TIDMSE.
RNS Number : 6945M
Stratic Energy Corporation
28 May 2010
NEWS RELEASE
First Quarter 2010 Results
CALGARY and LONDON, May 28, 2010 - Stratic Energy Corporation (TSX Venture:
'SE', AIM 'SE.') ("Stratic" or the "Company") has today filed its Interim
Financial Statements and accompanying Management's Discussion and Analysis for
the quarter ended March 31, 2010. This filing can be accessed at www.sedar.com
and on the Company's website www.straticenergy.com. All amounts below are US
dollars, unless otherwise stated.
Highlights:
Operations and West Don Development
· Production from continuing operations of 731 bopd (2009: nil) with
increase due to commencement of West Don production in late April 2009.
Production from discontinued operations in Turkey of 293 boepd (2009: 240 boepd)
· Northern Producer floating production facility on West Don successfully
connected by pipeline in March 2010 to Brent oil export system, substantially
reducing exposure to weather downtime; further work underway to optimize
production
· Plans under discussion for drilling a third production well in the
southern part of the West Don field, potentially later in 2010
· Revised operator mid case production forecast for remaining three
quarters of the year of 6,000 bopd (Stratic share: 1,035 bopd)
Exploration/Appraisal and Pre-Development Assets
· Crawford oil field development plan - new development concept utilizing
multi-lateral wells to reduce risk and improve recovery; preliminary partner
approval expected in third quarter 2010 with final development sanction expected
in late 2010
· Bugle North appraisal well drilled to total depth of 15,145ft and plugged
and abandoned after encountering minor quantities of hydrocarbons; Bowmore
appraisal well drilled last year also to be plugged and abandoned
· Farm-out agreement signed in respect of F Quad licences in Holland
Financial
· Oil sales revenues from continuing operations in the UK of $4.3 million
(2009: nil) with increase due to commencement of West Don. Gas revenues from
discontinued operations in Turkey of $1.3 million (2009: $1.4 million)
· Net loss of $10.8 million (2009: $6.8 million). Net loss from continuing
operations of $10.0 million (2009: loss $5.7 million). Net loss from
discontinued operations of $0.8 million (2009: $1.1 million)
· Capital expenditure of $5.5 million (2009: $16.1 million), mainly on West
Don and the Bugle North well in the UK, and on the block 17 exploration well in
Syria
· Cash and cash equivalents (including restricted cash) of $2.2 million at
quarter end (December 31, 2009: $7.4 million); bank debt (excluding letters of
credit) of $49.0 million and convertible notes of $64.5 million totaling $113.5
million at quarter end (December 31, 2009: $112.5 million), making net debt at
quarter end of $111.3 million (December 31, 2009: $105.1 million)
· Net debt at May 21, 2010 reduced to $70.6 million following receipt of
proceeds from the sale of our Italian and Turkish businesses
Disposal Program
· Sale of the Company's Turkish business agreed and completed in May 2010
· FirstEnergy Capital appointed to advise on the sale of all or part of the
Company's interest in the Crawford field with a target completion date before
year end
Kevin Watts, Stratic's President and Chief Executive Officer, commented: "As
outlined in our annual results issued last month, we are continuing our disposal
program in order to eliminate bank debt and balance future capital commitments.
We continue to manage our capital extremely carefully, as we shift the strategy
of the company away from existing high cost areas to lower cost areas in which
we can acquire and exploit new growth opportunities".
For further information contact:
Kevin Watts, Chief Executive Officer
+44 20 7766 7900
John van der Welle, Chief Financial Officer
+44 20 7766 7900
Mark Bilsland, Chief Operating Officer
+44 20 7766 7900
Patrick d'Ancona, M:Communications
+44 20 7920 2347
Canadian Investor Relations
Roger Fullerton
+1 952 929 7243
Email: roger.fullerton@straticenergy.com
Website: www.straticenergy.com
About Stratic: Stratic Energy Corporation is a Canadian incorporated
international oil and gas business which is engaged in the appraisal,
development and production of petroleum and natural gas discoveries,
supplemented by an exploration program. As a result of the worldwide credit
crisis, which has particularly affected the Company in view of the capital
intensive nature of its strategy, Stratic has been involved in a major
restructuring program over the last twelve months to reduce debt levels and
create financial flexibility. In future the business will be focused on the
North Sea for its cash flow generating ability (West Don) and the planned sale
of the undeveloped Crawford interest, whereas its exploration effort will be
increased and concentrated on lower cost areas and potential company changing
opportunities. Stratic's shares are listed on the TSX Venture Exchange in
Toronto and on AIM, London and its principal operating office is in London, UK.
Forward-looking statements
This news release contains certain forward looking statements, which involve
assumptions with respect to future plans, production levels and results, and
capital expenditures. The reader is cautioned that all such forward looking
statements involve substantial risks and uncertainties and the assumptions used
in their preparation may not prove to be correct. Stratic's actual results could
differ materially from those expressed in, or implied by, these forward looking
statements and accordingly, the forward looking statements are qualified by
reference to these cautionary statements. The forward looking statements
contained herein are made as at the date of this news release. Stratic
undertakes no obligation to update or publicly revise forward looking statements
or information unless so required by applicable securities laws.
TSX-V and AIM notifications
The TSX Venture Exchange has not reviewed and does not accept responsibility for
the adequacy or accuracy of the contents of this release.
Stratic's Chief Operating Officer, Dr Mark Bilsland BSc (geology), PhD
(petroleum petrophysics), and member of the SPE, is the qualified person who has
reviewed and approved the technical information in this announcement for the
purposes of the AIM Rules for Companies (incorporating the Guidance Note for
Mining, Oil and Gas Companies).
Interim Financial Statements
As at and for the three months ended
March 31, 2010
Notice of No Auditor Review of Interim Financial Statements
In accordance with National Instrument 51-102 released by the Canadian
Securities Administrators, the Company discloses that its auditors have not
reviewed these unaudited interim financial statements as at and for the three
months ended March 31, 2010 and 2009.
+--------+---------+--------+--------+--------+----------+--------+-+----------+-----------+--------+-----------+
| |
+---------------------------------------------------------------------------------------------------------------+
| CONSOLIDATED BALANCE SHEETS |
+---------------------------------------------------------------------------------------------------------------+
| AS AT MARCH 31, 2010 and DECEMBER 31, 2009 |
+---------------------------------------------------------------------------------------------------------------+
| (Stated in thousands of US Dollars) |
+---------------------------------------------------------------------------------------------------------------+
| (Unaudited) |
+---------------------------------------------------------------------------------------------------------------+
| |
+---------------------------------------------------------------------------------------------------------------+
| | | | | | | | March | | December |
| ASSETS | | | | | | | 31, | |31, 2009 |
| | | | | | | | 2010 | | |
+------------------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| | | | | | | | | | |
+------------------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| CURRENT | | | | | | | | | |
+------------------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| | Cash and cash equivalents | | | $ | | $ |
| | | | | 1,501 | | 6,398 |
+--------+-----------------------------------------------+--------+------------+-----------+--------+-----------+
| | Accounts receivable and prepaids (note 3) | | | 2,496 | | 5,771 |
+--------+-----------------------------------------------+--------+------------+-----------+--------+-----------+
| | Inventory (note 4) | | | 1,841 | | 1,359 |
+--------+-----------------------------------------------+--------+------------+-----------+--------+-----------+
| | Current Assets related to discontinued operations | | 49,663 | | 42,935 |
| | (note 5) | | | | |
+--------+--------------------------------------------------------+------------+-----------+--------+-----------+
| | | | | | | | | 55,501 | | 56,463 |
+--------+---------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| RESTRICTED CASH AND CASH EQUIVALENTS (note 6) | 737 | | 1,045 |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| OTHER ASSETS (note 7) | | 2,760 | | 3,312 |
+-----------------------------------------------------------------+------------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| OTHER ASSETS RELATED TO DISCONTINUED OPERATIONS (note 5) | - | | 308 |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| PROPERTY, PLANT AND EQUIPMENT (note 8) | | 97,049 | | 96,556 |
+-----------------------------------------------------------------+------------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| PROPERTY, PLANT AND EQUIPMENT RELATED TO DISCONTINUED OPERATIONS (note 5) | - | | 4,882 |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| | | | | | | | | $ | | $ |
| | | | | | | | | 156,047 | | 162,566 |
+--------+---------+--------+--------+--------+----------+--------+------------+-----------+--------+-----------+
| LIABILITIES AND SHAREHOLDERS' EQUITY |
+---------------------------------------------------------------------------------------------------------------+
| CURRENT | | | | | | | | | |
+------------------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| | Accounts payable and accrued liabilities | | | $ | | $ |
| | | | | 14,446 | | 11,873 |
+--------+-----------------------------------------------+----------+----------+-----------+--------+-----------+
| | Current liabilities related to discontinued operations (note 5) | 7,662 | | 2,252 |
+--------+---------------------------------------------------------------------+-----------+--------+-----------+
| | Bank loan (note 10) | | | 36,561 | | 35,533 |
+--------+-----------------------------------------------+----------+----------+-----------+--------+-----------+
| | Future income taxes related to discontinued operations | 7,933 | | 8,406 |
+--------+---------------------------------------------------------------------+-----------+--------+-----------+
| | | | | | | | | 66,602 | | 58,064 |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| | | | | | |
+--------------------------------------------------------+----------+----------+-----------+--------+-----------+
| CONVERTIBLE NOTES (note 9) | | | 59,828 | | 59,470 |
+--------------------------------------------------------+----------+----------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| LONG-TERM BANK LOAN (note 10) | 12,450 | | 12,478 |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| ASSET RETIREMENT OBLIGATIONS (note 12) | | 6,530 | | 6,312 |
+-------------------------------------------------------------------+----------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| ASSET RETIREMENT OBLIGATIONS RELATED TO DISCONTINUED OPERATIONS (note 5) | - | | 5,235 |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| | | | |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| | | | | | | | | 145,410 | | 141,559 |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| SHAREHOLDERS' EQUITY | | | | | | |
+---------------------------------------------+----------+----------+----------+-----------+--------+-----------+
| | Share capital (note 13) | | | | | 205,432 | | 205,432 |
+--------+---------------------------+--------+----------+----------+----------+-----------+--------+-----------+
| | Equity component of convertible notes (note | | | 6,901 | | 6,901 |
| | 9) | | | | | |
+--------+-----------------------------------------------+----------+----------+-----------+--------+-----------+
| | Contributed surplus (note 14) | | | 21,924 | | 21,515 |
+--------+-----------------------------------------------+----------+----------+-----------+--------+-----------+
| | | | | | | |
+--------+-----------------------------------------------+----------+----------+-----------+--------+-----------+
| | Deficit | | | | | | | (223,620) | | (212,841) |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| | | | | | | | | (223,620) | | (212,841) |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| | | | | | | | | 10,637 | | 21,007 |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| | | | | | | | | $ | | $ |
| | | | | | | | | 156,047 | | 162,566 |
+--------+---------+--------+--------+--------+----------+----------+----------+-----------+--------+-----------+
| Future operations (note 1) | | | |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| Commitments (note 18) | | | |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| Subsequent events (notes 5 & 19) | | | |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| See accompanying notes to the interim consolidated financial statements | | | |
+------------------------------------------------------------------------------+-----------+--------+-----------+
| | | | | | | | | | | | |
+--------+---------+--------+--------+--------+----------+--------+-+----------+-----------+--------+-----------+
+--------+--------+--------+--------+--------+--------+--------+--------+--+--------+--------+------------+--+--------+
| |
+---------------------------------------------------------------------------------------------------------------------+
| CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT |
+---------------------------------------------------------------------------------------------------------------------+
| FOR THE PERIODS ENDED MARCH 31, 2010 and 2009 |
+---------------------------------------------------------------------------------------------------------------------+
| (Stated in thousands of US Dollars, except per share amounts) |
+---------------------------------------------------------------------------------------------------------------------+
| (Unaudited) |
+---------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+--------+-----------+--------+---------------+--------+
| | | | | | | | | | Three months |
| | | | | | | | | | ended March 31 |
+--------+--------+--------+--------+--------+--------+--------+--------------------+--------+------------------------+
| | | | | | | | | | | 2010 | 2009 |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| REVENUE | | | | | | | | | | |
+-----------------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| | Oil sales | | | | | $ | $ |
| | | | | | | 4,328 | - |
+--------+--------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| | Interest income | | | | | 1 | 3 |
+--------+--------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | 4,329 | 3 |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| EXPENSES | | | | | | | | | | |
+-----------------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| | Operating costs | | | | | | | 2,086 | - |
+--------+--------------------------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| | Stock-based compensation | | | | 409 | 738 |
+--------+-----------------------------------------------------+-----------+--------+--------+------------+-----------+
| | General and administrative | | | | | 1,876 | 2,122 |
+--------+--------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| | Write-down of property, plant and equipment (note 8) | | | 1,676 | - |
+--------+-----------------------------------------------------------------+--------+--------+------------+-----------+
| | Depletion, depreciation and accretion | | | | | 3,176 | 225 |
+--------+--------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| | Financial charges (note 11) | | | | | 5,475 | 2,710 |
+--------+--------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| | Foreign exchange gain | | | | | | (390) | (120) |
+--------+-----------------------------------+--------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| | | 14,308 | 5,675 |
+-----------------------------------------------------------------------------------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| NET LOSS FROM CONTINUING OPERATIONS | | | | (9,979) | (5,672) |
+--------------------------------------------------------------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| NET LOSS FROM DISCONTINUED OPERATIONS (note 5) | | | | (800) | (1,136) |
+--------------------------------------------------------------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| NET LOSS | | | | | | (10,779) | (6,808) |
+--------------------------------------------+--------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| DEFICIT, beginning of period | | | | | | (212,841) | (109,750) |
+--------------------------------------------+--------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| DEFICIT, end of period | | | | | | | $(223,620) | $ |
| | | | | | | | | (116,558) |
+-----------------------------------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| Net loss per share from continuing operations (note 13[d]) | | | | | |
+--------------------------------------------------------------+-----------+--------+--------+------------+-----------+
| Basic and diluted | | | | | $ | $ |
| | | | | | (0.04) | (0.02) |
+-----------------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | |
+-----------------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| Net loss per share from discontinued operations (note 13[d]) | | | | | |
+--------------------------------------------------------------+-----------+--------+--------+------------+-----------+
| Basic and diluted | | | | | $ | $ |
| | | | | | (0.00) | (0.00) |
+-----------------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | |
+-----------------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| Net loss per share (note 13[d]) | | | | | | |
+-----------------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| Basic and diluted | | | | | $ | $ |
| | | | | | (0.04) | (0.02) |
+-----------------------------------------------------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| See accompanying notes to the interim consolidated financial statements. | | | |
+-----------------------------------------------------------------------------------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+-----------+--------+--------+------------+-----------+
| | | | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+--------+--+--------+--------+------------+--+--------+
+--------+--------+--------+--------+--------+--------+----------+--------+----+--+----------+--------+----------+--------+-+--------+
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
+------------------------------------------------------------------------------------------------------------------------------------+
| FOR THE PERIODS ENDED MARCH 31, 2010 and 2009 |
+------------------------------------------------------------------------------------------------------------------------------------+
| (Stated in thousands of US Dollars) |
+------------------------------------------------------------------------------------------------------------------------------------+
| (Unaudited) |
+------------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+----------+--------+-------------------------------------------------+--------+
| | | | | | | | | | Three months ended March 31 |
+--------+--------+--------+--------+--------+--------+----------+----------------+-------------------+------------------------------+
| | | | | | | | | | | 2010 | 2009 |
+--------+--------+--------+--------+--------+--------+----------+-------------+-------------+--------+----------+-------------------+
| | | | | | |
+----------------------------------------------------------------+-------------+-------------+--------+----------+-------------------+
| Net loss | | | | | | | | | $ | $ | (6,808) |
| | | | | | | | | | (10,779) | | |
+-----------------+--------+--------+--------+--------+----------+-------------+-------------+--------+----------+--------+----------+
| | | | | | | |
+--------+-------------------------------------------------------+-------------+-------------+--------+----------+-------------------+
| Changes in foreign currency translation on self sustaining operations, net of | | | |
| tax of $nil ( 2009 - $2,274) | | - | (4,367) |
