 10 companies
designated in a peer group. Subject to the discretion of the Board
of Directors, performance awards are payable one-half in cash and
one-half in common shares. Compensation expense resulting from the
Performance Program will be accrued over the term of the
program.
The Board of Directors has reserved for issuance an aggregate of
4,289,608 common shares in connection with outstanding performance
awards during the three-year performance program, based on the
Company's attaining the midpoint of the payout performance range.
On March 19, 2015 the Board of Directors approved the issuance of
2,051,308 common shares for the 2014 period under the performance
program. The Company has previously recorded an expense of $201,849
to contributed surplus for these shares issued in the second
quarter of 2015.
6. Commitments and Contingencies
As of September 30, 2015 the Company is committed under
operating leases for its offices in the following aggregate minimum
lease payments which are shown below as operating commitments:
2015 $81,816
2016 $145,646
2017 $125,230
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The Company is required under the Apollo Note Agreement to
convey a proportionately reducible 2% overriding royalty interest
in each lease acquired by Caza using the proceeds advanced under
this agreement. These amounts are not payable until such a time
that these leases produce petroleum and natural gas revenues.
7. Supplementary Information
(a) Net change in non-cash working capital
Nine months ended
September 30,
2015 2014
------------------------------ ------------- -------------
Provided by (used in)
Accounts receivable $5,699,537 $(6,345,771)
Prepaid and other 166,885 (255,448)
Accounts payable and accrued
liabilities (15,503,916) 142,510
------------- -------------
$(9,937,494) $(6,458,709)
------------- -------------
Summary of changes
Operating $2,951,861 $(6,345,906)
Investing 150,196 (229,903)
Financing (12,739,551) 117,100
------------- -------------
$(9,637,494) $(6,458,709)
------------- -------------
(b) Supplementary cash flow information
Nine months ended
September 30,
2015 2014
------------------- ----------- -----------
Interest paid $4,050,000 $3,590,000
Interest received 403 179
----------- -----------
(c) Cash and cash equivalents
September 30, December 31,
2015 2014
--------------------------- ---- ---------------------- ----------------------
Cash on deposit $1,737,749 $5,091,380
Money market instruments 69,589 69,563
---------------------- ----------------------
Cash and cash equivalents $1,807,338 $5,160,943
---------------------- ----------------------
The money market instruments bear interest at a rate of 0.08% as
at September 30, 2015 (December 31, 2014 -
0.010%).
8. Capital Risk Management
The Company's objectives when managing capital is to safeguard
the entity's ability to continue as a going concern, so that it can
continue to provide returns for shareholders and benefits for other
stakeholders. The Company defines capital as shareholders' equity,
working capital (excluding current portion of decommissioning
liabilities), credit facilities and notes payable when available.
The Company manages the capital structure in light of changes in
economic conditions and the risk characteristics of the underlying
assets. The Company's objective is met by retaining adequate equity
and working capital to provide for the possibility that cash flows
from assets will not be sufficient to meet future cash flow
requirements.
September December
30, 31, 2014
2015
----------------------------------------- --- --- ------------- -------------
Cash and cash equivalents $(1,807,338) $(5,160,943)
Other current assets (4,984,070) (8,610,924)
Accounts payable and accrued liabilities
and short term note payable 49,074,244 63,722,604
Adjusted working capital $42,282,836 $49,950,737
Note payable -long term 3,604,390 -
Shareholders' equity 9,692,927 31,347,395
--------------------------------------------------- ------------- -------------
Total capital $ 55,580,153 $81,298,132
--------------------------------------------------- ------------- -------------
The Company has evaluated its net working capital balance as at
September 30, 2015 and December 31, 2014. Due to long lead times on
several of the Company's exploration and development projects, from
time to time the Company secures capital to fund its investments in
petroleum and natural gas exploration projects in advance. At
December 31, 2014 the notes payable balance was reclassified to
current which created a negative working capital balance. On
February 18, 2015 the Company issued $4,000,000 under an unsecured
convertible note. During 2014, the Company issued additional notes
payable of $10.0 million. As exploration and development projects
progress the Company expects the net working capital balance may
decrease from current levels, and additional capital may be
required to fund additional projects. If the Company is
unsuccessful in raising additional capital, the Company may have to
sell or farm out certain properties. If the Company cannot sell or
farm out certain properties, it will be unable to participate with
joint interest partners and may forfeit rights to some of its
properties.
The Company prepares annual budgets, which are updated as
necessary depending on varying factors, including current and
forecast commodity prices, changes in capital structure, execution
of the Company's business plan and general industry conditions.
9. Financial Instruments
The Company holds various forms of financial instruments. The
nature of these instruments and the Company's operations expose the
Company to commodity price, credit, and foreign exchange risks. The
Company manages its exposure to these risks by operating in a
manner that minimizes its exposure to the extent practical. Except
as noted below there have been no changes in the Company's risks,
or the objectives, policies and processes to manage these
risks.
(a) Commodity Price Risk
The Company is subject to commodity price risk for the sale of
oil and natural gas. The Company may enter into contracts for risk
management purposes only, in order to protect a portion of its
future cash flow from the volatility of oil and natural gas
commodity prices. The Company has entered into swap contracts to
limit exposure to declining crude oil prices. Under these swaps,
the Company receives or pays monthly a cash settlement on the
covered production of the difference between the swap price and the
month average of the daily closing quoted spot price per barrel of
West Texas Intermediate NYMEX crude oil. The fair value of the
Company's commodity price derivative contracts represents the
estimated amount that would be received for settling the
outstanding contracts on September 30, 2015, and will be different
than what will eventually be realized. The fair value of these
assets at a particular point in time is affected by underlying
commodity prices, expected commodity price volatility and the
duration of the contract and is determined by the expected future
settlements of the underlying commodity. The gain or loss on such
contracts is made up of two components; the realized component,
which reflects actual settlements that occurred during the period,
and the unrealized component, which represents the change in the
fair value of the contracts during the period. For the three and
nine months ended September 30, 2015 the Company recognized a
realized gain of $2,673,112 and $7,170,459 (2014 - $101,453 and
$521,065 loss, respectively) on its settled commodity price
derivative contracts. For the three and nine months ended September
30, 2015 the Company recorded an unrealized gain of $747,101 and
$3,779,014 loss (2014 - $1,153,996 and $25,664 gain, respectively)
on unsettled commodity price derivative contracts due to higher
commodity prices during the third quarter and the monetization of
the 2016 and 2017 oil and gas hedging contracts. The fair value of
these contracts at September 30, 2015 was $2,252,336 (December 31,
2014 $6,031,350).
The following information presents all outstanding positions by
year for commodity financial instruments contracts.
Total
Term Product Type Volume $ Price
-------------------- -------------- ------ -------------- --------
2015
January - December Oil Swap 28,411 bbls 87.05
January - December Oil Swap 15,069 bbls 83.70
January - December Oil Swap 26,639 bbls 89.34
January - December Oil Swap 82,062 bbls 80.85
March - October Oil Swap 13,277 bbls 52.50
January - December Gas Swap 271,322 Mcfs 3.72
January - December Differential Swap 143,912 bbls -4.05
2016
January-December Differential Swap 55,906 bbls -4.25
2017
January-December Differential Swap 43,896 bbls -4.25
--------------------- -------------- ------ ------------- --------
(b) Credit Risk
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Credit risk arises when a failure by counter parties to
discharge their obligations could reduce the amount of future cash
inflows from financial assets on hand at the consolidated statement
of financial position date. A majority of the Company's financial
assets at the consolidated statement of financial position date
arise from natural gas liquids and natural gas sales and the
Company's accounts receivable that are with these customers and
joint venture participants in the oil & natural gas industry.
Industry standard dictates that commodity sales are settled on the
25th day of the month following the month of production. The
Company's natural gas and condensate production is sold to large
marketing companies. Typically, the Company's maximum credit
exposure to customers is revenue from two months of sales. During
the nine months ended September 30, 2015, the Company sold 55%
(2014 - 62%) of its natural gas and condensates to a single
purchaser. These sales were conducted on transaction terms that are
typical for the sale of natural gas and condensates in the United
States. In addition, when joint operations are conducted on behalf
of a joint interest partner relating to capital expenditures, costs
of such operations are paid for in advance to the Company by way of
a cash call to the partner of the operation being conducted.