+---------------------------------------------------------------------------------+-------------------+----------+-------------------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+----------+-------------+-------------+--------+----------+-------------------+
| Comprehensive loss | | | | | $ | $ | (11,175) |
| | | | | | (10,779) | | |
+-----------------------------------------------------+----------+-------------+-------------+--------+----------+--------+----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+----------+-------------+-------------+--------+----------+-------------------+
| See accompanying notes to the interim consolidated financial statements | | | | |
+------------------------------------------------------------------------------+-------------+--------+----------+-------------------+
| | | | | | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+----------+--------+----+--+----------+--------+----------+--------+-+--------+
+--------+----------+--+------+--------+--------+--------+--------+----------+--------+-----+--------+--------+---------+--+--------+
| |
+-----------------------------------------------------------------------------------------------------------------------------------+
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
+-----------------------------------------------------------------------------------------------------------------------------------+
| FOR THE PERIODS ENDED MARCH 31, 2010 and 2009 |
+-----------------------------------------------------------------------------------------------------------------------------------+
| (Stated in thousands of US Dollars) |
+-----------------------------------------------------------------------------------------------------------------------------------+
| (Unaudited) |
+-----------------------------------------------------------------------------------------------------------------------------------+
| | | | | | | | | | | | |
+-------------------+---------+--------+--------+--------+--------+----------+--------+--------------+--------+------------+--------+
| | | | | | | | | | Three months |
| | | | | | | | | | ended March 31 |
+-------------------+---------+--------+--------+--------+--------+----------+-----------------------+--------+---------------------+
| | | | | | | | | | | 2010 | 2009 |
+-------------------+---------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+-------------------+---------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| OPERATING ACTIVITIES | | | | | | | |
+--------------------------------------------------------+--------+----------+--------------+--------+--------+---------+-----------+
| | Net loss from continuing operations | | | | | $ | $ |
| | | | | | | (9,979) | (5,672) |
+--------+--------------------------------------------------------+----------+--------------+--------+--------+---------+-----------+
| | Items not affecting cash: | | | | | | | |
+--------+-----------------------------------------------+--------+----------+--------------+--------+--------+---------+-----------+
| | | Stock-based compensation | | | | 409 | 738 |
+--------+-------------+-----------------------------------------------------+--------------+--------+--------+---------+-----------+
| | | Amortisation of deferred financing charges (note | | | | 249 | 261 |
| | | 11) | | | | | |
+--------+-------------+-----------------------------------------------------+--------------+--------+--------+---------+-----------+
| | | Accretion of convertible notes liability (note 11) | | | 358 | 284 |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| | | Depletion, depreciation and accretion | | | 3,176 | 225 |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| | | Write-down of property, plant and equipment | | | 1,676 | - |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| | | Unrealised gain on financial instrument | | | (36) | - |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| | | Unrealised foreign exchange loss | | | 49 | (116) |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| | Change in non-cash working capital | | | | | 6,636 | 1,357 |
+--------+--------------------------------------------------------+----------+--------------+--------+--------+---------+-----------+
| | Cash from (used in) operating activities | | | | | 2,538 | (2,923) |
+--------+--------------------------------------------------------+----------+--------------+--------+--------+---------+-----------+
| | | | | | |
+--------+----------------------------------------------------------------------------------+--------+--------+---------+-----------+
| DISCONTINUED OPERATIONS | | | | |
+-------------------------------------------------------------------------------------------+--------+--------+---------+-----------+
| | Net loss form discontinued operations | | | (800) | (1,136) |
+--------+----------------------------------------------------------------------------------+--------+--------+---------+-----------+
| | Items not affecting cash: | | | | |
+--------+----------------------------------------------------------------------------------+--------+--------+---------+-----------+
| | | Depletion, depreciation and accretion in discontinued operations | | | 1,099 | 793 |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| | | Write-down of property, plant and equipment in discontinued operations | | - | 900 |
+--------+-------------+-----------------------------------------------------------------------------+--------+---------+-----------+
| | | Property, plant and equipment additions for discontinued | | | (5,311) | (163) |
| | | operations | | | | |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| | | Unrealised foreign exchange gain | | | (473) | - |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| | Change in non-cash working capital | | | 2,849 | (1,100) |
+--------+----------------------------------------------------------------------------------+--------+--------+---------+-----------+
| | | | | | (2,636) | (706) |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| | | | | | | |
+--------+-------------+--------------------------------------------------------------------+--------+--------+---------+-----------+
| FINANCING ACTIVITIES | | | | | | | |
+--------------------------------------------------------+--------+----------+--------------+--------+--------+---------+-----------+
| | Bank loans, net of placement costs | | | 1,000 | 8,915 |
+--------+----------------------------------------------------------------------------------+--------+--------+---------+-----------+
| | Change in non-cash working capital | | | | | - | (42) |
+--------+--------------------------------------------------------+----------+--------------+--------+--------+---------+-----------+
| | Cash from financing activities | | | | 1,000 | 8,873 |
+--------+-------------------------------------------------------------------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+--------+--------------------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| INVESTING ACTIVITIES | | | | | | | |
+--------------------------------------------------------+--------+----------+--------------+--------+--------+---------+-----------+
| | Property, plant and equipment additions | | | | (5,463) | (16,120) |
+--------+-------------------------------------------------------------------+--------------+--------+--------+---------+-----------+
| | Change in restricted cash and cash equivalents | | | | 308 | 1,037 |
+--------+-------------------------------------------------------------------+--------------+--------+--------+---------+-----------+
| | Addition of other assets | | | | | | (4) | - |
+--------+-----------------------------------------------+--------+----------+--------------+--------+--------+---------+-----------+
| | Change in non-cash working capital | | | | | (591) | (2,848) |
+--------+--------------------------------------------------------+----------+--------------+--------+--------+---------+-----------+
| | Cash used in investing activities | | | | | (5,750) | (17,931) |
+--------+--------------------------------------------------------+----------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+--------+--------------------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| Foreign exchange loss on cash held in foreign currencies | | | (49) | (73) |
+-------------------------------------------------------------------------------------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+-------------------+---------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| CHANGE IN CASH AND CASH EQUIVALENTS | | | | (4,897) | (12,760) |
+----------------------------------------------------------------------------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+-------------------+---------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| CASH AND CASH EQUIVALENTS, beginning of period | | | | 6,398 | 24,067 |
+----------------------------------------------------------------------------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+-------------------+---------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| CASH AND CASH EQUIVALENTS, end of period | | | | $ | $ |
| | | | | 1,501 | 11,307 |
+----------------------------------------------------------------------------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+-------------------+---------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| Cash and cash equivalents consists of: | | | | | | |
+-----------------------------------------------------------------+----------+--------------+--------+--------+---------+-----------+
| | Balances with banks | | | | | | $ | $ |
| | | | | | | | 1,501 | 11,298 |
+--------+-----------------------------------------------+--------+----------+--------------+--------+--------+---------+-----------+
| | Short-term deposits | | | | | | | - | 9 |
+--------+--------------------------------------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | $ | $ |
| | | | | | | | | | | 1,501 | 11,307 |
+--------+--------------------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+--------+--------------------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| Interest received | | | | | | | | $ | $ |
| | | | | | | | | 1 | 4 |
+--------------------------------------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| Interest paid | | | | | | | | $ | $ |
| | | | | | | | | 799 | 410 |
+--------------------------------------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+-------------------+---------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| | | | | | | | | | | | |
+-------------------+---------+--------+--------+--------+--------+----------+--------------+--------+--------+---------+-----------+
| See accompanying notes to the interim consolidated financial statements | | | | |
+-------------------------------------------------------------------------------------------+--------+--------+---------+-----------+
| | | | |
+----------------------------------------------------------------------------------------------------+--------+---------+-----------+
| | | | | | | | | | | | | | | | |
+--------+----------+--+------+--------+--------+--------+--------+----------+--------+-----+--------+--------+---------+--+--------+
NOTES TO THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR
THE THREE MONTHS ENDED MARCH 31, 2010
(tabular amounts are stated in thousands of US Dollars except share and per
share amounts)
1.INCORPORATION AND FUTURE OPERATIONS
Stratic Energy Corporation ("Stratic" or the "Company") is incorporated under
the laws of the Territory of Yukon, Canada and is an international oil and gas
business which has been engaged, directly and through its subsidiaries, in the
appraisal, development and production of existing petroleum and natural gas
discoveries, supplemented by a moderate risk exploration program. In early 2010
the Company announced a revised strategy of focusing investment to maximize
near-term value from its existing United Kingdom ("UK") assets, and pursuing new
growth in selected lower cost exploration and appraisal opportunities in the
Middle East and North Africa.
Stratic's principal current interests are in the UK and Netherlands sectors of
the North Sea, and Turkey. In the UK sector of the North Sea, the Company has
interests in a producing oil field, and an oil field awaiting development. In
the UK, the West Don oil field commenced production in 2009, with the Crawford
oil field development studies proceeding towards submission of a field
development plan for approval in 2010. The undeveloped Breagh gas field in the
UK was sold in 2009. In the Netherlands, the Company has an interest in the
undeveloped Horizon West oil field. In Italy, the Company had an interest in the
undeveloped Longanesi gas field, and the sale of the Italian business including
the interest in Longanesi was completed in April 2010 (see notes 5 and 19). In
the Black Sea, offshore Turkey, the Company had three producing gas fields with
second phase of development underway. In May 2010 the Turkish business, was
sold (see notes 5 and19).
The success of the Company's exploration and development activity is influenced
by: commodity prices, currency exchange rates, varying levels of taxation,
arranging appropriate financing and the ability of the Company to access and
discover economically recoverable reserves and to bring such reserves into
profitable production. Certain of its activities are also subject to
significant financial, legal and political risks. While the Company seeks to
manage these risks, certain of these factors are beyond its control.
Future operations
These consolidated financial statements have been prepared by management on a
going concern basis in accordance with Canadian generally accepted accounting
principles. The going concern basis of presentation assumes that the Company
will continue in operation for the foreseeable future and be able to realize its
assets and discharge its liabilities and commitments in the normal course of
business.
The Company, for the quarter ended March 31, 2010, and the years ended December
31, 2009 and 2008, has experienced significant losses resulting in an
accumulated deficit of $223.6 million at March 31, 2010. During 2008 and 2009
the Company has invested significant capital in its North Sea oil and gas
assets, mainly on the development of the West Don field which commenced
production in April 2009 and which was largely financed with debt from its bank
facilities. The investment in the North Sea has resulted in a significant and
planned increase in net debt, although this debt was reduced in 2009 and 2010
from the $110.0 million total proceeds of sale of the Company's Breagh field and
its Italian business. However, the Company is not currently funded for certain
other of its operating commitments, all of which are outlined in note 18.
Failure to make any operational payments or debt repayments as they fall due
could trigger default provisions in the Company's lending agreements.
The ability of the Company to continue to operate as a going concern is
dependent on the availability of new equity, the timing and operational success
of anticipated cash flows to be received from production on its North Sea oil
and gas assets, and the continuing support of the banking syndicate (see further
discussion below) including the availability of existing bank financing which is
linked to oil prices, field performance and the level of independently certified
oil and gas reserves. Management is also continuing with its asset disposal
program (see notes 5 and 19).
In July 2009 the Company executed amendment agreements with its bank syndicate
for the amendment of its bank loan facilities, to include the deferral of
certain repayments due in the second quarter of 2009, and the provision of
temporary additional credit, pending repayment of these and overall bank debt
reduction from the proceeds of the sale of the Breagh asset, which occurred in
August 2009. Under the amended agreement, as from April 30, 2009, the Borrowing
Base Facility was reduced from $115.0 million to $95.0 million, including the
$5.0 million working capital facility.
As part of these arrangements, the Company agreed with its bank syndicate the
amendment of the $35.0 million Undeveloped Asset Backed Facility to increase
availability to a maximum of $51.0 million with its use extended to general
corporate purposes. In August 2009 the Undeveloped Asset Backed Facility was
repaid in full from the proceeds of the sale of the Breagh asset, and cancelled.
At the end of 2009, the terms of the Borrowing Base Facility required the
Company to make a scheduled debt repayment of $15.9 million by December 31, 2009
for which funds were not available, as a result of production under-performance
of the West Don field since start-up. Accordingly, in December 2009, the Company
reached agreement with the bank syndicate for the temporary waiver of this
repayment. In January 2010 the facility was redetermined and the foregoing
repayment was revised to $17.7 million, and an amendment agreement to the
facility was executed to enable the further deferral of this repayment until the
earlier of June 30, 2010 and the receipt of the proceeds from the sale of
Stratic's Italian business, which subsequently occurred in April 2010 (see notes
5 and 19). As part of the amendment $9.9 million of additional temporary credit
was made available for general corporate purposes under the Borrowing Base
Facility, to cover funding shortfalls in the period until receipt of the Italian
sale proceeds, of which $1.0 million was drawn in the first quarter of 2010. It
was also agreed as part of the amendment that an additional $7.0 million
(including $2.0 million under the working capital facility) would be repaid from
the Italian sale proceeds.
Accordingly, total facility drawings of $25.7 million at the end of March 2010
have been repaid in April 2010, with a further $0.6 million repaid in May 2010
following the agreement to sell Straic's Turkish business, leaving a balance of
$22.7 million currently outstanding.
Under the Borrowing Base Facility amendment agreement executed in January 2010,
with effect from the date the foregoing repayments were made from the Italian
sales proceeds, the Borrowing Base Facility commitment has been reduced for the
remainder of 2010 from $95.0 million to $63.0 million, including the original
working capital facility which has been reduced to $3.0 million. Thereafter the
Borrowing Base Facility commitment reduces in amount according to an amended
facility schedule, until final maturity. The facility amendment included the
payment of waiver and amendment fees, and temporarily increased margins on
drawings.
The Board believes the aforementioned courses of action and activities provide a
reasonable expectation of mitigating the adverse conditions and events which may
raise doubt about the validity of the going concern assumption used in preparing
these consolidated financial statements. Therefore, the consolidated financial
statements do not reflect the adjustments that would be necessary if the going
concern assumption were not appropriate. If the going concern assumption were
not appropriate for these consolidated financial statements, adjustments might
be necessary to the carrying values of assets and liabilities, the reported
revenues and expenses and the balance sheet classifications used.
2. SIGNIFICANT ACCOUNTING POLICIES
These interim consolidated financial statements are stated in United States
dollars, have been prepared by management in accordance with Canadian generally
accepted accounting principles ("GAAP") following the same accounting policies
and methods of computation as the audited consolidated financial statements for
the year ended December 31, 2009, and include the accounts of the Company and
its wholly owned subsidiaries. The following disclosure is incremental to the
disclosure included in the annual consolidated financial statements. These
interim consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto of the Company for the year
ended December 31, 2009. Preparation of the financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses for the period. Actual results may differ materially
from those estimates. Certain amounts have been reclassified to conform to
current period presentation.
Specifically, the amounts recorded for the depletion and depreciation of
petroleum and natural gas assets and for the accretion of asset retirement
obligations are based on estimates. The ceiling test is based on estimates of
reserves, production rates, oil and gas prices, future costs and other relevant
assumptions. The amounts for unit-based compensation are based on estimates of
unit price and performance factors. Future income taxes are based on estimates
as to the timing of the reversal of temporary differences, and tax rates
currently substantively enacted. By their nature, these estimates are subject to
measurement uncertainty and the effect on the financial statements of changes in
such estimates in future periods could be material.
3. ACCOUNTS RECEIVABLE AND PREPAIDS
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | March 31, | |December 31, |
| | | | | 2010 | | 2009 |
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | | | |
+----------+------+--------+-----+--------------+----------+--------------+
| Trade receivables | $ | | $ 4,872 |
| | - | | |
+--------------------------------+--------------+----------+--------------+
| Joint venture receivables and | 1,221 | | 47 |
| prepaids | | | |
+--------------------------------+--------------+----------+--------------+
| Other debtors | | | 792 | | 549 |
+-----------------+--------+-----+--------------+----------+--------------+
| Prepaids | | | 483 | | 303 |
+-----------------+--------+-----+--------------+----------+--------------+
| | $ 2,496 | | $ 5,771 |
| | | | |
+----------+------+--------+-----+--------------+----------+--------------+
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | March 31, | |December 31, |
| | | | | 2010 | | 2009 |
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | | | |
+----------+------+--------+-----+--------------+----------+--------------+
| United Kingdom | $ 965 | | $ 5,487 |
+--------------------------------+--------------+----------+--------------+
| Canada | | | 305 | | 223 |
+-----------------+--------+-----+--------------+----------+--------------+
| Other | 1,226 | | 61 |
+--------------------------------+--------------+----------+--------------+
| | $ 2,496 | | $ 5,771 |
| | | | |
+----------+------+--------+-----+--------------+----------+--------------+
4. INVENTORIES
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | March 31, | |December 31, |
| | | | | 2010 | | 2009 |
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | | | |
+----------+------+--------+-----+--------------+----------+--------------+
| Crude oil inventory | $ 1,841 | | $ 1,359 |
+--------------------------------+--------------+----------+--------------+
| | | | |
+----------+------+--------+-----+--------------+----------+--------------+
During the three months ended March 31, 2010 $1,359,000 of crude oil inventory
has been recognized in expenses (2009 - $nil).
5. DISCONTINUED OPERATIONS
In November 2009, the Company entered into a sale and purchase agreement with
Enel Trade SpA in respect of the sale of its entire Italian business. The
Italian business has been sold to allow the Company to reduce bank debt and
focus on its core assets.
The sale was for cash consideration of EUR33.0 million ($44.1 million), and the
assumption of existing obligations relating to the assets. Stratic is entitled
to receive a further payment of EUR6.6 million ($8.8 million) provided the
commencement of first production takes place by the end of 2011, reducing by
EUR18,033 ($24,117) per day, with no payment due if production commences after the
end of 2012. The Company has not recognized the benefit of this contingent gain
in the financial statements. Stratic is also due to receive EUR1.7 million ($2.3
million) for back costs expected to be paid later in 2010 subject to the
Longanesi field development receiving government approval. The sale was
completed and cash received of EUR33.0 million ($44.1 million) on April 20, 2010.
In May 2010 Stratic signed a sale and purchase agreement in respect of its
Turkish subsidiary Stratic Energy (Turkey) Inc. ('SETI'). The total cash
received from the deal will be $3.5 million, of which $2.4 million has already
been paid to Stratic by SETI during the current year, $0.6 million was payable
on completion and $0.5 million is due in December 2010. The purchasers have
acquired all the assets and liabilities of SETI on completion. The sale was
completed and cash of $0.6 million was received on May 12, 2010. As a result,
the Italian and Turkish asset and liability balances for 2010 associated with
discontinued operations have been shown as current.
The Company has reflected the disposal of the entire Italian business and
Turkish subsidiary as discontinued operations, resulting in the reclassification
of accounts receivable, other assets, property plant and equipment, accounts
payable and accrued liabilities, asset retirement obligations and future tax
balances on the consolidated balance sheet, and the reclassification of the net
loss from discontinued operations as a separate item in the consolidated
statement of loss. Comparative figures have also been reclassified.
The following table provides additional information with respect to the amounts
included in the consolidated balance sheet as it pertains to the composition of
current assets and liabilities related to discontinued operations. Property,
plant and equipment has been recorded at the lower of cost or fair value:
+-----+------------------------------------+--+--------+--+--+--------+
| | | March | | December |
| | | 31, 2010 | | 31, 2009 |
+-----+------------------------------------+-----------+--+-----------+
| Current assets related to discontinued | | | |
| operations: | | | |
+------------------------------------------+-----------+--+-----------+
| Property, plant and equipment: | | | |
+------------------------------------------+-----------+--+-----------+
| | Italy |$ | 44,911 | |$ | 39,728 |
+-----+------------------------------------+--+--------+--+--+--------+
| | Turkey | 4,053 | | 4,882 |
+-----+------------------------------------+-----------+--+-----------+
| | | | | |
+-----+------------------------------------+-----------+--+-----------+
| Accounts receivable and prepaids - Italy | | | |
+------------------------------------------+-----------+--+-----------+
| | Italy | 34 | | 1,142 |
+-----+------------------------------------+-----------+--+-----------+
| | Turkey | 665 | | 479 |
+-----+------------------------------------+-----------+--+-----------+
| | | | | |
+-----+------------------------------------+-----------+--+-----------+
| Other assets | | | |
+------------------------------------------+-----------+--+-----------+
| | Italy | - | | 1,586 |
+-----+------------------------------------+-----------+--+-----------+
| | Turkey | - | | 308 |
+-----+------------------------------------+-----------+--+-----------+
| | | | | |
+-----+------------------------------------+-----------+--+-----------+
| | | 49,663 | | 48,125 |
+-----+------------------------------------+-----------+--+-----------+
| Current liabilities related to | | | |
| discontinued operations: | | | |
+------------------------------------------+-----------+--+-----------+
| Accounts payable and accrued liabilities | | | |
+------------------------------------------+-----------+--+-----------+
| | Italy | (416) | | (620) |
+-----+------------------------------------+-----------+--+-----------+
| | Turkey | (1,370) | | (1,133) |
+-----+------------------------------------+-----------+--+-----------+
| | | | | |
+-----+------------------------------------+-----------+--+-----------+
| Asset retirement obligations | | | |
+------------------------------------------+-----------+--+-----------+
| | Italy | (510) | | (499) |
+-----+------------------------------------+-----------+--+-----------+
| | Turkey | (5,366) | | (5,235) |
+-----+------------------------------------+-----------+--+-----------+
| | | | | |
+-----+------------------------------------+-----------+--+-----------+
| | | | | |
+-----+------------------------------------+-----------+--+-----------+
| | | (7,662) | | (7,487) |
+-----+------------------------------------+-----------+--+-----------+
| | | | | |
+-----+------------------------------------+-----------+--+-----------+
| | |$ | 42,001 | |$ | 40,638 |
+-----+------------------------------------+--+--------+--+--+--------+
| | | | | |
+-----+------------------------------------+--+--------+--+--+--------+
The following table presents the composition of the net loss from discontinued
operations:
+--------+--------+--------+--------+--------+--------+---------+---------+--------+--------+---------+----------+
| | | | | | March 31, 2010 | | March 31, 2009 |
+--------+--------+--------+--------+--------+----------------------------+--------+-----------------------------+
| | | | | | Italy | Turkey | Total | | Italy | Turkey | Total |
+--------+--------+--------+--------+--------+--------+---------+---------+--------+--------+---------+----------+
| | | | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+---------+---------+--------+--------+---------+----------+
| Oil and natural gas sales | $ | $ | $ | | $ | $ | $ |
| | - | 1,265 | 1,265 | | - | 1,373 | 1,373 |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| Less: Royalties | - | (184) | (184) | | - | (200) | (200) |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| Interest and other income | - | - | - | | - | 1 | 1 |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| | - | 1,081 | 1,081 | | - | 1,174 | 1,174 |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| | | | | | | | |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| Operating costs | - | (268) | (268) | | - | (182) | (182) |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| General and administrative | (275) | (52) | (327) | | (263) | (51) | (314) |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| Write down of property plant and equipment | - | - | - | | - | (900) | (900) |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| Depletion, depreciation and accretion | (12) | (1,087) | (1,099) | | (10) | (783) | (793) |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| Financial charges | (465) | - | (465) | | - | - | - |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| Foreign currency gain (loss) | 295 | (17) | 278 | | - | (121) | (121) |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| | (457) | (1,424) | (1,881) | | (273) | (2,037) | (2,310) |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| | | | | | | | |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| | | | | | | | |
+--------------------------------------------+--------+---------+---------+--------+--------+---------+----------+
| Net loss | $(457) | $ | $ | | $(273) | $ | $(1,136) |
| | | (343) | (800) | | | (863) | |
+--------+--------+--------+--------+--------+--------+---------+---------+--------+--------+---------+----------+
6. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents consist of:
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | March 31, | |December 31, |
| | | | | 2010 | | 2009 |
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | | | |
+----------+------+--------+-----+--------------+----------+--------------+
| Syria - block 17 | | $ 700 | | $1,045 |
+--------------------------+-----+--------------+----------+--------------+
| Interest | | | 37 | | - |
| payments | | | | | |
+-----------------+--------+-----+--------------+----------+--------------+
| | $ 737 | | $1,045 |
+----------+------+--------+-----+--------------+----------+--------------+
Restricted cash and cash equivalents consist of (i) deposits or advance funding
as assurance of funding for exploration and appraisal work programmes under the
terms of the relevant concessions or contracts, principally relating to
production sharing agreements in Syria and drilling rig contracts in the UK; and
(ii) deposits for future interest of payment obligations on the 2011 Convertible
Notes required under the Company's bank loan facilities.
7. OTHER ASSETS
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | March 31, | |December 31, |
| | | | | 2010 | | 2009 |
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | | | |
+----------+------+--------+-----+--------------+----------+--------------+
| Deferred financing charges | $2,741 | | $2,990 |
+--------------------------------+--------------+----------+--------------+
| Other debtors | | | 19 | | 19 |
+-----------------+--------+-----+--------------+----------+--------------+
| Prepayments | | | - | | 303 |
+-----------------+--------+-----+--------------+----------+--------------+
| | $2,760 | | $3,312 |
+----------+------+--------+-----+--------------+----------+--------------+
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | March 31, | |December 31, |
| | | | | 2010 | | 2009 |
+----------+------+--------+-----+--------------+----------+--------------+
| | | | | | | |
+----------+------+--------+-----+--------------+----------+--------------+
| United Kingdom | $2,741 | | $3,293 |
+--------------------------------+--------------+----------+--------------+
| Syria | | | 19 | | 19 |
+-----------------+--------+-----+--------------+----------+--------------+
| | $2,760 | | $3,312 |
+----------+------+--------+-----+--------------+----------+--------------+
8. PROPERTY, PLANT AND EQUIPMENT
+--------+--------+--------+--------+---------+---------+-------------+--------+------------+--------+---------+
| | | | | | | | | Petroleum | |
| | | | | | | | | and | |
| | | | | | | | Other | Natural | |
| | | | | | | | | Gas | |
| | | | | | | | |Properties | |
+--------+--------+--------+--------+---------+---------+-------------+ + +------------------+
| | | | | United | | | | | Other | |
| | | | | | | | | |Assets | |
+--------+--------+--------+--------+---------+---------+-------------+ + + +---------+
| | | | |Kingdom | Syria |Netherlands | | | | Total |
+--------+--------+--------+--------+---------+---------+-------------+--------+------------+--------+---------+
| | | | | | | | | | | |
+--------+--------+--------+--------+---------+---------+-------------+--------+------------+--------+---------+
| | | | | | | | | | | |
+--------+--------+--------+--------+---------+---------+-------------+--------+------------+--------+---------+
| Balance at December 31, 2009 | $94,709 | $ - | $1,334 | $219 | $96,262 | $294 | $96,556 |
+-----------------------------------+---------+---------+-------------+--------+------------+--------+---------+
| | | | | | | | | | | |
+--------+--------+--------+--------+---------+---------+-------------+--------+------------+--------+---------+
| | Additions | | 3,826 | 1,676 | 12 | - | 5,514 | 4 | 5,518 |
+--------+-----------------+--------+---------+---------+-------------+--------+------------+--------+---------+
| | Recoveries | - | - | (51) | - | (51) | - | (51) |
+--------+--------------------------+---------+---------+-------------+--------+------------+--------+---------+
| | Write-downs | - | (1,676) | - | - | (1,676) | - | (1,676) |
+--------+--------------------------+---------+---------+-------------+--------+------------+--------+---------+
| | Depletion and | (3,283) | - | - | - | (3,283) | (15) | (3,298) |
| | depreciation | | | | | | | |
+--------+--------------------------+---------+---------+-------------+--------+------------+--------+---------+
| | | | | | | | | |
+--------+--------------------------+---------+---------+-------------+--------+------------+--------+---------+
| | | | | | | | | | | |
+--------+--------+--------+--------+---------+---------+-------------+--------+------------+--------+---------+
| Balance at March 31, 2010 | $95,252 | $- | $1,295 | $219 | $96,766 | $283 | $97,049 |
+--------+--------+--------+--------+---------+---------+-------------+--------+------------+--------+---------+
Capitalised costs include $22.5 million (December 31, 2009 - $19.7 million),
which are not being depreciated, depleted or amortised relating to unproved
properties and projects under construction or development and $74.3 million
(December 31, 2009 - $76.6 million) relating to producing properties in the UK.
As at March 31, 2010, total petroleum and natural gas property costs are $166.5
million (December 31, 2009 - $161.0 million), total accumulated depreciation is
$69.7 (December 31, 2009 - $64.7 million) and net book value $96.8 million
(December 31, 2009 - $96.3 million).
At March 31, 2010 the Company applied a ceiling test to the carrying value of
its proved properties. No impairment of producing properties was required to be
recognized. During the first quarter of 2010 the Company completed its drilling
program in Syria resulting in a dry hole on block 17. The Company has therefore
impaired its Syria property plant and equipment by $1.7 million.
At March 31, 2009 the Company applied a ceiling test to the carrying value of
its proved properties. No impairment of producing properties was required to be
recognized, except in respect of the Company's gas development offshore Turkey.
Impairment of that asset, resulting from reduced gas prices in Turkey in 2009,
was measured at $0.9 million and charged as an expense in the period.
The ceiling test at March 31, 2010 used the expected future market prices as
detailed below:
+-------+--------+--------+--------+-------+
| | UK | UK | | |
| | $/bbl | $/mcf | | |
+-------+--------+--------+--------+-------+
| 2010 | 78.50 | 8.99 | | |
+-------+--------+--------+--------+-------+
| 2011 | 81.80 | 9.51 | | |
+-------+--------+--------+--------+-------+
| 2012 | 85.10 | 9.90 | | |
+-------+--------+--------+--------+-------+
| 2013 | 88.60 | 10.30 | | |
+-------+--------+--------+--------+-------+
| 2014 | 92.10 | 10.71 | | |
+-------+--------+--------+--------+-------+
| 2015 | 95.02 | 11.06 | | |
+-------+--------+--------+--------+-------+
| 2016 | 96.96 | 11.29 | | |
+-------+--------+--------+--------+-------+
| 2017 | 98.92 | 11.52 | | |
+-------+--------+--------+--------+-------+
| 2018 | 100.85 | 11.75 | | |
+-------+--------+--------+--------+-------+
| 2019 | 102.94 | 11.99 | | |
+-------+--------+--------+--------+-------+
| 2020 | 104.99 | 12.23 | | |
+-------+--------+--------+--------+-------+
| 2021 | 107.06 | 12.47 | | |
+-------+--------+--------+--------+-------+
| 2022 | 109.20 | 12.72 | | |
+-------+--------+--------+--------+-------+
The market prices are estimated using the methodology described in the Company's
most recent NI 51-101 form F1 effective December 31, 2009, and have been updated
to reflect the data from the relevant published forecasts effective March 31,
2010.