Caza management assesses quarterly whether there should be any
impairment of the financial assets of the Company. At September 30,
2015, the Company had past due accounts receivable from certain
joint interest partners of $29,427 which were outstanding for
greater than 60 days (December 31, 2014 - $340,342) and $24,749
that were outstanding for greater than 90 days (December 31, 2014 -
$481,887). At September 30, 2015, the Company's three largest joint
interest partners represented approximately 8%, 5% and 2% of the
Company's receivable balance (December 31, 2014 - 29%, 14% and 4%
respectively). The maximum exposure to credit risk is represented
by the carrying amount on the consolidated statement of financial
position of cash and cash equivalents, accounts receivable and
deposits.
Trade receivables disclosed above include amounts that are past
due at the end of the reporting period for which the Group has not
recognized an allowance for doubtful debts because there has not
been a significant change in credit quality and the amounts (which
include interest accrued after the receivable is more than 60 days
outstanding) are still considered recoverable. The Company manages
exposure on cash balances by holding cash with large and reputable
financial institutions. The Company also assesses the credit
worthiness of each counterparty before entering into contracts and
ensures the counterparties meet minimum credit quality
requirements.
10. Equity Facility
The Company entered into an Equity Adjustment Agreement (the
"Adjustment Agreement") on March 5, 2013 with Global Master SPV
Ltd., an investment fund managed by Yorkville Advisors Global, LP
("Yorkville") in conjunction with its SEDA Agreement dated November
23, 2012 with Yorkville. Pursuant to the Adjustment Agreement,
during the three months ended March 31, 2013, the Company issued
3,846,154 common shares to Yorkville at a price of GBP0.13 per
share for aggregate proceeds of GBP500,000 (US$756,451).
Under the terms of the Adjustment Agreement, if on December 31
2014 and now extended until March 31, 2016 and April 30, 2016
settling one half in each period, the common share market price
(determined as 95% of the average daily volume weighted average
price of common shares (VWAP) during the preceding 22 trading days)
is greater than GBP0.13, then Yorkville will pay to the Company the
difference multiplied by the number of New Common Shares, and if
the market price is less than GBP0.13 then the Company will pay to
Yorkville the difference multiplied by the number of New Common
Shares. This derivative liability is classified as a financial
instrument measured at fair value though profit or loss. The fair
value of the derivative liability amounted to US$123,154 as of
September 30, 2015 (December 31, 2014 - US$292,088 liability) has
been included within current liabilities on the condensed
consolidated statement of financial position, and the change in
fair value of US$(168,934) since December 31, 2014 is included in
other income (expenses) in the condensed consolidated statement of
net loss and comprehensive loss. The Company has deposited in
escrow GBP275,000 (US$ - $415,846) as security for this contingent
payment obligation, which has been recorded within restricted cash
on the condensed consolidated statements of financial position.
11. Notes Payable - Apollo
The Company also entered into a Note Purchase Agreement ( the
"Note Agreement") dated May 23, 2013 with Apollo Investment
Corporation ("the Note Holder"), an investment fund managed by
Apollo Investment Management, pursuant to which the Note Holder has
agreed to purchase from the Company up to US$50,000,000 of its
senior secured notes. The Company received US$20,000,000 at the
closing of the Note Agreement ("Tranche A Apollo Note") with an
additional drawdown of US$5,000,000, US$10,000,000 and
US$10,000,000 on September 11, 2013, December 19, 2013 and May 19,
2014, respectively. In addition to these funds, the Company will
have the ability to reinvest cash flow from program wells back into
the drilling program.
The outstanding balance of the Tranche A Apollo Note as at
September 30, 2015 was US$43,221,927 (December 31, 2014 -
US$42,366,370) (net of unamortized transaction costs US$1,778,073
(December 31, 2014 - US$2,633,629). This outstanding balance
matures on May 23, 2017. The Tranche A Apollo Note bears interest
at a floating rate of one-month LIBOR (with a floor of 2%) plus 10%
per annum, payable monthly. In an event of default under the Note
Purchase Agreement, additional interest will be payable at a
default rate of 5% per annum, but only during the period of
default.
The Company is required to comply with financial covenants,
which are tested quarterly, providing for specified interest
coverage ratios beginning in the quarter ending September 30, 2013,
and asset coverage ratios and minimum production, beginning in the
quarter ending March 31, 2014. Furthermore, the Company is required
to maintain a limit on expenditures for general and administrative
costs. At September 30, 2015 and December 31, 2014, the Company was
not fully in compliance with its financial covenants. In February
2015, the Company and Apollo executed a Third Amendment to the Note
Purchase Agreement that provides a waiver of the financial
covenants until September 30, 2015. As a result the Company has
reclassified the outstanding balance owing as a current liability
at September 30, 2015 and December 31, 2014.
12. Convertible Unsecured Loan - Yorkville
On February 18, 2015 the Company entered into an agreement in
relation to a $4.0 million convertible unsecured loan (the "Loan")
to be made available by YA Global Master SPV Ltd., an investment
fund managed by Yorkville and Global Market Neutral Strategies
SICAV P.L.C. (collectively, the "Investors"). The outstanding
balance of the convertible note at September 30, 2015 was
US$3,604,390 ( net of unamortized transaction costs of $297,194).
The outstanding principal of the Facility is convertible at the
Investors' option into Common Shares of the Company. The conversion
price, which will be determined at the date of each conversion,
will be a price per Common Share equal to either (a) 92.5% of the
volume weighted average of the volume weighted average prices
("VWAP") of the Common Shares during the 10 trading days on AIM
prior to the conversion (such conversion being restricted to a
maximum of US$1,000,000 per month) or (b) at Investors' option, a
fixed price of GBP0.12 (such conversion being subject to no maximum
amount). The Facility bears interest on outstanding principal at 8%
per annum, which interest is payable at the time of each conversion
only in Common Shares based on a conversion price equal to 92.5% of
the volume weighted average price of the VWAP of the Common Shares
during the 10 trading days on AIM prior to the interest payment
date. The Facility will mature in two years, which may be extended
up to one year by principal balance of the Facility will convert
into Common Shares at a conversion price equal to the closing price
of the Common Shares on the preceding trading day.
Issuances of Common Shares under the Facility will be delayed in
certain circumstances if the issuance would result in an investor
beneficially owning or controlling more than 9.99% of the
outstanding Common Shares.
The Facility may be prepaid in cash in whole or in part by Caza
at any time without penalty if the closing price on AIM of the
Common Shares is below GBP0.12. If the closing price is greater
than GBP0.12, Caza may prepay all or part of the outstanding
principal amount of the Facility in cash by paying 110% of the
principal amount repaid.
The Facility agreement provides for customary events of default.
Upon a declaration of an event of default, the outstanding
principal balance of the Facility and accrued interest will
generally convert into Common Shares at a conversion price equal to
80% of the average closing price of the Common Shares on the five
preceding trading days, although the Facility may become
immediately due and payable in certain circumstances.
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In connection with the Facility, the Investors received an
aggregate implementation and reimbursement fee of US$378,154. The
fee was paid through the issuance of 4,752,091 Common Shares on the
same basis as shares issued upon conversions of principal and
accrued interest.
13. Financing costs
Nine months ended September
30, 2015 2015 2014
----------------------------------- ----------- -----------
Unwinding of the discount (Note
4) $27,136 $26,541
Amortization of financing fees 986,275 1,303,132
Interest expense 4,683,650 3,710,699
----------------------------------- ----------- -----------
Total financing costs $5,697,061 $5,040,372
----------------------------------- ----------- -----------
14. Subsequent event
The Company's objective is to conclude a financing or a complete
refinancing structure that might enable the Company to retire the
Apollo facility, together with sums owed pursuant to the
Convertible Loan Agreement entered into between Caza and YA Global
Master SPV Ltd. ("Yorkville"), an investment fund managed by
Yorkville Advisors Global, LP, and also provide sufficient
additional capital to continue developing its Bone Spring assets.
Accordingly, the Company and its advisers have been actively
considering all available debt and equity financing options, as
well as asset sales. The Company is in advanced discussions with a
third party regarding a potential equity financing of the Company
(and in connection with such discussions, the Company has agreed to
a short period of exclusivity with such counterparty) (the
"Potential Transaction"). The proposed terms of the Potential
Transaction are subject to, among other things, continued
negotiation, a due diligence period, board approval, and the entry
of the parties into definitive agreements. If the Potential
Transaction is consummated, it is likely to take the form of an
equity investment in the Company which, given the current oil and
gas commodity pricing environment, is likely to subject the
Company's existing shareholders to significant dilution.