9. CONVERTIBLE NOTES
8.75% Convertible Notes due 2011 ("2011 Notes")
The Company has outstanding US $15.0 million principal 8.75% unsecured
convertible notes with a final maturity date of April 27, 2011, which are
convertible into common shares of Stratic, at any time, at the option of the
Noteholder, at a price of Cdn $1.56 per share. The 2011 Notes pay interest
semi-annually on May 12 and November 12. The 2011 Noteholders may elect to
receive Stratic common shares in payment of interest, based on a 10% discount to
market prices during the 30 day period prior to the relevant payment date,
instead of cash.
The Company can, at any time up to the maturity date, require conversion of the
2011 Notes into common shares if the price of the shares over a 25 day period
prior to giving such notice is at least Cdn $2.65 per share. The Company may
also elect to redeem the 2011 Notes at par at any time prior to their maturity.
At maturity the notes require settlement at par value with cash.
The 2011 Notes are recorded as a liability at the fair value of the obligation
without the conversion feature. This obligation to make future payments of
principal and interest was determined to be $14.0 million. The difference
between the principal amount of $15.0 million and the fair value of the
obligation was $1.0 million and has been recorded in shareholders' equity as the
fair value of the conversion feature of the notes.
Under the Company's loan facility future payments of interest on the 2011 Notes
is required to be kept in a separate bank account (see note 6).
9% Convertible Notes due 2013 ("2013 Notes")
The Company has outstanding US $49.5 million principal amount of 9% subordinated
unsecured convertible notes, with a final maturity date of April 8, 2013. The
2013 Notes rank pari passu with the 2011 Notes and both are subordinated to the
bank debt described in note 10 below. The 2013 Notes are convertible, at the
option of the 2013 Noteholders, into common shares of Stratic at a price of US
$1.00 per common share, at any time until their maturity. The 2013 Notes are
redeemable by the Company after the second anniversary of issuance, at par plus
accrued interest to the redemption date, provided that the average price of the
Company's common shares on their primary exchange for the preceding 20 trading
days is greater than Cdn $1.75 per share. Interest on the 2013 Notes is payable
semi-annually on June 30 and December 31. At the Company's option, interest may
either be paid in cash or capitalised as additional principal on the 2013 Notes,
subject to the same interest and conversion terms. At maturity the notes require
settlement at par value with cash.
The 2013 Notes are recorded as a liability at the fair value of the obligation
without the conversion feature, net of issue costs. This obligation to make
future payments of principal and interest was determined to be $43.6 million.
The difference between the principal amount of $49.5 million and the fair value
of the obligation was $5.9 million and has been recorded in shareholders' equity
as the fair value of the conversion feature of the notes.
The following is a summary of the convertible notes:
+---------------------------+------------+-------------+
| |Conversion | Maturity |
| Notes | price | |
+---------------------------+------------+-------------+
| 8.75% Convertible Notes | Cdn | April 27, |
| due 2011 | $1.56 | 2011 |
+---------------------------+------------+-------------+
| 9% Convertible Notes due | US | |
| 2013 | $1.00 | April 8, |
| | | 2013 |
+---------------------------+------------+-------------+
| | | |
+---------------------------+------------+-------------+
The following table summarises the convertible note activities which include the
2011 and 2013 Notes, for the period ended March 31, 2010:
+------------------------------+---------+-----------+-----------+
| | Face | Debt | Equity |
| | value |Component |Component |
+------------------------------+---------+-----------+-----------+
| Balance at December 31, 2009 | $ | $ | $ |
| | 64,506 | 59,470 | 6,901 |
+------------------------------+---------+-----------+-----------+
| Accretion | - | 358 | - |
+------------------------------+---------+-----------+-----------+
| Balance at March 31, 2010 | $ | $ | $ |
| | 64,506 | 59,828 | 6,901 |
+------------------------------+---------+-----------+-----------+
| | | | |
+------------------------------+---------+-----------+-----------+
The following table summarises the face value and carrying value of the
convertible notes:
+---------------------------+---------+----------+---------+----------+
| Notes | March 31, 2010 | December 31, |
| | | 2009 |
+---------------------------+--------------------+--------------------+
| | Face |Carrying | Face |Carrying |
| | value | value | value | value |
+---------------------------+---------+----------+---------+----------+
| 8.75% Convertible Notes | $15,000 | $14,659 | $15,000 | $14,581 |
| due 2011 | | | | |
+---------------------------+---------+----------+---------+----------+
| 9% Convertible Notes due | 49,506 | 45,169 | 49,506 | 44,889 |
| 2013 | | | | |
+---------------------------+---------+----------+---------+----------+
| | $64,506 | $59,828 | $64,506 | $59,470 |
+---------------------------+---------+----------+---------+----------+
10. BANK LOAN
At December 31, 2008 the Company had available to certain subsidiaries of the
Company $150.0 million of bank debt facilities comprising a $110.0 million
senior secured Borrowing Base Facility, principally for funding development
projects, and a $35.0 million secured Undeveloped Asset Backed Facility
principally for funding of pre-development expenditures, and a $5.0 million
Working Capital Facility used for general corporate purposes.
In July 2009 the Company executed amendment agreements with its bank syndicate
for the amendment of its bank loan facilities, to include the deferral of
certain repayments due in the second quarter of 2009, and the provision of
temporary additional credit, pending repayment of these and overall bank debt
reduction from the proceeds of the sale of the Breagh asset, which occurred in
August 2009. Under the amended agreement, as from April 30, 2009 the Borrowing
Base Facility was reduced from $115.0 million to $95.0 million, including the
$5.0 million working capital facility.
As part of these arrangements, the Company agreed with its bank syndicate the
amendment of the $35.0 million Undeveloped Asset Backed Facility to increase
availability to a maximum of $51.0 million with use extended to general
corporate purposes. In August 2009 the Undeveloped Asset Backed Facility was
repaid in full from the proceeds of the sale of the Breagh asset, and cancelled.
At the end of 2009, the terms of the Borrowing Base Facility required the
Company to make a scheduled debt repayment of $15.9 million by December 31, 2009
for which funds were not available, as a result of production under-performance
of the West Don field since start-up. Accordingly, in December 2009, the Company
reached agreement with the bank syndicate for the temporary waiver of this
repayment. In January 2010 the facility was redetermined and the foregoing
repayment was revised to $17.7 million, and an amendment agreement to the
facility was executed to enable the further deferral of this repayment until the
earlier of June 30, 2010 and the receipt of the proceeds from the sale of
Stratic's Italian business, which subsequently occurred in April 2010 (see notes
5 and 19). As part of the amendment $9.9 million of additional temporary credit
was made available for general corporate purposes under the Borrowing Base
Facility, to cover funding shortfalls in the period until receipt of the Italian
sale proceeds, of which $1.0 million was drawn in the first quarter of 2010. It
was also agreed as part of the amendment that an additional $7.0 million
(including $2.0 million under the working capital facility) would be repaid from
the Italian sale proceeds.
Accordingly, total facility drawings of $25.7 million at the end of March 2010
have been repaid in April 2010, with a further $0.6 million repaid in May 2010
following the agreement to sell Straic's Turkish business, leaving a balance of
$22.7 million currently outstanding.
Under the Borrowing Base Facility amendment agreement executed in January 2010,
with effect from the date the foregoing repayments were made from the Italian
sales proceeds, the Borrowing Base Facility commitment has been reduced for the
remainder of 2010 from $95.0 million to $63.0 million, including the original
working capital facility which has been reduced to $3.0 million. Thereafter the
Borrowing Base Facility commitment reduces in amount according to an amended
facility schedule, until final maturity. The facility amendment included the
payment of waiver and amendment fees, and temporarily increased margins on
drawings.
The Borrowing Base Facility has a final maturity of December 31, 2012, mainly
with a current drawn margin over US dollar Libor of 4.5%. The effective interest
rate of the overall facility for the quarter ended March 31, 2010 was 8.87%. The
facility is secured by fixed charge over the shares of Stratic's major
subsidiary companies and certain operating subsidiaries and by floating charges
over the assets including project bank accounts of certain of those major
subsidiary companies and operating subsidiaries and by floating charge over
Stratic's project bank accounts. As at March 31, 2010 $49.0 million had been
utilized, mainly for the development of the West Don field. This comprises $39.1
million under the main tranche of the facility and a further $4.9 million under
the cost over-run tranche made available under the facility, together with $5.0
million drawn under the working capital facility. Following the loan repayment
made April 2010, the cost over-run tranche and additional temporary credit line
have been cancelled, and the working capital facility reduced to $3.0 million.
Availability under the Borrowing Base Facility is primarily governed by a
borrowing base determined according to the net present value of certain bank
approved project cashflows and defined cover ratios. Projects approved for
inclusion in the facility are the West Don and South Akcakoca phase 1
developments. South Akcakoca was removed from the borrowing base when Stratic's
Turkish business was sold in May 2010. The borrowing base is scheduled in the
normal course for a redetermination twice a year, as of June 30 and December 31,
in which the latest independently certified reserves, production and cost
profiles, together with bank approved economic assumptions including oil and gas
prices and interest rates are used. The redetermination due as of June 30, 2009
was deferred by agreement with the bank syndicate as part of the amendment
arrangements agreed earlier in 2009 and detailed above, and the redetermination
as of the end of 2009 was finalized in January 2010 incorporating updated
reserves for the West Don field from Stratic's independent reporting engineers
Ryder Scott. The next redetermination is due as of June 30, 2010.
The January 2010 redetermination and amendment agreement referred to above, as
subsequently amended to reflect the $1.0 million drawing in the first quarter
2010, resulted in repayments of $25.7 million due from the proceeds of the
Italian sale, a $0.6 million repayment in May 2010, $3.8 million due on June 30,
2010, and $6.5 million due on December 31, 2010 (making a total of $36.6 million
for the twelve months following March 31, 2010). Repayments of $9.5 million are
due in 2011 and the working capital facility drawing of $3.0 million is due for
repayment by December 31, 2012. Accordingly $36.6 million of the facility
drawings at March 31, 2010 are shown as a current liability, and $12.5 million
as a long-term liability. In practice, the actual repayment schedule will be
variable, with projected repayments subject to periodic amendments with each
future redetermination, the inclusion or removal of projects, and also the
uplift of reserves of the West Don field within the facility from proved to
proved plus probable reserves at project completion.
The Undeveloped Asset Backed Facility had a final maturity of March 31, 2011,
and its drawn margin over US dollar Libor was increased to 12% from July 2009,
until repayment and cancellation of the facility which occurred at the end of
August 2009. The effective interest rate of the facility while outstanding for
the year ended December 31, 2009 was 7.72%.
The costs incurred to establish the long-term loans have been included in
deferred financing charges on the balance sheet. The balance at March 31, 2010
was $2.7 million (December 31, 2009 - $3.0 million). During the period ended
March 31, 2010, the Company recorded amortisation of these charges totaling $0.2
million (2008 - $0.3 million) in financial charges (see note 11).
11. FINANCIAL CHARGES
During the periods ended March 31, 2010 and 2009, the Company incurred interest
charges on bank debt and convertible notes as well as commitment and amendment
fees on bank debt, amortisation of financial charges and accretion of the
convertible notes liability as follows:
+----------+------+--------+------+---------------+----------+-------------+
| | | | | 2010 | | 2009 |
+----------+------+--------+------+---------------+----------+-------------+
| | | | | | | |
+----------+------+--------+------+---------------+----------+-------------+
| Bank debt interest | $ 1,017 | | $ 623 |
+---------------------------------+---------------+----------+-------------+
| Convertible note interest | 1,431 | | 1,343 |
+---------------------------------+---------------+----------+-------------+
| Bank debt commitment and other | 2,420 | | 199 |
| fees | | | |
+---------------------------------+---------------+----------+-------------+
| Amortisation of | | 249 | | 261 |
| financial charges | | | | |
+--------------------------+------+---------------+----------+-------------+
| Accretion of convertible | | 358 | | 284 |
| notes liability | | | | |
+--------------------------+------+---------------+----------+-------------+
| | $ 5,475 | | $ 2,710 |
+----------+------+--------+------+---------------+----------+-------------+
Bank fees for the period ended March 31, 2010 include fees payable for the
amendment of the bank facility in January 2010.
12. ASSET RETIREMENT OBLIGATIONS
The following table summarises changes in the asset retirement obligations for
the three months ended March 31, 2010 and for the year ended December 31, 2009.
+---------+------+--------+---------+------------+----------+-------------+
| | | | | Three | | |
| | | | | months | | Year ended |
| | | | | ended | | |
+---------+------+--------+---------+------------+----------+-------------+
| | | | | March 31, | | December |
| | | | | 2010 | | 31, 2009 |
+---------+------+--------+---------+------------+----------+-------------+
| | | | | | | |
+---------+------+--------+---------+------------+----------+-------------+
| Asset retirement obligations - | $ 12,046 | | $ 10,943 |
| beginning of period | | | |
+-----------------------------------+------------+----------+-------------+
| Liabilities | | | - | | 156 |
| incurred | | | | | |
+----------------+--------+---------+------------+----------+-------------+
| Liabilities eliminated on | - | | (351) |
| disposal | | | |
+-----------------------------------+------------+----------+-------------+
| Accretion | | | 360 | | 1,284 |
| expense | | | | | |
+----------------+--------+---------+------------+----------+-------------+
| Foreign | | | - | | 14 |
| currency | | | | | |
+----------------+--------+---------+------------+----------+-------------+
| Asset retirement obligations - | $ 12,406 | | $ 12,046 |
| end of period | | | |
+-----------------------------------+------------+----------+-------------+
| | | | |
+-----------------------------------+------------+----------+-------------+
| Asset retirement obligations - | 6,530 | | 6,312 |
| continuing operations | | | |
+-----------------------------------+------------+----------+-------------+
| Asset retirement obligations - | 5,876 | | 5,734 |
| discontinued operations | | | |
+-----------------------------------+------------+----------+-------------+
| | $ 12,406 | | $ 12,046 |
+---------+------+--------+---------+------------+----------+-------------+
The inflated undiscounted amount of the estimated future cash flows required to
settle the obligation is $25.3 million (December 31, 2009 - $25.3 million).
These obligations are expected to be settled in the future with a weighted
average life of approximately 10 years. The estimated future cash flows have
been discounted at the credit adjusted risk free rate in the range of 10% to
13.5% (December 31, 2009 10% to 13.5%). As at March 31, 2010, no funds have been
set aside to settle these obligations.
13. SHARE CAPITAL
(a) Authorised
Unlimited number of voting common shares
Unlimited number of non-voting common shares
Unlimited number of preferred shares
(b) Issued
+--------+--------+--------+--------+--------+--------+--------+--------------+--------+---------+
| | | | | | | Number | | |
| | | | | | | of | | |
+-----------------+--------+--------+--------+--------+--------+--------------+--------+---------+
| Voting common shares | | | | Shares | | Stated |
| | | | | | | Value |
+-----------------------------------+--------+--------+--------+--------------+--------+---------+
| | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+--------------+--------+---------+
| | | | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+--------------+--------+---------+
| Balance - March 31, 2010 and December 31, 2009 | 272,635,224 | | $ |
| | | | 205,432 |
+--------+--------+--------+--------+--------+--------+--------+--------------+--------+---------+
(c) Reserved for issuance
Stock Options
+-----------+--------+--------+--------+--------+------------------+--------+----------+
| | | | | | Number | |Weighted |
| | | | | | of | | Avg. |
+-----------+--------+--------+--------+--------+------------------+--------+----------+
| | | | | | Options | |Exercise |
| | | | | | | | Price |
+-----------+--------+--------+--------+--------+------------------+--------+----------+
| | | | | | | | |
+-----------+--------+--------+--------+--------+------------------+--------+----------+
| Balance at December 31, | | | 26,039,736 | | Cdn |
| 2009 | | | | | $0.70 |
+-----------------------------+--------+--------+------------------+--------+----------+
| Forfeited | | | | | (1,150,000) | | Cdn |
| | | | | | | | $0.54 |
+-----------+--------+--------+--------+--------+------------------+--------+----------+
| Expired | | | | | (1,075,000) | | Cdn |
| | | | | | | | $1.17 |
+-----------+--------+--------+--------+--------+------------------+--------+----------+
| Balance at March 31, | | | 23,814,736 | | Cdn |
| 2010 | | | | | $0.69 |
+-----------------------------+--------+--------+------------------+--------+----------+
| | | | | | | | |
+-----------+--------+--------+--------+--------+------------------+--------+----------+
| Exercisable at March 31, | | | 19,902,236 | | Cdn |
| 2010 | | | | | $0.76 |
+-----------+--------+--------+--------+--------+------------------+--------+----------+
(d) Net loss per share
The net loss per share for the three months ended March 31, 2010 has been
calculated using the basic weighted average number of voting common shares
outstanding during the period of 272,635,224 (2009 - 272,635,224). The impact
of stock options totaling 23,814,736 (2009 - 24,836,917) common shares and the
2011 and 2013 Notes which are currently convertible into approximately 10.1
million (2009 - 12.1 million) and 49.5 million (2009 - 45.4 million) common
shares, respectively would not be dilutive for the periods ended March 31, 2010
and 2009 as the Company is in a loss position and, therefore, the diluted
weighted average number of voting common shares equals the basic weighted
average number of voting common shares.