On September 30, 2015, the Company and Apollo executed a
Forbearance and Reservation of Rights Agreement, pursuant to which
Apollo agreed, subject to certain customary limitations and
conditions, to forbear from exercising certain of its rights and
remedies under the Note Agreement with respect to the Company's
breach of certain financial and other covenants until October 31,
2015, subject to earlier termination. On October 30, 2015, the
Company and Apollo executed an Amended and Restated Forbearance and
Reservation of Rights Agreement which replaced the Forbearance
Agreement in its entirety, and pursuant to which Apollo agreed,
subject to certain customary limitations and conditions, to forbear
from exercising certain of its rights and remedies under the Note
Agreement with respect to the Company's breach of certain financial
and other covenants until November 30, 2015, subject to earlier
termination. The Amended Forbearance Agreement provides that if
Apollo determines in its sole discretion that the Company and its
operating subsidiary are not diligently pursuing a transaction
substantially similar to the Potential Transaction during the
forbearance period, Apollo may, by three days' advance written
notice, shorten the forbearance period so that it ends on the
latter of November 15, 2015, or the third day after such notice is
delivered.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis ("MD&A")
of the financial results for Caza Oil & Gas, Inc. ("Caza",
"Corporation" or the "Company") should be read in conjunction with
the unaudited condensed consolidated financial statements as at and
for the three and nine months ended September 30, 2015 and the
audited consolidated financial statements for the year ended
December 31, 2014. Additional information relating to the Company
can be found on SEDAR at www.sedar.com. All figures herein have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") unless otherwise stated. This MD&A is dated
November 10, 2015.
FORWARD LOOKING INFORMATION
In addition to historical information, the MD&A contains
forward-looking statements that are generally identifiable as any
statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future
events of performance (often, but not always, through the use of
words or phrases such as "will", "may", "will likely result,"
"expected," "is anticipated," "believes," "estimated," "intends,"
"plans," "projection" and "outlook"), are not historical facts and
may be forward-looking and may involve estimates, assumptions and
uncertainties which could cause actual results or outcomes to
differ materially from those expressed in such forward-looking
statements.
These statements are based on certain factors and assumptions
regarding the results of operations, the performance of projected
activities and business opportunities. Specifically, we have used
historical knowledge and current industry trends to project
budgeted expenditures for 2015 and have made certain assumptions
about the Company's ability to continue as a going concern and to
complete a financing or other strategic transaction on suitable
terms. While we consider these assumptions to be reasonable based
on information currently available to us, they may prove to be
incorrect.
Actual results achieved will vary from the information provided
herein as a result of numerous known and unknown risks and
uncertainties and other factors. Such factors include, but are not
limited to: risks associated with the Company's ability to continue
as a going concern; the Company's ability to complete a strategic
transaction; volatility of crude oil and natural gas prices and
markets; Company's stage of development; competitive conditions;
share price volatility; risks associated with crude oil and natural
gas exploration and development; risks related to the inherent
uncertainty of reserves and resources estimates; possible
imperfections in title to properties; environmental regulation and
associated risks; loss of key personnel; operating and insurance
risks; the inability to add reserves; risks associated with
industry conditions; the ability to obtain additional financing on
acceptable terms if at all; non operator activities; the inability
of investors in certain jurisdictions to bring actions to enforce
judgments; equipment unavailability; potential conflicts of
interest; risks related to operations through subsidiaries; risks
related to foreign operations; currency exchange rate risks and
other factors, many of which are beyond the control of the Company.
Accordingly, there is no representation by Caza that actual results
achieved will be the same as those set forth herein. Actual results
may vary, perhaps materially. Further, Caza undertakes no
obligation to update or revise any forward-looking statement or
statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of
unanticipated events, except as required by applicable securities
laws.
Financial outlook information contained in this MD&A, if
any, about prospective results of operations, financial position or
cash flows is based on assumptions about future events, including
economic conditions and proposed courses of action, based on
management's assessment of the relevant information currently
available. Readers are cautioned that such financial outlook
information contained in this MD&A should not be used for
purposes other than for which it is disclosed herein.
NON-IFRS MEASURES
The financial data presented herein has been prepared in
accordance with IFRS. The Company has also used certain measures of
financial reporting that are commonly used as benchmarks within the
oil and natural gas production industry in the following MD&A
discussion. The measures are widely accepted measures of
performance and value within the industry, and are used by
investors and analysts to compare and evaluate oil and natural gas
exploration and producing entities. Most notably, these measures
include "operating netback", "funds flow from (used in) operations"
and "Adjusted EBITDA".
Operating netback is a benchmark used in the crude oil and
natural gas industry to measure the contribution of oil and natural
gas sales and is calculated by deducting royalties and operating
expenses (production, severance and transportation expenses ) from
revenues. Management utilizes this measure to analyze operating
performance.
Funds flow from (used in) operations is cash flow from operating
activities before changes in non-cash working capital and certain
other items, and is used to analyze operations, performance and
liquidity. The Company considers funds flow from (used in)
operations a key measure as it demonstrates the Company's ability
to generate the cash flow necessary to fund future growth through
capital investment and to repay debt. The Company's calculation of
funds flow from operations may not be comparable to that reported
by other companies.
The term Adjusted EBITDA consists of net income (loss) plus
interest, depreciation, depletion, amortization, accretion,
impairment and stock based compensation. Adjusted EBITDA is also
adjusted for any gains or losses from extraordinary, unusual or
non-recurring items and any gains or losses on disposition of
assets. The Company has included Adjusted EBITDA as a supplemental
disclosure because its management believes that Adjusted EBITDA
provides useful information regarding our ability to service debt
and to fund capital expenditures and provides investors a helpful
measure for comparing its operating performance with the
performance of other companies that have different financing and
capital structures or tax rates.
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These measures are not defined under IFRS and should not be
considered in isolation or as an alternative to conventional IFRS
measures. These measures and their underlying calculations are not
necessarily comparable or calculated in an identical manner to a
similarly titled measure of another entity. When these measures are
used, they are defined as "Non IFRS" and should be given careful
consideration by the reader as non-IFRS financial measures do not
have a standardized meaning prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by other
issuers.
NOTE REGARDING BOES AND MCFES
In this MD&A, barrels of oil equivalent ("boe") are derived
by converting gas to oil in the ratio of six thousand cubic feet
("Mcf") of gas to one barrel ("bbl") of oil (6 Mcf: 1 bbl) and one
thousand cubic feet of gas equivalent ("Mcfes") are derived by
converting oil to gas in the ratio of one bbl of oil to six Mcf (1
bbl: 6 Mcf). Boes and Mcfes may be misleading, particularly if used
in isolation. A boe conversion of 6 Mcf of natural gas to 1 bbl of
oil, or a Mcfe conversion ratio of 1 bbl of oil to 6 Mcf of natural
gas is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value
equivalency at the well head. Given that the value ratio based on
the current price of oil as compared to natural gas is
significantly different from the energy equivalency of 6:1,
utilizing a conversion on a 6:1 basis may be misleading as an
indication of value.
CURRENCY
References to "dollars" and "$" are to U.S. dollars. References
to "CDN$" are to Canadian dollars. References to "GBP" are to
British pounds.
STRATEGY AND ASSETS
Strategy
The Company's strategy is to achieve significant growth in
reserves and production through:
-- obtaining the financing required to implement its business
plan; progressing material, internally generated prospects,
utilizing cash flows from existing production and exploiting Proven
plus Probable reserves; and
-- executing strategic acquisitions of assets at all stages of
the development cycle to facilitate longer term organic growth.
In the implementation of this strategy, the Company has a clear
set of criteria in high-grading projects:
-- the Company seeks to retain control of project execution and
timing through the operatorship of assets;
-- assets should be close to existing established
infrastructure, allowing for quick, efficient hook-up and lower
operational execution risk;
-- drilling targets in close proximity to known producing reservoirs; and
-- internal models for core projects should demonstrate the
ability to deliver at least a 25% rate-of-return on investment.