14. CONTRIBUTED SURPLUS
+--------+--------+--------+--------+--------+--------+----------+--------+----------+
| | | | | | | Three | | Year |
| | | | | | | months | | ended |
| | | | | | | ended | | |
+--------+--------+--------+--------+--------+--------+----------+--------+----------+
| | | | | | | March | |December |
| | | | | | |31, 2010 | |31, 2009 |
+--------+--------+--------+--------+--------+--------+----------+--------+----------+
| Balance at beginning of | | | | $21,515 | | $17,575 |
| period | | | | | | |
+--------------------------+--------+--------+--------+----------+--------+----------+
| Stock-based compensation | | | | 409 | | 3,940 |
+--------------------------+--------+--------+--------+----------+--------+----------+
| | | | | | | |
+--------------------------+--------+--------+--------+----------+--------+----------+
| Balance at end of period | | | | $21,924 | | |
| | | | | | | $21,515 |
+--------+--------+--------+--------+--------+--------+----------+--------+----------+
15. SEGMENTED INFOMATION
Revenue is attributed to the following countries:
+--------------------------------------------+---------+----------+---------+
| | 2010 | | 2009 |
+--------------------------------------------+---------+----------+---------+
| | | | |
+--------------------------------------------+---------+----------+---------+
| Canada | $ | | $ |
| | - | | 1 |
+--------------------------------------------+---------+----------+---------+
| United Kingdom | 4,329 | | 2 |
+--------------------------------------------+---------+----------+---------+
| | | | |
+--------------------------------------------+---------+----------+---------+
| | $ | | $ |
| | 4,329 | | 3 |
+--------------------------------------------+---------+----------+---------+
| | | | |
+--------------------------------------------+---------+----------+---------+
The United Kingdom petroleum sales are all purchased by Shell Trading and
Shipping Company (STASCO).
Net loss is attributable to the following countries:
+--------------------------------------------+---------+----------+---------+
| | 2010 | | 2009 |
+--------------------------------------------+---------+----------+---------+
| | | | |
+--------------------------------------------+---------+----------+---------+
| United Kingdom | $ | | $ |
| | 5,564 | | 2,011 |
+--------------------------------------------+---------+----------+---------+
| Canada | 2,695 | | 3,575 |
+--------------------------------------------+---------+----------+---------+
| Netherlands | 24 | | 33 |
+--------------------------------------------+---------+----------+---------+
| Syria | 1,693 | | - |
+--------------------------------------------+---------+----------+---------+
| Other | 3 | | 53 |
+--------------------------------------------+---------+----------+---------+
| | $ 9,979 | | $ |
| | | | 5,672 |
+--------------------------------------------+---------+----------+---------+
| | | | |
+--------------------------------------------+---------+----------+---------+
The segmental breakdown of property, plant and equipment is shown in note 8.
16. FINANCIAL RISK MANAGEMENT
This note presents information about the Company's exposure to credit, liquidity
and market risks arising from its use of financial instruments and the Company's
objectives, policies and processes for measuring and managing such risks.
Further quantitative disclosures are included throughout these financial
statements.
The Board of Directors has overall responsibility for the establishment and
oversight of the Company's risk management framework. The Board has implemented
treasury and risk management policies and monitors compliance with those
policies. The treasury and risk management policies are established to identify
and analyse the relevant risks faced by the Company, to set appropriate risk
limits and controls, specify permitted risk management tools and to monitor
adherence to the policies.
(a) Global financial risk
Recent market events and conditions, including disruptions in the international
credit markets and other financial systems and the deterioration of global
economic conditions, have caused significant volatility to commodity prices.
These conditions continued in 2009, having caused a loss of confidence in the
global credit and financial markets and resulting in the collapse of, and
government intervention in, major banks, financial institutions and insurers and
creating a climate of greater volatility, less liquidity, widening of credit
spreads, a lack of price transparency, increased credit losses and tighter
credit conditions. Notwithstanding recent signs of improving conditions
following various actions by governments, concerns about the general condition
of the capital markets, financial instruments, banks, investment banks, insurers
and other financial institutions have caused the broader credit markets to
remain difficult, although the major stock markets have recovered somewhat since
the low point early in 2009. More recently sovereign credit risk has become a
market concern. These factors have negatively impacted company valuations and
will impact the performance of the global economy going forward.
(b) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Company's petroleum and natural
gas sales and joint venture activities(including potential joint liabilities for
co-venturers' share of obligations entered into on behalf of the joint
ventures). As at March 31, 2010 the Company's receivables consisted of $1.2
million (December 31, 2009 - $0.1 million) from joint venture partners, $nil
million (December 31, 2009 - $4.9 million) of receivables from petroleum and
natural gas buyers and $1.3 million (December 31, 2009 - $0.8 million) of other
trade receivables.
Receivables from natural gas marketers are normally collected in the month
following production. The Company's policy to mitigate credit risk associated
with these balances is to enter into contractual arrangements with reliable
purchasers with an adequate capital base. In respect of its Turkish gas sales,
the Company also benefitted from bank guarantees provided by the purchaser. The
Company has not historically experienced any material collection issues relating
to obligations of its natural gas buyers. Where the Company acts as operating
company for a joint venture, co-venturer receivables are typically collected
within one to three months of the joint venture bill being issued to the
partner. The Company attempts to mitigate the risk from joint venture
arrangements by entering into appropriate agreements only with companies which
have the capacity to meet their share of joint venture obligations and by
ensuring that partner approvals of capital expenditures are obtained prior to
expenditure. However, ultimately the collection of the outstanding balances is
dependent on industry factors which may impact those co-venturers, such as
commodity price fluctuations, escalating costs and the risk of unsuccessful
drilling. The Company does not typically obtain collateral from joint venture
partners; however the joint venture arrangements typically create rights over
the joint venture assets in favour of non-defaulting parties in the event of
non-payment by a co-venturer and requirement for collateral arrangements have
recently become a more common feature of drilling contracts.
Cash and cash equivalents, restricted and unrestricted, consist of cash bank
balances and short-term deposits maturing in less than 90 days. The Company
manages the credit exposure related to short-term investments by selecting
counterparties with strong credit ratings, monitoring them regularly and
avoiding complex investment vehicles with higher risk such as asset-backed
commercial paper. The Company has no short-term investments at the periods ended
March 31, 2010 and December 31, 2009.
The carrying amounts of cash and cash equivalents, restricted and unrestricted,
and accounts receivable represents the maximum credit exposure. The Company does
not have an allowance for doubtful accounts as at March 31, 2010 and December
31, 2009 and did not provide for any doubtful accounts nor was it required to
write-off any receivables during the periods ended March 31, 2010 and December
31, 2009. The Company considers none of its accounts receivable to be past their
due dates as at March 31, 2010 and December 31, 2009.
(c) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its
financial obligations as they fall due. The Company's approach to managing
liquidity is to ensure, as far as possible, that it will have sufficient
liquidity to meet its liabilities when due, under both normal and stressed
conditions without incurring unacceptable losses or risking harm to the
Company's reputation.
The Company prepares annual capital expenditure budgets, which are regularly
monitored and updated as considered necessary. Further, the Company utilises
authorisations for expenditures on both operated and non-operated projects to
further manage capital expenditures. To facilitate the capital expenditure
program, the Company has a revolving reserve-based credit facility and has
raised cash from the issue of convertible notes.
There is significant concern about the Company's ability to meet its financial
obligations discussed in note 1.
The following are the contractual maturities of financial liabilities as at
March 31, 2010:
+---------------------------+---------+--------+--------+---------+
| | | Less | | |
| | | than | | |
+---------------------------+---------+--------+--------+---------+
| | Total |1 year | 1 - 2 | 2 - 5 |
| | | | years | years |
+---------------------------+---------+--------+--------+---------+
| Accounts payable and | $ | $ | $ | $ |
| accrued liabilities | 14,446 | 14,446 | - | - |
+---------------------------+---------+--------+--------+---------+
| Bank debt - principal | 49,011 | 36,561 | 9,450 | 3,000 |
+---------------------------+---------+--------+--------+---------+
| Convertible notes - | 64,506 | - | 15,000 | 49,506 |
| principal | | | | |
+---------------------------+---------+--------+--------+---------+
| Total | $ | $ | $ | $ |
| | 127,963 | 51,007 | 24,450 | 52,506 |
+---------------------------+---------+--------+--------+---------+
(d) Market risk
Market risk is the risk that changes in market prices, such as commodity prices,
foreign currency exchange rates, and interest rates will affect the Company's
net earnings, cash flows or the value of financial instruments. The objective of
market risk management is to manage and control market risk exposures within
acceptable limits, while maximising returns. Any risk mitigation transactions,
including hedging, will only be conducted in accordance with the risk management
policies that have been approved by the Board of Directors.
Commodity risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in oil and natural gas
prices. Prices for petroleum and natural gas are impacted by world economic
events that dictate the levels of supply and demand as well as by local market
issues, especially for natural gas. The Company does not currently utilise
financial derivatives to hedge against commodity price risks, in view of the
current low volumes of production, presently only relating to sales of petroleum
and natural gas production in the United Kingdom and Turkey, but may use such
instruments in future as production volumes increase.
Currency risk is the risk that the fair value of future cash flows or financial
instruments will fluctuate as a result of changes in foreign currency exchange
rates. Currently the Company measures all exposures against the US dollar, which
is its reporting and functional currency. The principal currency exposures of
Stratic relate to capital expenditure commitments denominated in pounds sterling
and euros, and the proceeds of sale of the Italian business denominated in euros
(see notes 5 and 19). The Company's policy is to monitor foreign currency risk
exposures in areas of operation and mitigate that risk where possible by
matching foreign currency denominated expenses with sales contracts denominated
in foreign currencies. The Company may hold cash in the currencies in which it
has firmly planned projected expenditure or enter into short term currency
hedging arrangements in order to manage such risks. All of the Company's natural
gas sales were denominated in Turkish lira; this exposure is not currently
hedged. Oil sales are denominated in US dollars, which is the functional
currency of the Company's business. As at March 31, 2010, the Company had
outstanding a euro put option in respect of EUR30 million of its anticipated sales
proceeds for the disposal of the Italian business. The option had a strike price
of $1.30/EUR1.00 and matured on April 21, 2010. This option had a fair value of
$36,000 at March 31, 2010, which has been included in accounts receivable and
prepaids. The gain has been recorded within financial charges.
(e) Fair value of financial instruments
The Company's financial instruments as at March 31, 2010 and December 31, 2009
consist of cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities, bank loans and convertible notes. The fair value of cash
and cash equivalents, accounts receivable and accounts payable and accrued
liabilities approximate their carrying amounts due to their short-terms to
maturity. The Company's bank loan bears interest at a floating market rate and
accordingly the fair market value approximates the carrying value. The 2011
Notes outstanding with a face value of $15.0 million has a fair value of $14.7
million and the 2013 Notes outstanding with a face value of $49.5 million had a
fair value of $44.1 million determined by discounting the future contractual
cash flows under the notes at discount rates which represent borrowings
presently available to the Company for notes with similar terms and maturity.
Interest rate risk is the risk that future cash flows or the fair value of
financial instruments will fluctuate as a result of changes in market interest
rates. The Company is exposed to interest rate fluctuations on its bank debt
which bears a floating rate of interest principally applicable to US dollars.
If interest rates had been 1% lower for the three months ended March 31, 2010,
the net loss would have reduced by $100,000 with an equal an opposite impact had
interest rates been 1% higher. The Company had no interest rate swap or other
rate management contracts in place as at or during the three months ended March
31, 2010.
As at March 31, 2010 and December 31, 2009, the only financial assets measured
at fair value on the Company's balance sheet were cash and cash equivalents and
the euro put option on the Italian sale proceeds which have been valued using
level 1 and level 2 inputs respectively.
17. CAPITAL MANAGEMENT
The Company's policy is to maintain a capital base adequate to sustain the
future development of the business including having appropriate margins for
unforeseen events, and to implement its strategic objectives and thereby deliver
returns to shareholders.
The Company manages its capital structure and makes adjustments to it in light
of changes in economic conditions, the risk characteristics of the underlying
petroleum and natural gas assets and investment requirements. The Company
considers its capital to include shareholders' equity and subordinated
convertible notes together totalling $70.5 million. This capital is supplemented
with bank debt and working capital to finance the Company's operations. In broad
terms, the Company aims over the medium-term to use equity and similar capital
for risk investments such as exploration and appraisal expenditures, while using
debt finance for a substantial proportion of development expenditures.
The Company monitors capital requirements principally in relation to the
projected future cash flows and planned expenditures of its operations and the
current debt capacity of its assets as calculated under the relevant debt
facility agreements and expected future debt capacity of the assets. The
Company's debt capacity under its current bank facilities is linked to the
projected cash flows and reserves from certain of its oil and gas assets, as
well as continued compliance with cover ratios and covenants typical of oil and
gas industry finance, including those relating to the progress of projects.
Under existing bank and note agreements, the Company has restrictions over
incurring debt outside existing facilities, and also from making dividend
payments and distributions. In 2009 and 2010 the Company has been restructuring
by the sale of certain non-core assets to focus the business, and to reduce net
debt. As part of this it has amended its bank debt facilities (see note 10).
In order to facilitate the management of liquidity, the Company prepares annual
capital expenditure budgets and longer term plans, which are updated as
necessary depending on varying factors including current and forecast prices,
capital deployment and general industry conditions. The annual and updated
budgets are approved by the Board of Directors.
In order to maintain an adequate capital base the Company may from time to time
issue shares and undertake asset portfolio management. There were no changes in
the Company's approach to capital management during the period. The Company has
not paid or declared any dividends since the date of incorporation, nor are any
contemplated in the foreseeable future.
18. COMMITMENTS
The Company had the following outstanding commitments on its petroleum and
natural gas properties as at March 31, 2010.
(a) In December 2005 the Company entered into a production sharing contract
("PSC") with the Syrian Petroleum Company and the Syrian Government, for block
17, onshore Syria (Stratic 35%). Under the terms of the PSC, the Company had a
minimum remaining obligation to drill one firm exploratory well or invest $0.7
million. The Company has posted a $0.7 million deposit as assurance of funding
its financial commitment (note 6). The commitment was completed in the first
quarter of 2010 and the deposit is expected to be returned in the second quarter
of 2010. The Company has no further outstanding commitments in Syria.