Assets
The Company is primarily focused in the Permian Basin of
Southeast New Mexico and West Texas, the most prolific oil and gas
basin in North America. Independent forecasts have predicted that
the Permian Basin will have the greatest oil supply growth of any
North American basin over the next five years. This provides the
Company with low-risk, liquids-rich development opportunities from
many geologic reservoirs and play types. The basin also has a vast
operational infrastructure in place. The Company is utilizing
recent advances in horizontal drilling and dynamic completion
technologies to unlock the significant resources within its asset
base and the region.
Management has focused efforts on building a core asset base in
the prolific Bone Spring play and has concluded that these assets
represent the most significant opportunity for the Company to
deliver material production, revenue growth and demonstrable
shareholder returns within an acceptable timeframe. The Company
expects that expanding and diversifying the producing asset base
within the Bone Spring play will not only grow the Company but will
also make it more resilient to risks associated with any single
project.
As at September 30, 2015, the Company had 306 drilling locations
and 32 gross (10.20 net) producing wells on its leasehold position
in the Bone Spring play. The majority of the Company's leases in
the play are held-by-production with no drilling obligations.
Management believes that the Company is well-positioned with
excellent assets and approximately 5,400 net acres (13,260 gross
acres), which is approximately 24,300 net effective acres (59,670
gross effective acres) in the Bone Spring play, and plans to
continue actively monitoring opportunities to build on Caza's
current production levels and acreage position.
The Company's Bone Spring inventory includes the following 20
properties: Gramma Ridge, Gateway, Marathon Road, East Marathon
Road, Lennox, Forehand Ranch, Forehand Ranch South, Jazzmaster, Mad
River, Azotea Mesa, Bradley 29, Two Mesas, Quail Ridge, Rover, West
Rover, Copperline, West Copperline, Chaparral 33, China Draw,
Madera and Roja.
The Company's Bone Spring leases are mostly State and Federal
leases with primary terms between 5-10 years. In terms of
obligations and commitments, one producing well at any depth will
hold each lease in its entirety.
Financing
The Company's ability to continue as a going concern is
dependent upon its ability to raise capital, restructure its debt,
maintain positive cash flow and / or the continued support of its
lenders. There is no certainty that such events will occur and that
sources of financing will be obtained on terms acceptable to
management. These material uncertainties cast significant doubt
about the Company's ability to continue as a going concern.
Therefore, Caza's objective is to conclude a financing or a
complete refinancing structure that might enable the Company to
retire the Note Purchase Agreement (as defined herein), together
with sums owed pursuant to the Convertible Loan Agreement (as
defined herein). Accordingly, the Company and its advisers have
been actively considering all available debt and equity financing
options, as well as asset sales.
As announced on October 1, 2015, and November 2, 2015, the
Company is in advanced discussions with a third party regarding a
potential equity financing of the Company (the "Potential
Transaction") In connection with such discussions, the Company has
agreed to a short period of exclusivity with such counterparty. The
proposed terms of the Potential Transaction are subject to, among
other things, continued negotiation, a due diligence period, board
approval, and the entry of the parties into definitive agreements.
Given the number of conditions to the consummation of the Potential
Transaction, there can be no certainty that the Potential
Transaction will be concluded on acceptable terms. Furthermore,
although the Company has had the continued support of Apollo during
the course of these discussions, there can be no certainty that the
Potential Transaction will close or that Apollo will continue to
grant ongoing forbearance (see "Note Purchase Agreement" below for
additional details regarding Apollo's ongoing forbearance).
If the Potential Transaction is consummated, it is likely to
take the form of an equity investment in the Company which, given
the current oil and gas commodity pricing environment, is likely to
subject the Company's existing shareholders to significant
dilution.
See "Liquidity and Capital Resources" and "Risk Factors".
Outlook
In an effort to maintain shareholder value and to continue as a
going concern, the Company has been considering all available debt
and equity financing options, as well as asset sales, and is
actively pursuing the Potential Transaction, as described above. In
addition, the Company continues to scale back G&A costs and
capital expenditures associated with non-obligatory wells and to
direct capital towards lease maintenance wells in its Bone Spring
drilling program.
Subject to the availability of appropriate financing and
dependent upon drilling costs and prevailing commodity prices, the
Company's objective is to eventually accelerate and expand its
drilling program in the Bone Spring play over the next two years. A
program of this type will require additional financing and would
utilize excess operational cash flow to fund further development
drilling and lease purchases beyond the initial two year
period.
Management believes that, subject to a sufficient downward
correction to drilling costs and positive recovery to oil prices,
such a program can be accomplished by exploiting the Company's
existing asset/lease inventory. However, management will also seek
to identify appropriate corporate and asset acquisitions that may
result from the current price environment, which will enable the
Company to increase its position in the horizontal Bone Spring and
Wolfcamp plays in the Permian Basin. Accordingly, in line with the
Company's stated strategy, management's goal is to achieve
significant growth in the Company's reserves and production,
thereby raising the Company's profile in the basin and allowing
shareholder value to be maximized and, if appropriate, fully
matured over the short-to-medium term.
See "Liquidity and Capital Resources" and "Risk Factors".
(MORE TO FOLLOW) Dow Jones Newswires
November 13, 2015 02:00 ET (07:00 GMT)
SELECT QUARTERLY INFORMATION
Three month period ending September
30 2015 2014 2013
------------------------------------- ------------ ----------- -----------
Financial
Revenue oil & gas 1,996,350 7,244,752 2,583,753
Funds flow from (used in) operations
(1) 910,868 2,634,496 186,430
0.00
Per share - basic and diluted 0.00 0.01 ..00
Net loss (17,791,270) (7,743,772) (1,370,132)
Per share - basic and diluted (0.07) (0.04) (0.01)
Capital expenditures 195,794 5,865,917 11,351,767
Total assets 63,868,901 88,125,916 66,300,804
Total non-current liabilities 4,978,576 43,362,889 24,250,650
Cash and working capital (42,405,992) 3,840,298 5,488,240
Common shares outstanding, end
of period (2) 255,572,960 236,355,884 182,965,097
Operations
Operating netback ($/boe) (3)
Revenue oil & gas 36.52 65.09 70.81
Severance tax and transportation
expense (3.52) (5.72) (5.99)
Production expenses (13.69) (7.94) (12.87)
------------------------------------- ------------ ----------- -----------
Operating netback (3) 19.31 51.43 51.95
Average daily oil production
(boe/day) 594 1,210 397
------------------------------------- ------------ ----------- -----------
(1) Calculated based on cash flow from operating activities
before changes in non-cash working capital and certain other items.
See "Non IFRS Measures".
(2) Outstanding share amounts are calculated based on the number
of outstanding common shares before the addition of 26,502,000 of
common shares issuable pursuant to a share exchange and
shareholders agreement among Caza and members of Caza's senior
management.
(3) Calculated by deducting royalties and operating expenses
(production, severance and transportation expenses) from revenues.
See "Non-IFRS Measures".
Operating Netback Summary (Non-IFRS)
The following table presents the Company's operating netback
which is a non-IFRS measure:
Three Months ended Nine Months ended
September 30, September 30,
($/boe) 2015 2014 2015 2014
------------------------------ ----------- -------- -------- -----------------
Oil and natural gas revenue 36.52 65.09 40.54 $70.43
Production expense (13.69) (7.94) (11.28) (9.16)
Severance expense (3.39) (5.64) (3.34) (6.07)
Transportation expense (0.13) (0.08) (0.17) (0.16)
------------------------------ ----------- -------- -------- -----------------
Operating netback (non-IFRS) 19.31 51.43 25.75 55.04
(1) Calculated by deducting royalties and operating expenses
(production, severance and transportation expenses) from revenues.
See "Non IFRS Measures
FINANCIAL AND OPERATING RESULTS
Petroleum and Production Revenue
Three Months ended Nine Months ended
September 30, September 30,
2015 2014 2015 2014
-------------------------- ---------- ---------- ---------- -----------
Natural gas
Production (Mcf) 50,027 140,402 156,252 353,127
Revenue ($) 152,079 507,708 474,410 1,480,419
Price ($/Mcf) 3.04 3.62 3.04 4.19
-------------------------- ---------- ---------- ---------- -----------
Light/medium crude oil
Production (bbls) 46,258 77,876 167,188 181,910
Revenue ($/bbl) 1,840,818 6,466,793 7,679,161 16,147,477
Price ($/bbl) 39.79 83.04 45.93 88.77
-------------------------- ---------- ---------- ---------- -----------
Natural gas liquids
Production (bbls) 65 10,025 11,625 16,536
Revenue ($/bbl) 3,454 270,251 151,805 494,412
Price ($/bbl) 53.14 26.96 13.06 29.90
-------------------------- ---------- ---------- ---------- -----------
Combined
Production (boe) 54,661 111,300 204,855 257,300
Revenue ($) 1,996,350 7,244,752 8,305,376 18,122,308
Price ($/boe) 36.52 65.09 40.54 70.43
-------------------------- ---------- ---------- ---------- -----------
Boe/d 594 1,210 750 942
Mcfe/d 3,565 7,259 4,502 5,655
-------------------------- ---------- ---------- ---------- -----------
Revenues from oil and gas sales decreased by 72% to $1,996,350
for the three-month period ended September 30, 2015 compared to
$7,244,752 in 2014 and during the nine month period ended September
30, 2015 decreased 55% compared to 2014. The decreases during such
periods resulted from decreases in commodity prices and production
volumes in 2015.
Average daily production decreased by 51% to 594 boe/d for the
three months ended September 30, 2015 from 1,210 boe/d in the
comparative period in 2014. Natural gas liquids and crude oil
production made up 85% of Caza's production during the three-month
period ended September 30, 2015 with natural gas comprising the
remaining 15%. This is compared to a total production profile
comprised of 21% natural gas production in the comparative period
in 2014, reflecting a shift toward exploration and production of
oil based reserves.
Our future revenue and production volumes will be directly
affected by North American natural gas prices, West Texas
Intermediate crude oil prices and natural gas liquid prices, the
performance of existing wells, drilling success and the timing of
the tie-in of wells into gathering systems.
Production Expenses
Three Months ended Nine Months ended
September 30, September 30,
2015 2014 2015 2014
------------------------------- --------- ---------- ---------- ----------
Severance tax ($) 185,240 627,689 684,835 1,561,676
Transportation ($) 6,834 8,597 34,353 40,329
Production ($) 748,452 883,931 2,309,759 2,356,559
------------------------------- --------- ---------- ---------- ----------
Severance, transportation and
production ($) 940,526 1,520,217 3,028,947 3,958,564
Severance, transportation and
production ($/boe) 17.21 13.66 14.79 15.38
------------------------------- --------- ---------- ---------- ----------
Severance tax is a tax imposed by states on natural resources
such as crude oil, natural gas and condensate extracted from the
ground. The tax is calculated by applying a rate to the dollar
amount of production from the property or a set dollar amount
applied to the volumes produced from the property.
During the three-month period ended September 30, 2015, Caza
incurred aggregate production, transportation and severance
expenses of $940,526 or an average per boe of $17.21. Such expenses
on a per boe basis have increased during the three-month period
ended September 30, 2015 by 26% as compared to the same period in
2014 as a result of the costs incurred each period in relation to
the volumes produced during that period.
Severance taxes and transportation expenses totaled $192,075
($3.51/boe) for the three-month period ended September 30, 2015, as
compared to $636,286 ($5.72/boe) in the comparative period in 2014.
Severance taxes and the transportation expense decreased 70% as a
result of lower commodity prices as well as the decrease in
production volumes as compared to the comparative period.
Production expenses for the three-month period ended September
30, 2015 were $748,451 as compared to $883,931 for the comparative
period in 2014. Caza's average lifting cost for the three-month
period ended September 30, 2015 was $13.69 per boe versus $7.94 per
boe for the comparative period. These higher lifting costs on a per
boe basis occurred as a result of the lower production volumes
offset by lower production costs incurred during the period.
Depletion, Depreciation and Accretion
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November 13, 2015 02:00 ET (07:00 GMT)
Depletion, depreciation and accretion expense for the
three-month period ended September 30, 2015 decreased to $1,426,375
($26.09/boe) from $2,402,108 ($21.58/boe) in the comparative period
in 2014.
Three Months ended Nine Months ended
September 30, September 30,
2015 2014 2015 2014
----------------------------- ---------- ---------- ---------- ----------
Depletion and depreciation
($) 1,417,752 2,392,364 4,972,897 5,800,461
Accretion ($) 8,623 9,744 27,136 26,542
----------------------------- ---------- ---------- ---------- ----------
Depletion, depreciation and
accretion ($) 1,426,375 2,402,108 5,000,033 5,827,003
Depletion, depreciation and
accretion ($/boe) 26.09 21.58 24.41 22.65
----------------------------- ---------- ---------- ---------- ----------
The decreased depletion expense on a per boe basis for the three
months ended September 30, 2015 occurred as a result of the
relationship of the costs incurred in drilling activities carried
out in the New Mexico Cash Generating Unit in relation to the
associated reserves recorded. This brought about an aggregate 41%
decrease in depletion expense as compared to the comparative period
in 2014.
Costs of unproved properties of $7,186,973 (2014 - $10,728,178)
were excluded from depreciable costs in the exploration and
evaluation assets. A proportionate amount of the carrying value
will be transferred to the depletable pool as reserves are proven
through the execution of Caza's exploration program.
Accretion expense is the increase in the present value of the
asset retirement obligation for the current period and the amount
of this expense will increase commensurate with the asset
retirement obligation as new wells are drilled or acquired through
acquisitions.
General and Administrative Expenses
Three Months ended Nine Months ended
September 30, September 30,
2015 2014 2015 2014
-------------------------------- ---------- ---------- ---------- ----------
General and administrative
($) 1,258,617 1,368,100 3,665,465 4,378,326
General and administrative
recovery ($) (21,886) (63,987) (71,921) (170,473)
-------------------------------- ---------- ---------- ---------- ----------
Net general and administrative
($) 1,236,731 1,304,113 3,593,544 4,207,853
General and administrative
($/boe) 23.03 12.29 17.89 17.02
Net general and administrative
($/boe) 22.63 11.72 17.54 16.35
-------------------------------- ---------- ---------- ---------- ----------
Net general and administrative expenses for three-month period
ended September 30, 2015 decreased 5% to $1,236,731 from $1,304,113
for the comparative period in 2014. On a per boe basis the net
general and administrative expenses increased by 93% for the
respective three-month period ended September 30, 2015 due to the
decrease in production volumes offset by the decrease in general
and administrative expenses from the comparative period in 2014.
The Company is continuing to strive to find cost savings measures
in overhead expenditures that are reflected in the lower general
and administrative costs as compared to the same periods in 2014.
Share-based compensation expense in the amount of $37,450 (2014 -
$76,356) is included in general and administrative expenses for the
three-month period ended September 30, 2015. During 2015, Caza did
not capitalize general and administrative expenses relating to
exploration and development activities. Caza recorded no
forfeitures of stock options for the three-month period ended
September 30, 2015 (2014 - 66,666).
Gain (Loss) on Risk Management Contracts
The Company has entered into commodity price derivative
contracts to limit exposure to declining crude oil prices in
accordance with its covenants under the Note Purchase Agreement (as
defined herein). All derivative contracts are approved by
management before the Company enters into them. The Company's risk
management strategy is dictated in part by covenants in the Note
Purchase Agreement which require the Company to hedge approximately
75% of its production. The contracts limit exposure to declining
commodity prices, thereby protecting project economics and
providing increased stability of cash flows and for capital
expenditure programs.
Under these contracts, the Company receives or pays monthly a
cash settlement on the covered production of the difference between
the swap price specified in the applicable contract and the month
average of the daily closing quoted spot price per barrel of West
Texas Intermediate NYMEX crude oil.
The following information presents all outstanding positions by
year for commodity financial instruments contracts.