(b) The Company, through its wholly-owned subsidiaries, Stratic Energy (UK)
Limited, Stratic Energy (North Sea) Ltd and Stratic Energy (Developments) Ltd,
has entered into the following work obligations with the UK licensing
authorities:
On Licence P1465 (blocks 15/23c; 15/24a; 15/28a; 15/29e) the Company and its
partners have a remaining commitment to drill one firm well and two contingent
wells within the licence period which expires April 2011 or the Company will
relinquish the licence. The estimated cost of the wells net to Stratic is up to
$21.3 million. The Company has now completed drilling the remaining firm
commitment well.
On Licence P1614 (block 15/30b) the Company and its partners have a commitment
to obtain and reprocess 45.3 sq km of 3D seismic data with a drill or drop
commitment to drill a well to 2,700m or water bearing Forties Formation,
whichever is shallower. The estimated cost of the seismic work net to Stratic
is $0.2 million.
On Licence P1582 (block 20/15a) Stratic has a commitment to reprocess 230sq km
of 3D seismic data and a drill or drop commitment to drill a well to 2,440m or
Top Fulmar, whichever is the shallower. The estimated cost of the seismic data
net to Stratic is $0.2 million.
(c) In the Dutch sector of the North Sea in the 'F Quad Blocks', the
Company through its wholly owned subsidiary Grove Energy Limited, has a drill or
drop commitment to drill a well in each licence block F14, F17a, F18 and L01b by
November 2010. The estimated cost of the wells net (at a 60% interest) to
Stratic is $28.8 million. In May 2010 the Company executed a farm-out agreement
in respect of these blocks.
(d) In Turkey, the Company had applied for three production leases, one for
each of the producing fields; Akkaya, Ayazli and East Ayazli. The balance of
the two exploration licences containing the producing fields, AR/TOR-SET-TPO-POS
/3499 and 3500, not covered by the new production leases, was expected to be
reissued as new exploration licences. Under the terms of the original eight
licences, the Company and its partners were required to drill an exploration
well by April 29, 2009, which date pursuant to regulations was extended to
September 10, 2009, in order to retain the current exploration licences.
Operator TPAO drilled an exploration well in 2009, West Ayazli-1, using the
Saturn jack-up drilling unit which satisfied this drilling commitment. The
Company completed the sale of its Turkish subsidiary in the second quarter 2010.
The Company has no further commitments in Turkey.
(e) In Morocco on the Guercif permit, Stratic is being fully carried on the
work obligation, which includes seismic acquisition of 300km of 2D data, with no
cost to the Company.
(f) The Company had obligations under operating leases in the UK and Italy
for office space as follows:
+-------------------------------+------+----------+--------+
| | | | 2010 |
+-------------------------------+------+----------+--------+
| | | | |
+-------------------------------+------+----------+--------+
| 2010 | | | 196 |
+-------------------------------+------+----------+--------+
| 2011 | | | 108 |
+-------------------------------+------+----------+--------+
| 2012 | | | 31 |
+-------------------------------+------+----------+--------+
| | | | |
+-------------------------------+------+----------+--------+
19. SUBSEQUENT EVENTS
In November 2009, the Company entered into a sale and purchase agreement with
Enel Trade SpA in respect of the sale of its entire Italian business. The
Italian business has been sold to allow the Company to reduce bank debt and
focus on its core assets.
The sale was for cash consideration of EUR33.0 million ($44.1 million), and the
assumption of existing obligations relating to the assets. Stratic is entitled
to receive a further payment of EUR6.6 million ($8.8 million) provided the
commencement of first production takes place by the end of 2011, reducing by
EUR18,033 ($24,117) per day, with no payment due if production commences after the
end of 2012. The Company has not recognized the benefit of this contingent gain
in the financial statements. Stratic is also due to receive EUR1.7 million ($2.3
million) for back costs expected to be paid later in 2010 subject to the
Longanesi field development receiving government approval. The sale was
completed and cash received of 33.0 million ($44.1 million) on April 20, 2010.
In May 2010 Stratic signed a sale and purchase agreement in respect of its
Turkish subsidiary SETI. The total cash received from the deal will be $3.5
million, of which $2.4 million has already been paid to Stratic by SETI during
the current year, $0.6 million was payable on completion and $0.5 million is due
in December 2010. The purchasers have acquired all the assets and liabilities of
SETI on completion. The sale was completed and cash of $0.6 million was received
on May 12, 2010.
In May 2010 Stratic executed a farm-out agreement in respect of its F Quad
license in the Netherlands.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's Discussion and Analysis ("MD&A") of the operating
and financial results of Stratic Energy Corporation ("Stratic" or the "Company")
for the three months ended March 31, 2010. The discussion and analysis should be
read in conjunction with the unaudited interim consolidated financial statements
as at March 31, 2010 and for the three months ended March 31, 2010 and 2009, and
the audited consolidated financial statements and accompanying notes for the
years ended December 31, 2009.
All figures herein have been prepared in accordance with Canadian generally
accepted accounting principles and are reported in US Dollars, unless otherwise
stated.
This MD&A is dated and provided as of May 28, 2010.
The financial statements referred to above, and additional information relating
to National Instrument 51-101 - Standards of Disclosure for Oil and Gas
Activities, the Company Statement of Reserves Data and Other Oil and Gas
Information for the year ended December 31, 2009, can be found at www.sedar.com.
In the MD&A the following abbreviations are used:
bbl barrel of oil
boe (1) barrels of oil equivalent
bopd barrels of oil per day
boepd barrels of oil equivalent per day
bcf billion standard cubic feet of gas
bwpd barrels of water per day
DECC UK Department of Energy and Climate Change
ft feet
mmbbls million barrels of oil
mmboe million barrels of oil equivalent
mmscf million standard cubic feet of gas
mmscf/d million standard cubic feet per day of gas
mscf or mcf thousand standard cubic feet of gas
(1) Natural gas is converted to crude oil equivalent at a ratio of six thousand
standard cubic feet to one barrel. Boe may be misleading, particularly if used
in isolation. A boe conversion rate of 6 mscf:1 bbl is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
FORWARD LOOKING STATEMENTS
Certain statements contained within this MD&A, and in certain documents
incorporated by reference into this document, constitute forward-looking
statements. These statements relate to future events or future performance. All
statements other than statements of historical fact may be forward-looking
statements. Forward-looking statements are often, but not always, identified by
the use of words such as "seek", "anticipate", "budget", "plan", "continue",
"estimate", "expect" "forecast', "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should", "believe" and
similar expressions. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in such forward-looking statements. The
Company believes the expectations reflected in those forward-looking statements
are reasonable but no assurance can be given that these expectations will prove
to be correct and such forward-looking statements included in, or incorporated
by reference into, this MD&A should not be unduly relied upon. These statements
speak only as of the date of this MD&A or as of the date specified in the
documents incorporated by reference into this MD&A, as the case may be.
This MD&A, and the documents incorporated by reference herein, contain
forward-looking statements pertaining to the following:
· the performance characteristics of our oil and natural gas properties;
· the size of our oil, natural gas liquids and natural gas reserves and
production levels;
· estimates of future cash flow;
· projections of market prices and costs;
· drilling plans and timing of drilling, recompletion and tie-in of wells;
· weighting of production between different commodities;
· commodity prices, exchange rates and interest rates;
· expected levels of royalty rates, operating costs, general and
administrative costs, costs of services and other costs and expenses;
· capital expenditure programs and other expenditures and the timing and
method of financing thereof;
· supply of and demand for oil, natural gas liquids and natural gas;
· expectations regarding our ability to raise capital and to add to
reserves through acquisitions and development;
· our acquisition and disposals strategy and the benefits to be derived
therefrom;
· our ability to grow or sustain production and reserves through prudent
management;
· the emergence of accretive growth opportunities and continued access to
capital markets;
· our future operating and financial results;
· schedules and timing of certain projects and our strategy for future
growth; and
· treatment under governmental and other regulatory regimes and tax,
environmental and other laws.
In particular, this MD&A contains the following forward-looking statements
pertaining to the following:
· production volumes;
· timing of cash flows;
· future oil and gas prices;
· operating costs;
· royalty rates;
· future development, exploration, and acquisition and development
activities and related expenditures;
· the amount of future asset retirement obligations;
· future liquidity and future financial capacity;
· future tax treatment of the Company; and
· future structure of the Company and its subsidiaries.
With respect to forward-looking statements contained in this MD&A and the
documents incorporated by reference herein, we have made assumptions regarding,
among other things:
· future oil and natural gas prices;
· the quality of oil and natural gas reserves and production;
· the continued availability of capital and other resources including
skilled personnel;
· the cost of expanding our licensed acreage;
· the ability to obtain equipment in a timely manner to carry out
exploration, development exploitation activities;
· the ability to obtain financing on acceptable terms;
· the ability to add production and reserves through exploration,
development and exploitation activities; and
· the continuation of the current tax and regulatory regime and other
assumptions contained in this MD&A and the documents incorporated by reference
herein.
The actual results could differ materially from those anticipated in these
forward-looking statements as a result of the risk factors set forth below and
elsewhere in this MD&A and the documents incorporated by reference into this
document:
· volatility in market prices for oil, natural gas liquids and natural gas;
· counterparty credit risk;
· access to capital;
· changes or fluctuations in oil, natural gas liquids and natural gas
production levels;
· liabilities inherent in oil and natural gas operations;
· adverse regulatory rulings, orders and decisions;
· attracting, retaining and motivating skilled personnel;
· uncertainties associated with estimating oil and natural gas reserves;
· competition for, among other things, capital, acquisitions of reserves,
licence acreage and services;
· incorrect assessments of the value of acquisitions and targeted
exploration and development assets;
· fluctuations in foreign exchange or interest rates;
· stock market volatility, market valuations and the market value of the
common shares of Stratic;
· failure to realize the anticipated benefits of acquisitions and/or
disposals;
· actions by governmental or regulatory authorities including changes in
royalty and fiscal structures relating to the oil and gas industry;
· limitations on insurance;
· changes in environmental or other legislation applicable to our
operations, and our ability to comply with current and future environmental and
other laws;
· geological, technical, drilling and processing problems and other
difficulties in producing oil, natural gas liquids and natural gas reserves; and
· the other factors discussed under "Business Risks and Uncertainties" in
this MD&A.
Statements relating to "reserves" or "resources" are by their nature deemed to
be forward-looking statements, as they involve the implied assessment, based on
certain estimates and assumptions, that the resources and reserves described can
be profitably produced in the future.
Readers are cautioned that the foregoing lists of factors are not exhaustive.
The forward-looking statements contained in this MD&A and the documents
incorporated by reference herein are expressly qualified by this cautionary
statement. Stratic does not undertake any obligation to publicly update or
revise any forward-looking statements except as required by applicable
securities law.
OVERALL PERFORMANCE
Stratic is an international oil and gas business which is engaged in the
appraisal, development and production of petroleum and natural gas discoveries,
supplemented by an exploration program. Its principal interests are in the
United Kingdom ("UK") and Netherlands sectors of the North Sea following the
recent sales of the Italian and Turkish businesses. Production is now entirely
from the West Don oil field in the UK, which commenced production in April 2009;
the Company's Turkish gas fields' production will only be reported up to the
completion of the disposal of its Turkish business on May 12, 2010 . Stratic has
undeveloped reserves in the Crawford oil field in the UK, all or part of which
it plans to market for sale in 2010.
Stratic's overall performance should be viewed in the context of the world
economic conditions, which remain difficult for small oil companies operating in
high cost regions such as the North Sea, as well as on the results of its
extensive restructuring program.
In the fall of 2008 Stratic embarked on an extensive restructuring program to
reduce its forward capital expenditure commitments and lower debt levels
following the start of the world financial crisis. This program has involved the
sale of its interests in the Breagh gas discovery in the UK, the Longanesi gas
discovery in Italy, and its business in Turkey and included a thorough appraisal
of the carrying value of its remaining assets. The program raised more than $110
million in cash and removed more than $100 million of capital expenditures from
the Company's future plans. The Company has recorded a net loss for the first
quarter of 2010 of $10.8 million.
Alongside this program the Company has invested approximately $73 million in
developing the West Don field in the UK. Full year production in 2009 from the
field, net to Stratic's 17.25% interest, amounted to 0.33 million barrels
compared with the operator's field development plan estimates of approximately
1.16 million barrels, as a result of delays in drilling wells, commissioning the
water injection and gas lift systems and other operational issues. As a
consequence the field generated just $14.5 million of operating cash flow for
the Company in 2009, representing approximately 30% of our original estimates.
In the first quarter of 2010, production from West Don averaged 731 bopd net to
Stratic.
Historical under-performance of West Don against forecast has placed
considerable stress on the Company's finances and was a major contributory
factor in the need to re-schedule debt repayments and seek additional liquidity
during and at the end of 2009. Net debt levels (cash less bank borrowings and
convertible notes) reached a peak of $156.7 million in August 2009 but were
brought down under the restructuring program to $105.1 million by the end of
that year, and have reduced further to $70.6 million on May 21, 2010, following
the completion of the sale of the Company's Italian and Turkish businesses.
In February 2010 the Company announced a change in its North Sea strategy and an
increased emphasis on lower cost international areas such as the Middle East and
North Africa. The Company's near term strategy will be to generate maximum near
term value from its North Sea asset base by continuing to invest in, and press
for performance improvements from the West Don field and to work in parallel
towards a full or partial divestment of the Crawford field while working with
operator Fairfield towards field development plan approval of the Crawford
development later in 2010, and to complete its existing exploration and
appraisal obligations in the region. The Company will not seek to grow in the
North Sea beyond its existing asset base there, and will use its North Sea cash
flow to fund exploration and appraisal opportunities.
Currently Stratic does not have sufficient liquidity to meet its expenditure
obligations, under certain circumstances. The Company's liquidity depends upon
cashflow from operations, existing committed credit facilities and convertible
loan notes, existing cash resources and the completion of planned asset
disposals. The ability of the Company to continue to operate as a going concern
is dependent on the availability of new equity, the timing and operational
success of anticipated cash flows to be received from production on its North
Sea oil and gas assets, and the continuing support of the banking syndicate,
including the availability of existing bank financing which is linked to oil
prices, field performance and the level of independently certified oil and gas
reserves. Stratic is also continuing with its asset disposal program.
RESULTS OF OPERATIONS
The net loss for the quarter ended March 31, 2010 was $10.8 million compared
with a net loss of $6.8 million for the corresponding period of 2008.
In the second quarter of 2010 the Company completed the sale of its Italian and
Turkish businesses. The Company has therefore reflected these disposals in the
first quarter as discontinued operations, resulting in the reclassification of
balance sheet and statement of net loss amounts to discontinued operations
captions, including comparative figures.
The net loss for the quarter ended March 31, 2010 from continuing operations was
$10.0 million (2009 - $5.7 million) and from discontinued operations was $0.8
million (2009 - $1.1 million).
Production
Production for continuing operations from the first quarter of 2010 totalled 731
bopd (2009 - nil boepd). The increase is due to commencement of production in
April 2009 from the Company's West Don oil field in the UK.
Production for discontinued operations in Turkey for the first quarter of 2010
totalled 293 boepd (2009 - 240 boepd).