Total
Term Product Type Volume $ Price
-------------------- -------------- ------ -------------- --------
2015
January - December Oil Swap 28,411 bbls 87.05
January - December Oil Swap 15,069 bbls 83.70
January - December Oil Swap 26,639 bbls 89.34
January - December Oil Swap 82,062 bbls 80.85
March - October Oil Swap 13,277 bbls 52.50
January - December Gas Swap 271,322 Mcfs 3.72
January - December Differential Swap 143,912 bbls -4.05
2016
January - December Differential Swap 55,906 bbls -4.25
2017
January - December Differential Swap 43,896 bbls -4.25
--------------------- -------------- ------ ------------- --------
The fair value of the Company's commodity price derivative
contracts represents the estimated amount that would be received
for settling the outstanding contracts on September 30, 2015, and
will be different than what will eventually be realized. The fair
value of these assets at a particular point in time is affected by
underlying commodity prices, expected commodity price volatility
and the duration of the contract and is determined by the expected
future settlements of the underlying commodity. The gain or loss on
such contracts is made up of two components; the realized
component, which reflects actual settlements that occurred during
the period, and the unrealized component, which represents the
change in the fair value of the contracts during the period.
For the three-month period ended September 30, 2015 the Company
recognized a gain of $2,673,112 (2014 - $101,453 loss) on its
settled commodity price derivative contracts and an unrealized gain
of $747,101 (2014 - $1,153,996 gain) on unsettled commodity price
derivative contracts due to higher commodity prices.
Net loss
Net loss in the three-month period to September 30, 2015
increased by 130% to $17,791,270 ($0.07 per share, basic and
diluted) compared to $7,743,772 (($0.04) per share, basic and
diluted) in the comparative period in 2014. The increase in net
loss during such periods was attributable to the lower commodity
prices and production as a result of the slowing in drilling
activity in the Bone Spring play in New Mexico, the development and
producing impairment of $17,451,220 offset by the gains on the
hedging contracts.
Investments
Interest income for the three-month period ended September 30,
2015 was $140, an increase from $3 in 2014. Interest was earned on
the proceeds received from advances made pursuant the Company's
credit facilities and cash on hand. The Company does not hold any
asset backed commercial paper.
Funds flow from (used in) operations (Non-IFRS)
The following table reconciles the non-IFRS measure "funds flow
from (used in) operations" to "cash flows from (used in) operating
activities", the most comparable measure calculated in accordance
with IFRS. Cash flow from operations before changes in non-cash
working capital provides better information as it ignores timing
differences resulting primarily from fluctuations in payables and
receivables. As such it is a common measure used by management in
the oil and gas industry.
Three Months ended Nine Months ended
September 30, September 30,
2015 2014 2015 2014
------------------------------- ---------- ---------- ---------- ----------
Cash flows from (used in)
operating activities 1,326,961 3,057,431 7,469,771 (491,032)
Changes in non-cash working
capital 416,093 (422,935) 2,951,861 6,345,906
Funds flow (used in) provided
by operations 910,868 2,634,496 4,517,910 5,854,874
Funds gain per share - basic
and diluted 0.00 0.01 0.02 0.03
The increase in funds flow from (used in) operations as compared
to the previous period is associated with the realized gains in
hedging contracts and a decrease in general and administrative
expense offset by the decreased revenues due to lower commodity
prices during 2015.
(MORE TO FOLLOW) Dow Jones Newswires
November 13, 2015 02:00 ET (07:00 GMT)
Net Loss Compared to Adjusted EBITDA (Non-IFRS)
Three Months ended Nine Months ended
September 30, September 30,
2015 2014 2015 2014
----------------------------------- ------------- ------------ ------------- ------------
Net loss (17,791,270) (7,743,772) (22,375,832) (9,961,135)
Add Back:
Financing costs 2,219,979 1,896,472 5,697,062 5,040,372
Depletion and depreciation 1,417,752 2,392,364 4,972,897 5,800,461
Accretion 8,623 9,744 27,136 26,542
Share-based compensation 37,450 76,356 125,506 252,227
Exploration and evaluation
impairments - - - 322,752
Development and producing
impairment 17,451,220 17,451,220
Changes in derivative liabilities (83,448) 207,447 (168,934) (479,036)
Long term investment plan - 119,061 - 238,122
Disposal of assets 8,710,713 (509,445) 8,710,713
Unrealized loss (gain) on
hedging contacts (747,101) (1,153,996) 3,779,014 (25,663)
Adjusted EBITDA 2,513,206 4,514,389 8,998,624 9,925,355
Adjusted EBITDA per share
- basic and diluted 0.01 0.02 0.04 0.05
----------------------------------- ------------- ------------ ------------- ------------
(1) Adjusted EBITDA consists of net income (loss) plus interest,
depreciation, depletion, amortization, accretion, impairment and
stock based compensation. Adjusted EBITDA is also adjusted for any
gains or losses from extraordinary, unusual or non-recurring items
and any gains or losses on disposition of assets. See "Non IFRS
Measures".
The table above sets forth a reconciliation of Adjusted EBITDA
to net loss, which is the most directly comparable measure of
financial performance, calculated under IFRS. The decreases in
Adjusted EBITDA for the nine month period ended September 30, 2015
as compared to the comparative period resulted from a combination
of lower commodity prices and production, which were partially
offset by realized gains on hedges.
Capital Expenditures
Three Months ended Nine Months ended
September 30, September 30,
By Type ($) 2015 2014 2015 2014
----------------------------------- -------- ---------- ---------- -----------
Drilling and completions 158,259 5,787,860 2,503,041 28,472,397
Seismic - -
Facilities and lease equipment - -
Office furnishings and equipment 46,356 47,942
Leasehold, geological and
geophysical 37,535 32,805 36,555 48,685
Other costs (recovery) (1,104) 594,710
----------------------------------- -------- ---------- ---------- -----------
Total 195,794 5,865,917 2,539,596 29,163,734
----------------------------------- -------- ---------- ---------- -----------
During the nine months ended September 30, 2015, Caza drilled 1
gross well (0.147 net) in the Bone Spring play in New Mexico
reflecting the environment brought about by a 44% drop in commodity
prices as compared to this period in 2014.
Outstanding Share Data
Caza is authorized to issue an unlimited number of common shares
without par value. Holders of common shares are entitled to one
vote per share on all matters voted on a poll by shareholders, and
are entitled to receive dividends when and if declared by the board
of directors out of funds legally available for the payment of
dividends. Upon Caza's liquidation or winding up or other
distribution of its assets among its shareholders for the purpose
of winding up its affairs, holders of common shares are entitled to
share pro rata in any assets available for distribution to
shareholders after payment of all obligations of the Company.
Holders of common shares do not have any cumulative voting rights
or pre--emptive rights to subscribe for any additional common
shares.
At November 10, 2015, 255,572,960 common shares were issued and
outstanding. Common shares are issuable pursuant to outstanding
incentive compensation arrangements, common share purchase warrants
and the 2015 Convertible Loan (as defined below). In addition, the
management team has the right at any time to exchange the Caza
Petroleum, Inc. ("Caza Petroleum") shares currently held by them
for an aggregate of 26,502,000 common shares.
The following table sets forth the classes and number of
outstanding equity securities of the Company and the number of
issued and issuable common shares on a fully diluted basis.
Issued and Issuable Securities
Common Shares
Issued and outstanding 255,572,960
Issuable from exchangeable rights 26,502,000
Issuable from exercise of warrants 3,584,557
Issuable from exercise of stock options 15,215,000
Issuable from exercise of performance awards 2,238,300(1)
Issuable pursuant to 2015 Convertible Loan - (2)
Total Common Shares issued and issuable 290,699,140
Warrants Issued and Outstanding
Warrants to purchase common shares outstanding 3,584,557
Stock Options Issued
Stock options outstanding 15,215,000
(1) The amount payable pursuant to the Company's performance
awards shall vary depending on the satisfaction of certain
performance thresholds. Subject to the discretion of the board of
directors, the performance awards provide that one-half of any
award shall be satisfied by a cash payment and the other half-shall
be satisfied through an issuance of common shares. The board has
authorized the issuance of up to 4,289,608 common shares in
connection with the satisfaction of outstanding performance awards.
Such number assumes that outstanding awards will be paid at the
100% level (200% being the maximum) and that half of each such
award shall be satisfied through the issuance of shares. On March
19, 2015 the Board of Directors authorized the issuance of
2,051,308 shares under this performance awards program that were
issued during May 2015 leaving a balance of 2,238,300 shares
issuable.
(2) The Company's obligations under the 2015 Convertible Loan
shall ordinarily be satisfied through the issuance of common
shares. The number of common shares issuable pursuant to the 2015
Convertible Loan is not ascertainable at this time and shall vary
depending on the trading price on the Alternative Investment Market
of the London Stock Exchange of the common shares from
time-to-time. Accordingly, the common shares issuable pursuant to
the 2015 Convertible Loan are not reflected in the total number of
common shares issued and issuable as disclosed in the above
table
Commitments
The following is a summary of the estimated amounts required to
fulfill Caza's remaining contractual commitments as at September
30, 2015:
Type of Obligation Total <1 Year 1-3 Years 4-5 Years Thereafter
($)
-------------------- ---------- -------- ---------- ---------- -----------
Operating leases 352,692 130,056 222,636 - -
Asset retirement
obligations 1,374,186 - - - 1,374,186
Total contractual
commitments 1,726,878 130,056 222,636 - 1,374,186
-------------------- ---------- -------- ---------- ---------- -----------
Liquidity and Capital Resources
Due to current economic conditions and prices, compliance with
financial covenants is highly dependent on realized oil pricing.
The Company is currently not in compliance with all financial
covenants. The Company is proactive in managing debt levels and is
seeking financial alternatives to be able to be compliant with its
financial covenants. Although the Company has received a waiver of
such non-compliance until November 30, 2015, sustained low WTI
prices could cause the Company to not be in compliance with all
financial covenants through all of 2015 and there can be no
assurance that further waivers will be available. The Company's
ability to continue as a going concern is dependent upon its
ability to raise capital, restructure its debt, maintain positive
cash flow and / or the continued support of its lenders. There is
no certainty that such events will occur and that sources of
financing will be obtained on terms acceptable to management. These
material uncertainties cast significant doubt about the Company's
ability to continue as a going concern. The Company is currently
pursuing the Potential Transaction as a means of obtaining the
funds required to retire the amounts outstanding under the Note
Purchase Agreement and the Convertible Loan Agreement.
(MORE TO FOLLOW) Dow Jones Newswires
November 13, 2015 02:00 ET (07:00 GMT)
At September 30, 2015, Caza had a working capital deficit of
$42,405,992 as compared to a working capital deficit of $44,306,975
as at December 31, 2014. The difference of $1,900,983 is reconciled
in the table below. At September 30, 2015 and December 31, 2014 the
Company was not in compliance with its financial covenants (see
further discussion below). As a result the Company has reclassified
the outstanding balance owing as a current liability at September
30, 2015 and December 31, 2014 resulting in the working capital
deficit.
Working Capital Reconciliation ($)
Working Capital as at December 31, 2015 (44,306,975)
Funds flow used in operations 4,517,910
Proceeds from convertible loan 3,595,534
Stock issuance 637,667
Derivative valuation changes 168,934
Capital expenditures (2,564,522)
Non-cash financing costs (1,236,933)
Unrealized (loss) - hedging (3,779,014)
Sale of assets 478,274
Other miscellaneous items 83,133
Total Change in Working Capital 1,900,983
Working Capital as at September 30, 2015 (42,405,992)
Caza had a cash balance of $1,807,338 as of September 30, 2015
(December 31, 2014 - $5,160,943).
Caza's 2015 operating plan calls for participation to be funded
from operating cash flows, existing cash resources, the SEDA (as
defined below) or other appropriate sources of funding if
available. In the event additional sources of financing become
available the Company would consider increases to its drilling
program. The Company is focused on securing appropriate levels of
capitalization to support its business strategy. As commodity
prices or production fluctuates, the Company intends to alter its
capital program or reduce costs in order to maintain an acceptable
level of capitalization.
The Company prepares annual budgets, which are updated as
necessary depending on varying factors, including current and
forecast commodity prices, changes in capital structure, execution
of the Company's business plan and general industry conditions.
See "Risk Factors" below
The Company has arranged for funding under the following
agreements:
Convertible Loan
On February 18, 2015, the Company obtained a $5,000,000 facility
under a convertible unsecured note agreement (the"2015 Convertible
Loan") with YA Global Master SPV Ltd., an investment fund managed
by Yorkville Advisors LLC and Global Market Neutral Strategies
SICAV P.L.C. An aggregate of $4,000,000 has been advanced to Caza
under such agreement. Additional tranches may be available with the
consent of the lenders. Loan proceeds will be used to cover ongoing
operational costs. The injection of the entire initial tranche into
the Company resulted in an agreement with its existing debt
provider under the Note Purchase Agreement, Apollo Investment
Corporation ("Apollo"), which deferred determination of finance and
performance covenants under the existing Note Purchase Agreement
(see description below) from March 31, 2015 to September 30,
2015.
Note Purchase Agreement
On May 23, 2013, the Company entered into a Note Purchase
Agreement (the "Note Agreement") with Apollo, an investment fund
managed by Apollo Investment Management, pursuant to which Apollo
agreed to purchase up to $50,000,000 of senior secured notes
("Notes") from the Company. Under the Note Purchase Agreement, the
Company is required to comply with financial covenants, which are
tested quarterly, providing for specified interest coverage ratios
beginning in the quarter ending September 30, 2013, and asset
coverage ratios and minimum production, beginning in the quarter
ending March 31, 2014. The Company is also required to maintain a
limit on general and administrative costs. Due to drilling delays
and decreasing commodity prices the Company did not satisfy its
financial covenants at September 30, 2015 and December 31, 2014.
These have been waived by Apollo. The Company and Apollo executed a
Third Amendment to the Note Purchase Agreement that provides a
waiver of the financial covenants until September 30, 2015. As a
result, the Company has reclassified the outstanding balance owing
as a current liability at September 30, 2015 and December 31,
2014.
On September 30, 2015, the Company and Apollo executed a
Forbearance and Reservation of Rights Agreement, pursuant to which
Apollo agreed, subject to certain customary limitations and
conditions, to forbear from exercising certain of its rights and
remedies under the Note Agreement with respect to the Company's
breach of certain financial and other covenants until October 31,
2015, subject to earlier termination. On October 30, 2015, the
Company and Apollo executed an Amended and Restated Forbearance and
Reservation of Rights Agreement which replaced the Forbearance
Agreement in its entirety, and pursuant to which Apollo agreed,
subject to certain customary limitations and conditions, to forbear
from exercising certain of its rights and remedies under the Note
Agreement with respect to the Company's breach of certain financial
and other covenants until November 30, 2015, subject to earlier
termination. The Amended Forbearance Agreement provides that if
Apollo determines in its sole discretion that the Company and its
operating subsidiary are not diligently pursuing a transaction
substantially similar to the Potential Transaction (see "Financing"
above for details of the Potential Transaction) during the
forbearance period, Apollo may, by three days' advance written
notice, shorten the forbearance period so that it ends on the
latter of November 15, 2015, or the third day after such notice is
delivered.
Any outstanding balances of the Notes may be prepaid at the
option of the Company at any time subject to premiums that expire
in May of 2016. The Note Purchase Agreement is also subject to a
mandatory prepayment from the proceeds of the sale of assets and
from funds received from transactions outside of the ordinary
course of business. Certain mandatory payments are also required if
in any period the Company fails to comply with any financial or
performance covenants. The Note Agreement provides for customary
events of default. Additionally, an event of default would occur
upon a change of control of the Company, which consists of (i) a
shareholder acquiring more than 35% of the Company's outstanding
common shares, (ii) a change in the composition of the board of
directors by more than 1/3 during a 12-month period or (iii) a
termination of service by any three of the five executive officers
of the Company. Outstanding balances under the Notes are secured by
first-priority security interests in all of the Company's
assets.
In addition to a 2% overriding royalty interest conveyed at the
closing of the Note Purchase Agreement in its properties in Eddy
and Lea Counties, New Mexico, the Company is also required to
convey a proportionately reducible 2% overriding royalty interest
in each lease acquired with proceeds from the Note Agreement. Upon
full repayment of the Notes, the overriding royalty interests will
convert to a 25% net profits interest in each property,
proportionately reduced to reflect the Company's working interest
as provided in the Note Purchase Agreement, which will reduce to a
12 1/2 % net profits interest at such time as the Note Holder
achieves specified investment criteria pursuant to the Note
Purchase Agreement.
The outstanding balance of the Notes as at September 30, 2015
was $45,000,000 (exclusive of unamortized transaction costs
$1,778,073 (December 31, 2014 - $45,000,000 (exclusive of
unamortized transaction costs $2,633,629)). The Notes bear interest
at a floating rate of one-month LIBOR (with a floor of 2%) plus 10%
per annum, payable monthly and mature on May 23, 2017. In an event
of default under the Note Purchase Agreement, additional interest
will be payable at a default rate of 5% per annum, but only during
the period of default. In addition to these funds, the Company has
the ability to reinvest cash flow from program wells back into the
drilling program.