The following table summarises the production and sales volumes by product:
+---------------------------------+-------+------+--------+-------+
| | | Three months |
| | | ended March |
| | | 31 |
+---------------------------------+--------------+----------------+
| | | | 2010 | 2009 |
+---------------------------------+-------+------+--------+-------+
| Production volumes: | | | | |
+---------------------------------+-------+------+--------+-------+
| | | | | |
| Continuing operations | | | | |
+---------------------------------+-------+------+--------+-------+
| Oil (bbl) | | | 65,825 | - |
+---------------------------------+-------+------+--------+-------+
| | | | | |
+---------------------------------+-------+------+--------+-------+
| Discontinued operations | | | | |
+---------------------------------+-------+------+--------+-------+
| Natural gas (mmscf) | | | 158.4 | 129.4 |
+---------------------------------+-------+------+--------+-------+
| | | | | |
+---------------------------------+-------+------+--------+-------+
| Continuing operations | | | | |
+---------------------------------+-------+------+--------+-------+
| Oil (bopd) | | | 731 | - |
+---------------------------------+-------+------+--------+-------+
| Total (boepd) | | | 731 | - |
+---------------------------------+-------+------+--------+-------+
| | | | | |
+---------------------------------+-------+------+--------+-------+
| Discontinued operations | | | | |
+---------------------------------+-------+------+--------+-------+
| Natural gas (mmscf/d) | | | 1.76 | 1.44 |
+---------------------------------+-------+------+--------+-------+
| Total (boepd) | | | 293 | 240 |
+---------------------------------+-------+------+--------+-------+
| | | | | |
+---------------------------------+-------+------+--------+-------+
| Sales volumes: | | | | |
+---------------------------------+-------+------+--------+-------+
| | | | | |
+---------------------------------+-------+------+--------+-------+
| Continuing operations | | | | |
+---------------------------------+-------+------+--------+-------+
| Oil (bbl) | | | 59,222 | - |
+---------------------------------+-------+------+--------+-------+
| | | | | |
+---------------------------------+-------+------+--------+-------+
| Discontinued operations | | | | |
+---------------------------------+-------+------+--------+-------+
| Natural gas (mmscf) | | | 158.4 | 129.4 |
+---------------------------------+-------+------+--------+-------+
| | | | | |
+---------------------------------+-------+------+--------+-------+
The difference between production volumes and sales volumes relates to inventory
held at the period end.
Revenues and royalties
Petroleum and natural gas sales revenue for continuing operations in the quarter
was $4.3 million (2009 - $nil million), the 2010 increase being due to the West
Don oil sales revenue with production starting in April 2009.
Petroleum and natural gas sales revenue for discontinued operations in Turkey
for the quarter was $1.3 million (2009 - $1.4 million). Reduced gas prices in
2010 have been only partially offset by an increase in production.
The following table summarises revenue and average prices by product:
+---------------------------------+-------+------+-------+-------+
| | | Three months |
| | | ended March |
| | | 31 |
+---------------------------------+--------------+---------------+
| Revenue ($'000): | | | 2010 | 2009 |
+---------------------------------+-------+------+-------+-------+
| | | | | |
+---------------------------------+-------+------+-------+-------+
| Continuing operations | | | | |
+---------------------------------+-------+------+-------+-------+
| Oil | | | 4,328 | - |
+---------------------------------+-------+------+-------+-------+
| | | | | |
+---------------------------------+-------+------+-------+-------+
| Discontinued operations | | | | |
+---------------------------------+-------+------+-------+-------+
| Natural gas | | | 1,265 | 1,373 |
+---------------------------------+-------+------+-------+-------+
| | | | | |
+---------------------------------+-------+------+-------+-------+
| Average realized prices: | | | | |
+---------------------------------+-------+------+-------+-------+
| | | | | |
+---------------------------------+-------+------+-------+-------+
| Continuing operations | | | | |
+---------------------------------+-------+------+-------+-------+
| Oil ($/bbl) | | | 73.09 | - |
+---------------------------------+-------+------+-------+-------+
| | | | | |
+---------------------------------+-------+------+-------+-------+
| Discontinued operations | | | | |
+---------------------------------+-------+------+-------+-------+
| Natural gas ($/mscf) | | | 7.99 | 10.61 |
+---------------------------------+-------+------+-------+-------+
The oil production is all sold to Shell Trading and Shipping Company (STASCO) at
a price tied to the benchmark Brent oil price. Gas production was all sold under
a long term contract to AKSA, a local gas marketing company, for industrial use
in Turkey. The price is based on the state gas pipeline company's posted prices
(BOTAS), which in turn are based on the cost of imported supplies to Turkey.
Total revenue for continuing operations in the three months ended March 31, 2010
was $4.3 million (2009 - $nil million).
Royalties on discontinued operations in the first quarter of 2010 were $0.2
million (2009 - $0.2 million). Royalties payable, principally to the Turkish
State at a rate of 12.5%, are shown as a deduction from revenue. Total revenue
for discontinued operations, net of royalties, in the three months ended March
31, 2010 was $1.1 million (2008 - $1.2 million).
Expenses
Operating costs on continuing operations for the quarter were $2.1 million (2009
- $nil million) and depletion, depreciation and accretion expense was $3.2
million (2008 - $0.2 million) calculated on a unit of production basis,
reflecting the increase in production from the commencement of the West Don
field.
During the first quarter of 2010 the Company completed its drilling program in
Syria resulting in a dry hole on block 17. The Company has therefore impaired
its Syria property plant and equipment by $1.7 million.
The components of general and administrative costs and non-cash stock-option
expense for continuing operations are shown in the table below:
+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | Three months |
| | | | | | ended March 31 |
+--------+--------+--------+-----------------+--------+-----------------+
| | | | | | | 2010 | 2009 |
+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | $'000 | $'000 |
+--------+--------+--------+--------+--------+--------+--------+--------+
| | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+--------+
| General and | | | | 2,240 | 2,451 |
| administrative expense | | | | | |
+--------------------------+--------+--------+--------+--------+--------+
| Amounts recovered and | | | | (364) | (329) |
| amount capitalised | | | | | |
+--------------------------+--------+--------+--------+--------+--------+
| Total general and | | | | 1,876 | 2,122 |
| administrative | | | | | |
+--------------------------+--------+--------+--------+--------+--------+
| | | | | | | | |
+--------+--------+--------+--------+--------+--------+--------+--------+
| Stock-based compensation | | | | | |
| costs charged over | | | | 409 | 738 |
| vesting period | | | | | |
+--------+--------+--------+--------+--------+--------+--------+--------+
Stock-based compensation costs were lower in the first quarter 2010 compared
with the similar 2009 period due to stock options issued in July 2008 having a
greater valuation than the options issued in June 2009.
During the quarter ended March 31, 2010 the Company incurred financial charges
on continuing operations of $5.5 million compared with $2.7 million for the
comparative period in 2009, due to increased bank fees and higher interest rates
arising on the renegotiated bank facility.
The Company recorded a foreign exchange gain on continuing operations for the
quarter ended March 31, 2010 of $0.4 million (2009 - $0.1 million) principally
arising on certain working capital balances which are denominated in pounds
sterling, which weakened against the US dollar in the period.
The net loss on continuing operations for the first quarter ended March 31, 2010
was $10.0 million (2009 -$5.7 million). The basic and diluted net loss per share
for continuing operations for the quarter was 4 cents (2009 - loss 2 cents).
The net loss from discontinued operations in the first quarter was $0.8 million
(2009 - $1.1 million).
OPERATIONS UPDATE - OUTSTANDING
United Kingdom sector of the North Sea
The West Don oil field produced 4,240 bopd (731 bopd net to Stratic) in the
quarter. Production was down from the previous quarter (1,312 bopd net to
Stratic) due to increased weather related down-time of the tanker export system
and then the planned system shut-down for the change over to pipeline export,
which was completed in early March 2010.
Following the commissioning of the pipeline export system, production is more
consistent, but not yet fully optimized. Operator EnQuest holds a production
forecast for remaining three quarters of the year of 6,000 bopd (1,035 bopd net
to Stratic).
Plans are under discussion for the drilling of the third production well into
the southern part of the field, potentially later in 2010.
Operator Fairfield continues to make good progress on the Crawford field
development program; sub surface studies, facilities selection and off-take
options are expected to be ready for a preliminary partner approval in the third
quarter of 2010, with government approvals and final sanction expected late in
2010. Given the companies current financial constraints, Stratic has initiated
a process to sell part or all of its interest in Crawford to coincide with the
sanction of the project.
Operator Nexen completed the drilling of the 15/23d-15 Bugle North appraisal
well (Stratic 7.5% cost share), and following an extensive logging program
elected to plug and abandon the well. The well reached a total depth of
15,145ft and was drilled close to the boundary between blocks 15/23c and 15/23d
encountering minor quantities of hydrocarbon in the target horizon. The cost of
the well is equally split between the P1465 and P815 partnerships and is
estimated at $3.2 million net to Stratic.
Separately, the P1465 partnership has approved a budget for the abandonment
later in 2010 of the 15/24a-9 Bowmore appraisal well, drilled last year.
Stratic has applied for acreage in the Cairngorm area in the UK 26th licence
round.
Netherlands sector of the North Sea
The P8 development (P8a; Stratic 60% and operator, Horizon West field; post
unitisation Stratic 48%, Chevron nominated operator) in the Netherlands was
deferred while the partners investigated a lower risk development option to the
previous extended reach well proposed by the operator Chevron. Following a
review in 2009 by the partners, there is no current development plan and in the
current financial climate the Company does not expect to commence a development
in the near-term.
Stratic has signed a farm-in agreement with Sterling Resources for the F Quad
licences. This agreement leaves Stratic with a 10% carried interest in the
licences.
Turkey
Production from the South Akcakoca phase 1 development of the Akkaya, Ayazli and
East Ayazli Fields (Stratic 12.25%) averaged 14.4 mmscf/d during the first
quarter (293 boepd net to Stratic), in line with the previous quarter (14.4
mmscf/d, 293 boepd net to Stratic).
As part of Stratic's ongoing restructuring program, the company announced the
completion of the sale of its entire business in Turkey on May 12, 2010.
Syria
The block 17 concession (Stratic 35%, operator) was relinquished in March 2010.
Stratic is reviewing acreage available in the current Syrian exploration licence
round for possible application later in 2010.
Morocco
Operator Longe Energy is planning to drill an exploration well on the Guercif
West permit later in 2010. Stratic has a fully carried 20% interest in the
Guercif East and Guercif West licences.
Slovenia
On the Petisovci-Dolina licence (Stratic 45.1%), operator Ascent acquired 3D
seismic over a large area including the Petisovci-Dolina licence during 2009 on
a sole risk basis, and is now planning a drilling program later in 2010.
Stratic is reviewing the opportunity to participate in the drilling program.
CAPITAL EXPENDITURES
During the three months ended March 31, 2010, the Company incurred expenditures
of $5.5 million on its oil and gas properties, principally in the UK North Sea
and Syria. The UK expenditure was mainly in respect of development work on the
West Don field and appraisal drilling on the Bugle discovery.
An analysis of petroleum and natural gas expenditures for the three months ended
March 31, 2010 and 2009 is shown below:
+--------+----+-+--------+----------+----------+------+-+--------+---+----+----+-------------+----------+---------+
| $'000 | | | | | | | |
+---------------+-------------------+-----------------+--------------+---------+-------------+----------+---------+
| | | | | | | | Other | |
| | | | | United | | | Oil and | |
| | | | | | | | Gas | |
+--------+------+-------------------+-----------------+--------------+---------+-------------+----------+---------+
| | | | | Kingdom | Syria |Netherlands | Assets | Total |
+--------+------+-------------------+-----------------+--------------+---------+-------------+----------+---------+
| Balance at January 1, 2009 | $ 106,110 | $ | $ | $ 213 | $ |
| | | 5,773 | 20,485 | | 132,581 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | | | | | |
+--------+------+-------------------+-----------------+--------------+---------+-------------+----------+---------+
| | | | | | |
+-------------+--------------------------------+--------+--------+--------+---------------------------------------+
| Drilling | 10,818 | 94 | - | - | 10,912 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Construction and facilities | 4,062 | - | - | - | 4,062 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Seismic activities | 2 | - | - | - | 2 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Geological and geophysical | 5 | - | 5 | - | 10 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Technical and administrative | 949 | 52 | 98 | 1 | 1,100 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Consultancy and other | 13 | 10 | 11 | - | 34 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | 15,849 | 156 | 114 | 1 | 16,120 |
+--------+------+-------------------+-----------------+--------------+---------+-------------+----------+---------+
| | | | | | |
+--------+-------------------------------------+--------+--------+--------+---------------------------------------+
| Asset retirement obligations | 35 | - | - | - | 35 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | | |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | 35 | - | - | - | 35 |
+--------+------+-------------------+-----------------+--------------+---------+-------------+----------+---------+
| | | | | | | | | |
+--------+------+-------------------+-----------------+--------------+---------+-------------+----------+---------+
| Balance at March 31, 2009 | $ 121,994 | $ | $ | $ 214 | $ |
| | | 5,929 | 20,599 | | 148,736 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | | | | | |
+--------+------+-------------------+-----------------+--------------+---------+-------------+----------+---------+
| | | | | | | | | |
+--------+------+-------------------+-----------------+--------------+---------+-------------+----------+---------+
| Balance at January 1, 2010 | $ 94,709 | $ | $ | $ 219 | $ |
| | | - | 1,334 | | 96,262 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | | | | | |
+--------+------+--------+----------------------------+--------------+---------+-------------+----------+---------+
| | | | | | |
+-------------+--------------------------------+--------+--------+--------+---------------------------------------+
| Drilling | | | 2,604 | 1,547 | - | - | 4,151 |
+---------------+--------+----------------------------+--------------+---------+-------------+----------+---------+
| Construction and facilities | 903 | - | - | - | 903 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Seismic activities | - | - | - | - | - |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Geological and geophysical | 25 | - | - | - | 25 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Technical and administrative | 272 | 129 | 10 | - | 411 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Consultancy and other | 22 | - | 2 | - | 24 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | 3,826 | 1,676 | 12 | - | 5,514 |
+--------+------+--------+----------------------------+--------------+---------+-------------+----------+---------+
| | | | | | |
+-------------+--------------------------------+--------+--------+--------+---------------------------------------+
| Recoveries | - | - | (51) | - | (51) |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Write downs | - | (1,676) | - | - | (1,676) |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| Depletion and depreciation | (3,283) | - | - | - | (3,283) |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | | |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | (3,283) | (1,676) | (51) | - | (5,010) |
+--------+------+--------+----------------------------+--------------+---------+-------------+----------+---------+
| | | | | | | | | |
+--------+------+--------+----------------------------+--------------+---------+-------------+----------+---------+
| Balance at March 31, 2010 | $ 95,252 | $ | $ | $ 219 | $ |
| | | - | 1,295 | | 96,766 |
+-----------------------------------------------------+--------------+---------+-------------+----------+---------+
| | | | | | | | | | | | | | | |
+--------+----+-+--------+----------+----------+------+-+--------+---+----+----+-------------+----------+---------+
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity depends upon cashflow from operations, existing
committed credit facilities and convertible loan notes, existing cash resources
and the receipt of proceeds from planned asset disposals.
The current economic and financial market conditions due to the global credit
market crisis, including recent oil price volatility, have resulted in the
Company's ability to raise additional capital being extremely constrained in
both the debt and equity markets. In response to these conditions and
circumstances, management has reduced its capital expenditure program to minimum
levels consistent with its licence and contractual obligations, has restructured
its bank debt to defer certain repayments, increase near term liquidity and
reduce indebtedness by repaying debt from disposal proceeds (as further detailed
below).
In July 2009 the Company announced it had entered into a sale agreement for its
interests in the UK North Sea Breagh field and surrounding exploration acreage,
for consideration of $64.5 million. The sale was completed in late August 2009,
and was largely used to pay down bank debt. In November 2009 a sale agreement
for the sale of Stratic's Italian business was executed, The transaction
completed in April 2010, and the EUR33.0 million ($44.1 million) cash proceeds
received were mainly used to repay outstanding but deferred bank debt
repayments. In May 2010 the Company sold its Turkish business, to reduce it
capital commitments.
Currently Stratic does not have sufficient liquidity to meet its expenditure
obligations, under certain circumstances. The Company's liquidity depends upon
cashflow from operations, existing committed credit facilities and convertible
loan notes, existing cash resources and the completion of planned asset
disposals. The ability of the Company to continue to operate as a going concern
is dependent on the availability of new equity, the timing and operational
success of anticipated cash flows to be received from production on its North
Sea oil and gas assets, and the continuing support of the banking syndicate,
including the availability of existing bank financing which is linked to oil
prices, field performance and the level of independently certified oil and gas
reserves. Stratic is also continuing with its asset disposal program.
Cash and cash equivalents
As at March 31, 2010, the Company had unrestricted cash and cash equivalents of
$1.5 million (March 31, 2009 - $5.3 million). The Company had a further $0.7
million of restricted cash and cash equivalents held as deposits against work
commitments on its oil and gas properties, which will become available as the
relevant work is carried out. The Company does not hold any asset-backed
commercial paper.
Debt facilities
At December 31, 2008 the Company had available to certain subsidiaries of the
Company $150.0 million of bank debt facilities comprising a $110.0 million
senior secured Borrowing Base Facility, principally for funding development
projects, and a $35.0 million secured Undeveloped Asset Backed Facility
principally for funding of pre-development expenditures, and a $5.0 million
Working Capital Facility used for general corporate purposes.
In July 2009 the Company executed amendment agreements with its bank syndicate
for the amendment of its bank loan facilities, to include the deferral of
certain repayments due in the second quarter of 2009, and the provision of
temporary additional credit, pending repayment of these and overall bank debt
reduction from the proceeds of the sale of the Breagh asset, which occurred in
August 2009. Under the amended agreement, as from April 30, 2009 the Borrowing
Base Facility was reduced from $115.0 million to $95.0 million, including the
$5.0 million working capital facility.
As part of these arrangements, the Company agreed with its bank syndicate the
amendment of the $35.0 million Undeveloped Asset Backed Facility to increase
availability to a maximum of $51.0 million with use extended to general
corporate purposes. In August 2009 the Undeveloped Asset Backed Facility was
repaid in full from the proceeds of the sale of the Breagh asset, and cancelled.
At the end of 2009, the terms of the Borrowing Base Facility required the
Company to make a scheduled debt repayment of $15.9 million by December 31, 2009
for which funds were not available, as a result of production under-performance
of the West Don field since start-up. Accordingly, in December 2009, the Company
reached agreement with the bank syndicate for the temporary waiver of this
repayment. In January 2010 the facility was redetermined and the foregoing
repayment was revised to $17.7 million, and an amendment agreement to the
facility was executed to enable the further deferral of this repayment until the
earlier of June 30, 2010 and the receipt of the proceeds from the sale of
Stratic's Italian business, which subsequently occurred in April 2010. As part
of the amendment $9.9 million of additional temporary credit was made available
for general corporate purposes under the Borrowing Base Facility, to cover
funding shortfalls in the period until receipt of the Italian sale proceeds, of
which $1.0 million was drawn in the first quarter of 2010. It was also agreed as
part of the amendment that an additional $7.0 million (including $2.0 million
under the working capital facility) would be repaid from the Italian sale
proceeds.
Accordingly, total facility drawings of $25.7 million at the end of March 2010
have been repaid in April 2010, with a further $0.6 million repaid in May 2010
following the agreement to sell Straic's Turkish business, leaving a balance of
$22.7 million currently outstanding.
Under the Borrowing Base Facility amendment agreement executed in January 2010,
with effect from the date the foregoing repayments were made from the Italian
sales proceeds, the Borrowing Base Facility commitment has been reduced for the
remainder of 2010 from $95.0 million to $63.0 million, including the original
working capital facility which has been reduced to $3.0 million. Thereafter the
Borrowing Base Facility commitment reduces in amount according to an amended
facility schedule, until final maturity. The facility amendment included the
payment of waiver and amendment fees, and temporarily increased margins on
drawings.
The Borrowing Base Facility has a final maturity of December 31, 2012, mainly
with a current drawn margin over US dollar Libor of 4.5%. The effective interest
rate of the overall facility for the quarter ended March 31, 2010 was 8.87%. The
facility is secured by fixed charge over the shares of Stratic's major
subsidiary companies and certain operating subsidiaries and by floating charges
over the assets including project bank accounts of certain of those major
subsidiary companies and operating subsidiaries and by floating charge over
Stratic's project bank accounts. As at March 31, 2010 $49.0 million had been
utilized, mainly for the development of the West Don field. This comprises $39.1
million under the main tranche of the facility and a further $4.9 million under
the cost over-run tranche made available under the facility, together with $5.0
million drawn under the working capital facility. Following the loan repayment
made April 2010, the cost over-run tranche and additional temporary credit line
have been cancelled, and the working capital facility reduced to $3.0 million.
Availability under the Borrowing Base Facility is primarily governed by a
borrowing base determined according to the net present value of certain bank
approved project cashflows and defined cover ratios. Projects approved for
inclusion in the facility are the West Don and South Akcakoca phase 1
developments. South Akcakoca was removed from the borrowing base when Stratic's
Turkish business was sold in May 2010. The borrowing base is scheduled in the
normal course for a redetermination twice a year, as of June 30 and December 31,
in which the latest independently certified reserves, production and cost
profiles, together with bank approved economic assumptions including oil and gas
prices and interest rates are used. The redetermination due as of June 30, 2009
was deferred by agreement with the bank syndicate as part of the amendment
arrangements agreed earlier in 2009 and detailed above, and the redetermination
as of the end of 2009 was finalized in January 2010 incorporating updated
reserves for the West Don field from Stratic's independent reporting engineers
Ryder Scott. The next redetermination is due as at June 30, 2010.
The January 2010 redetermination and amendment agreement referred to above, as
subsequently amended to reflect the $1.0 million drawing in the first quarter
2010, resulted in repayments of $25.7 million due from the proceeds of the
Italian sale, a $0.6 million repayment in May 2010, $3.8 million due on June 30,
2010, and $6.4 million due on December 31, 2010 (making a total of $36.5 million
for the twelve months following March 31, 2010). Repayments of $9.5 million are
due in 2011 and the working capital facility drawing of $3.0 million is due for
repayment by December 31, 2012. Accordingly $36.6 million of the facility
drawings at March 31, 2010 are shown as a current liability, and $12.5 million
as a long-term liability. In practice, the actual repayment schedule will be
variable, with projected repayments subject to periodic amendments with each
future redetermination, the inclusion or removal of projects, and also the
uplift of reserves of the West Don field within the facility from proved to
proved plus probable reserves at project completion.
The Undeveloped Asset Backed Facility had a final maturity of March 31, 2011,
and its drawn margin over US dollar Libor was increased to 12% from July 2009,
until repayment and cancellation of the facility which occurred at the end of
August 2009. The effective interest rate of the facility while outstanding for
the year ended December 31, 2009 was 7.72%.
Stratic also has subordinated unsecured convertible loan notes outstanding
totaling $64.5 million, comprising $15.0 million principal amount outstanding
under the 8.75% convertible notes due for repayment in 2011, and $49.5 million
principal amount outstanding under the 9% convertible notes due in 2013.
At March 31, 2010 Stratic has total drawings on its bank facilities and
convertible notes of $113.5 million and net debt (after deducting cash) of
$111.3 million.
At May 21, 2010 following the completion of the sales of the Italian and Turkish
businesses referred to above, Stratic had net debt of $70.6 million.
Contractual obligations
The contractual obligations for which the Company is responsible are as follows:
+---------------------+---------+--------+--------+--------+--------+
| As at March 31, | | Less | 2- 3 | 4 - 5 | After |
| 2010: | | than | | | 5 |
+---------------------+---------+--------+--------+--------+--------+
| ($'000) | Total | 1 | years | years | years |
| | | year | | | |
+---------------------+---------+--------+--------+--------+--------+
| | | | | | |
+---------------------+---------+--------+--------+--------+--------+
| Convertible notes | $ | $ | $ | $ | $ |
| and interest | 79,392 | 5,481 | 22,920 | 50,991 | - |
+---------------------+---------+--------+--------+--------+--------+
| Bank loan | 49,011 | 36,561 | 9,450 | 3,000 | - |
+---------------------+---------+--------+--------+--------+--------+
| Payments for office | 335 | 196 | 139 | - | - |
| lease | | | | | |
+---------------------+---------+--------+--------+--------+--------+
| Purchase | 200 | 200 | - | - | - |
| obligations | | | | | |
+---------------------+---------+--------+--------+--------+--------+
| Asset retirement | 25,332 | 82 | - | 5,827 | 19,423 |
| obligations | | | | | |
+---------------------+---------+--------+--------+--------+--------+
| | $ | $ | $ | $ | $ |
| | 154,270 | 42,520 | 32,509 | 59,818 | 19,423 |
+---------------------+---------+--------+--------+--------+--------+
Share capital
As at March 31, 2010, and at the date of this MD&A, Stratic had 272,635,224
common shares outstanding. Securities outstanding as at March 31, 2010 that can
be converted into common shares included 23,814,736 incentive stock options held
by current employees, as well as $15 million principal amount of 2011 notes
convertible into common shares at Cdn $1.56 per share and $49.5 million
principal amount of 2013 notes convertible into common shares at $1.00 per
share.
DERIVATIVES FINANCIAL INSTRUMENTS AND HEDGING
Stratic has no derivative financial instruments outstanding as at March 31,
2010, apart from a euro put option for US dollars in respect of EUR30 million of
its sales proceeds for the disposal of the Italian business. The option had a
strike price of $1.30/EUR1.00 and matured on April 21, 2010. This option had a
fair value of $36,000 at March 31, 2010. In order to provide a partial hedge of
financial obligations denominated in foreign currencies, Stratic continues to
maintain part of its cash resources in Canadian dollars, euros and pounds
sterling. However, the Company policy is to retain other surplus funds in US
dollars, the reporting currency and principal currency of operations. Stratic
may in the future, from time to time, undertake limited hedging operations in
respect of exposures to commodity price, currency and interest rate
fluctuations.
SUMMARY OF QUARTERLY INFORMATION
The following table summarises selected quarterly financial information:
+---------------+---------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | 2008 | 2009 | 2010 |
+-------------------------------+--------------------------------------+-----------------------------------------+----------+
| Quarter ended | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | | | | | | | | |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| Total revenue continuing | 254 | 104 | 61 | 3 | 5,630 | 7,833 | 8,123 | 4,329 |
| operations ($'000) | | | | | | | | |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| Total revenue discontinued | 2,160 | 2,475 | 1,611 | 1,174 | 1,182 | 1,070 | 1,116 | 1,081 |
| operations ($'000) | | | | | | | | |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | | | | | | | | |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| Total revenue ($'000) | 2,414 | 2,579 | 1,672 | 1,177 | 6,812 | 8,903 | 9,239 | 5,410 |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | | | | | | | | |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| Continuing net Income (Loss) | (4,685) | (5,869) | (15,869) | (5,673) | (7,816) | 13,510 | (25,327) | (9,979) |
| ($'000) | | | | | | | | |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | per share - | (0.02) | (0.02) | (0.06) | (0.02) | (0.03) | 0.05 | (0.09) | (0.04) |
| | basic ($) | | | | | | | | |
+ +---------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | per share - | (0.02) | (0.02) | (0.06) | (0.02) | (0.03) | 0.05 | (0.09) | (0.04) |
| | diluted ($) | | | | | | | | |
+---------------+---------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | | | | | | | | |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| Discontinued gain (net) loss | (1,823) | (7,117) | 173 | (1,133) | (555) | (451) | (75,646) | (800) |
| ($'000) | | | | | | | | |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | per share - | (0.00) | (0.03) | (0.00) | (0.00) | (0.00) | (0.00) | (0.28) | (0.00) |
| | basic ($) | | | | | | | | |
+ +---------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | per share - | (0.00) | (0.03) | (0.00) | (0.00) | (0.00) | (0.00) | (0.28) | (0.00) |
| | diluted ($) | | | | | | | | |
+---------------+---------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | | | | | | | | |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| Net gain (loss) ($'000) | (6,508) | (12,986) | (15,696) | (6,806) | (8,371) | 13,059 | (100,973) | (10,779) |
+-------------------------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | per share - | (0.02) | (0.05) | (0.06) | (0.02) | (0.03) | 0.05 | (0.37) | (0.04) |
| | basic ($) | | | | | | | | |
+ +---------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
| | per share - | (0.02) | (0.05) | (0.06) | (0.02) | (0.03) | 0.04 | (0.37) | (0.04) |
| | diluted ($) | | | | | | | | |
+---------------+---------------+---------------+-----------+----------+---------+----------+--------+-----------+----------+
Due to the sales of the Italian and Turkish businesses they have been reflected
as discontinued operations at March 31, 2010.
Revenues, operating costs and depreciation increased from June 2009 following
the start up of the West Don field in the UK. Revenue on discontinued operations
for the third quarter 2008 includes an insurance receipt of $0.6 million in
respect of lost production in Turkey due to a pipeline rupture in 2007.
Depletion and depreciation expense also increased with the commencement of
production, more than offsetting these production revenues. The loss for the
third quarter 2008 includes a future tax charge of $6.7 million from an increase
in the corporate tax rate in Italy for energy companies. The loss from
continuing operations for the fourth quarter 2008 includes an impairment charge
of $21.2 million on the petroleum and natural gas properties in the Netherlands
due to a downward revision in reserves and uncertainty over a development plan
for the Horizon West asset and a related future tax reduction of $10.6 million.
The net income for continuing operations for the third quarter 2009 includes a
gain of $22.5 million from the disposal of the UK Breagh gas discovery and
financial charges of $7.2 million due to increased costs of borrowing and the
early repayment of the Undeveloped Asset Backed Bank Facility.
The net loss for the fourth quarter 2009 includes a $63.2 million after-tax net
impairment due to the agreed sale of the Italian business, an $10.2 million
after-tax impairment on the Company's property, plant and equipment for Horizon
West in the Netherlands as there is no near term development plan due to
economic conditions, a $13.9 million impairment to property, plant and equipment
in Turkey due to lower future gas prices, additional exploration drilling
expenditure and the write-off of the phase two development costs as the project
is considered to be uneconomic at current gas prices and costs, and a $9.1
million impairment in Syria due to the completion of a dry hole on block 17
early in 2010.
The net loss for the first quarter 2010 includes $1.7 million impairment in
Syria due to the completion of a dry hole on block 17 and finance fees of $2.4
million due to increased bank fees arising on the renegotiated bank facility.
RELATED PARTY TRANSACTIONS
The Company was not involved in any related party transactions during the period
ended March 31, 2010.
CRITICAL ACCOUNTING ESTIMATES
The significant accounting policies used by the Company are disclosed in note 2
to the audited Consolidated Financial Statements for the year ended December 31,
2009. Certain accounting policies require that management make appropriate
decisions with respect to the formulation of estimates and assumptions that
affect the reported amount of assets, liabilities, revenues and expenses.
Management reviews its estimates on a regular basis. The emergence of new
information and changed circumstance may result in actual results or changes to
estimated amounts that differ materially from current estimates. A detailed
discussion of the critical accounting policies and practices of the Company
which helps to assess the likelihood of materially different results being
reported is disclosed in the 2009 annual Management's Discussion and Analysis.
BUSINESS RISKS AND UNCERTAINTIES
Stratic, like all companies in the international oil and gas industry, operates
in environments subject to inherent risks. Many such uncertainties are beyond
the ability of a company to control - particularly those associated with
exploring for, and developing, economic quantities of hydrocarbons; volatile
commodity prices; foreign exchange; governmental regulations and tax systems and
environmental matters. In addition, the Company participates in selected
international exploration ventures of high potential that expose it to certain
political and business risks. The Company's business is affected by these risks
to the same degree as any other participant in the international oil and gas
industry. Further, although Stratic maintains an insurance program in line with
industry practice, not all risks may reasonably be insured against.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Stratic Energy (LSE:SE.)
過去 株価チャート
から 5 2024 まで 6 2024
Stratic Energy (LSE:SE.)
過去 株価チャート
から 6 2023 まで 6 2024