In connection with the sale of the Notes, the Company incurred a
total of $1,667,500 in transaction costs (consisting of $1,540,000
in issuance costs and $127,500 relating to the fair value of the 2%
overriding royalty conveyed at the closing of the Note Purchase
Agreement). In addition, the Company also incurred structuring fees
of $2,399,912 in connection with the Note Purchase Agreement. The
Notes are classified as other financial liabilities and are
measured at amortized cost.
Standby Equity Distribution Agreement
The Company and Yorkville are party to a GBP6 million Standby
Equity Distribution Agreement ("SEDA") dated November 23, 2012. The
SEDA allows Caza to issue equity at a 5% discount to market to fund
loan repayments or well costs in certain circumstances. As at
September 30, 2015, the company has drawn down GBPnil (December 31,
2014 - GBPnil) under the SEDA. During 2015, the Company issued nil
(2014 - nil) common shares under the SEDA at an average price of
GBPnil (2014 - GBPnil) per share for gross proceeds of $nil (2014 -
$nil). The Company did not draw down on the SEDA facility during
the first nine months of 2015 and 2014. The SEDA expires on April
30, 2016.
Equity Adjustment Agreement
The Company entered into an Equity Adjustment Agreement (the
"Adjustment Agreement") on March 5, 2013 with Yorkville. Pursuant
to the Adjustment Agreement, during the three months ended March
31, 2013, the Company issued 3,846,154 common shares to Yorkville
at a price of GBP0.13 per share for aggregate proceeds of
GBP500,000.
Transactions with Related Parties
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All related party transactions are in the normal course of
operations and have been measured at the agreed to exchange
amounts, which is the amount of consideration established and
agreed to by the related parties and which is comparable to those
negotiated with third parties.
Caza and its subsidiary Caza Petroleum Inc. may be considered to
be "related parties" for the purposes of Multilateral Instrument
61--101 of the Canadian Securities Administrators. As a result,
Caza may be required to obtain a formal valuation or disinterested
shareholder approval before completing certain transactions with
Caza Petroleum.
Summary of Quarterly Results
Three Three Three Three
months
months ended months ended months ended ended
September December
30, June 30, March 31, 31,
2015 2015 2015 2014
---------------------------- --------------- --------------- --------------- --------------
Petroleum and natural
gas sales 1,996,350 2,941,812 3,367,214 4,823,460
Net income (loss) (17,791,270) (3,309,806) (1,274,754) 2,896,659
Per share - basic
and diluted (0.07) (0.01) (0.01) 0.01
Funds flow from operations
(See note) (1) 910,868 2,225,718 1,381,323 386,715
Per share - basic
and diluted 0.00 0.01 0.01 0.00
Net capital expenditures 195,794 563,327 1,805,400 11,798,613
Average daily production
(boe/d) 594 744 917 901
Weighted average shares
outstanding 247,072,290 237,960,016 237,306,302 236,355,884
Three Three Three Three
months
months ended months ended months ended ended
September December
30, June 30, March 31, 31,
2014 2014 2014 2013
---------------------------- --------------- --------------- --------------- --------------
Petroleum and natural
gas sales 7,244,752 6,286,049 4,591,507 3,381,486
Net income (loss) (7,743,772) (763,150) (1,454,212) (2,851,860)
Per share - basic
and diluted (0.04) (0.01) (0.01) (0.01)
Funds flow from(used
in) operations (See
note) (1) 2,634,496 2,381,414 893,286 276,913
Per share - basic
and diluted 0.01 0.01 0.00 0.00
Net capital expenditures 5,865,917 13,681,171 9,616,646 10,031,758
Average daily production
(boe/d) 1,210 937 685 503
Weighted average shares
outstanding 214,210,273 199,323,039 187,917,370 182,965,097
(1) Calculated based on cash flow from operations before changes
in non-cash working capital.
Factors that have caused variations over the quarters:
-- During 2014 and 2015 Caza commenced drilling of 15 (5.87 net)
wells. 13 (4.75 net) of the 15 wells were completed during that
period. As at September 30, 2015, 1 (0.5 net) well is undergoing
completion activities.
-- Capital expenditures and revenues from oil, natural gas and
NGL sales decreased during the three-month period ended September
30, 2015, as a result of the effects of falling commodity
prices.
Financial Instruments
The Company holds various forms of financial instruments. The
nature of these instruments and the Company's operations expose the
Company to commodity price, credit, share price and foreign
exchange risks. The Company manages its exposure to these risks by
operating in a manner that minimizes its exposure to the extent
practical. See note9 of the Company's financial statements for the
three-month period ended September 30, 2015 and the disclosure
under the heading "Commodity Price Risk" herein for further details
of the Company's financial instruments.
Critical Accounting Estimates
The policies discussed below are considered particularly
important as they require management to make informed judgments,
some of which may relate to matters that are inherently uncertain.
The financial statements have been prepared in accordance with
Canadian IFRS. In preparing financial statements, management makes
certain assumptions, judgments and estimates that affect the
reported amounts of assets, liabilities, revenues and expenses. The
basis for these estimates is historical experience and various
other assumptions that management believes to be reasonable. Actual
results could differ from the estimates under different assumptions
or conditions.
Reserves - The Company engages independent qualified reserve
evaluators to evaluate its reserves each year. Reserve
determinations involve forecasts based on property performance,
future prices, future production and the timing of expenditures;
all these are subject to uncertainty. Reserve estimates have a
significant impact on reported financial results as they are the
basis for the calculation of depreciation and depletion. Revisions
can change reported depletion and depreciation and earnings;
downward revisions could result in a ceiling test write down.
Decommissioning Liabilities - The Company provides for the
estimated abandonment costs using a fair value method based on cost
estimates determined under current legislative requirements and
industry practice. The amount of the liability is affected by the
estimated cost per well, the timing of the expenditures and the
discount factor used. These estimates will change and the revisions
will impact future accretion, depletion and depreciation rates.
Income taxes - The utilization of deferred tax assets subject to
an expiry date are based on estimates of future cash flows and
profitability. By their nature, these estimates are subject to
measurement uncertainty and the effect on the financial statements
of changes of estimates in future periods could be significant.
Share-based Compensation - The Black-Scholes option pricing
model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully
transferable. This model is used to value the stock options
granted. In addition, option pricing models require the input of
highly subjective assumptions including the expected stock price
volatility. Changes in the subjective input assumptions can
materially affect the fair value estimates as reflected in the
consolidated financial statements
Certain of our accounting policies require that we make
appropriate decisions with respect to the formulation of estimates
and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. For a discussion about those
accounting policies, please refer to our annual management's
discussion and analysis and Note 2 of the corresponding audited
consolidated financial statements for the year ended December 31,
2014 available at www.sedar.com.
Future Accounting Pronouncements
The Company will continue to monitor standards development as
issued by the IASB and the AcSB as well as regulatory developments
as issued by the CSA, which may affect the timing, nature or
disclosure of its adoption of IFRS.
Risk Factors
For a discussion about risk and uncertainties, please refer to
our Management's Discussion and Analysis and Annual Information
Form for the year ended December 31, 2014 available at
www.sedar.com.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Chief Executive Officer and the Chief Financial Officer are
responsible for establishing and maintaining internal control over
financial reporting (ICFR), as such term is defined in National
Instrument 52-109 Certification of Disclosure in Issuers' Annual
and Interim Filings, for Caza. They have, as at the three months
ended September 30, 2015, designed ICFR, or caused it to be
designed under their supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with IFRS. The control framework our officers used to
design Caza's ICFR is the Internal Control -- Integrated Framework
(COSO Framework) published by The Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Under the supervision of the Chief Executive Officer and the
Chief Financial Officer, Caza conducted an evaluation of the
effectiveness of our ICFR as at September 30, 2015 based on the
COSO Framework. Based on this evaluation, the officers concluded
that Caza's ICFR was effective as of September 30, 2015.
There were no changes in our ICFR during the three months ended
September 30, 2015 that materially affected, or are reasonably
likely to materially affect, Caza's internal control over financial
reporting.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
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