Caza Announces Results for the Year Ended December 31, 2015
(firmenpresse) - HOUSTON, TEXAS -- (Marketwired) -- 03/31/16 -- Caza Oil & Gas, Inc. ("Caza" or "the Company") (TSX: CAZ)(AIM: CAZA) is pleased to announce the Company''s final results for the year ended December 31, 2015.
2015 Financial and Reserve highlights include:
Recent developments:
Strategy
The Company''s strategy is to achieve significant growth in reserves and production through:
In the implementation of this strategy, the Company has a clear set of criteria in high-grading projects:
Assets
The Company is primarily focused in the Permian Basin of Southeast New Mexico and West Texas, which provides the Company with low-risk, liquids-rich development opportunities from many geologic reservoirs and play types. The Permian Basin has a vast operational infrastructure in place. The Company is utilizing recent advances in horizontal drilling and dynamic completion technologies to unlock the significant resources within its asset base and the region.
Management has focused efforts on building a core asset base in the prolific Bone Spring/Wolfcamp play and has concluded that these assets represent the best opportunity for the Company to deliver production and revenue growth within an acceptable timeframe. The Company expects that expanding and diversifying the producing asset base within the play will not only grow the Company but will also make it more resilient to risks associated with any single project.
As at December 31, 2015, the Company had 226 drilling locations and 33 gross (10.2 net) producing wells on its leasehold position in the Bone Spring/Wolfcamp play. The majority of the Company''s leases in the play are held-by-production with no drilling obligations. Management believes that the Company is well-positioned with excellent assets and approximately 5,400 net acres (13,260 gross acres), which is approximately 24,300 net effective acres (59,670 gross effective acres) in the Bone Spring/Wolfcamp play, and plans to continue actively monitoring opportunities to build on Caza''s current production levels and acreage position.
The Company''s Bone Spring/Wolfcamp inventory includes the following 21 properties: Gramma Ridge, Gateway, Marathon Road, East Marathon Road, Lennox, Forehand Ranch, Forehand Ranch South, Jazzmaster, Mad River, Azotea Mesa, China Draw, Bradley 29, Two Mesas, Quail Ridge, Rover, West Rover, Copperline, West Copperline, Chaparral 33, Madera and Roja.
The Company''s Bone Spring/Wolfcamp leases are mostly State and Federal leases with primary terms between 5-10 years, many of which are producing and help-by-production. In terms of obligations and commitments, one producing well at any depth will hold each lease in its entirety.
Financing
Management believes that once drilling costs come down and commodity prices recover, accelerating and expanding drilling and completion operations on inventoried and producing properties will significantly increase both production and cash flows, which will allow the Company to optimize its Bone Spring/Wolfcamp work program and drive economies of scale.
In this regard, the Company has entered into the Credit Facility with JPMorgan and is constantly evaluating all available financing options that could provide the Company with sufficient leverage and capital to adequately exploit current and future Bone Spring/Wolfcamp opportunities.
Outlook
The Company continues to actively review its drilling obligations for the year and continues to scale back G&A costs and capital expenditures associated with non-obligatory wells and direct capital towards lease maintenance wells in its Bone Spring/Wolfcamp drilling program. However, dependent upon drilling costs and prevailing commodity prices, the Company''s objective is to eventually accelerate and expand its drilling program in the Bone Spring/Wolfcamp play over the next two years. A program of this type would initially utilize the Company''s current Credit Facility with JPMorgan and excess operational cash flow to fund further development drilling and lease purchases beyond the initial two year period.
Management believes that, subject to a sufficient downward correction to drilling costs and positive recovery to oil prices, such a program can be accomplished by exploiting the Company''s existing asset/lease inventory. However, management will also seek to identify appropriate corporate and asset acquisitions that may result from the current price environment, which will enable the Company to increase its position in the horizontal Bone Spring/Wolfcamp plays in the Permian Basin. Accordingly, inline with the Company''s stated strategy, management''s goal is to achieve material growth in the Company''s reserves and production, thereby raising the Company''s profile in the basin and allowing its value to be maximized and, if appropriate, fully matured over the short-to-medium term.
Net Reserve Figures by Category:
Caza reported an increase in Proven (1P) reserves at year end 2015 to 12,243.0 Mboe or an increase of 98.1%; Proven plus Probable (2P) reserves increased at year end 2015 to 16,135.5 Mboe or an increase of 13.3%; Proven plus Probable plus Possible (3P) reserves increased at year end 2015 to 30,658.3 Mboe or an increase of 42.1% (as depicted in the table below).
Net Reserve Data:
Totals may not add because of rounding. Mbbl, MMcf and Mboe refer to thousand barrels, million cubic feet and thousand boe, respectively.
Present value cash flows of Caza''s estimated net Proven and Probable reserves as at December 31, 2015 were as follows:
The reserves data set out in this announcement (including in the above tables) have been extracted from the CGA Report and are disclosed, together with additional information relating to the Company''s reserves and properties, in the Company''s Annual Information Form for the year ending December 31, 2015 (to be filed on SEDAR at ). The evaluation of the reserves data included in the Annual Information Form and in the CGA Report complies with standards set out in the Canadian Oil and Gas Evaluation Handbook prepared jointly by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum (Petroleum Society). References to the CGA Report are to the report prepared on the Company''s reserves by Cawley, Gillespie & Associates, Inc. as of December 31, 2015, and entitled "Estimates of Reserves and Future Revenue to the Caza Oil & Gas, Inc. Interest in Certain Oil and Gas Properties Located in Louisiana, New Mexico, and Texas as of December 31, 2015".
About Caza
Caza is engaged in the acquisition, exploration, development and production of hydrocarbons in the following regions of the United States of America through its subsidiary, Caza Petroleum, Inc.: Permian Basin (Southeast New Mexico and West Texas).
In accordance with AIM Rules - Guidance Note for Mining, Oil and Gas Companies, the information contained in this announcement has been reviewed and approved by Anthony B. Sam, Vice President Operations of Caza who is a Petroleum Engineer and a member of The Society of Petroleum Engineers.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
Copies of the Company''s financial statements for the year ended December 31, 2015, the accompanying management''s discussion and analysis and the Company''s Annual Information Form for the year ended December 31, 2015 (which contains further information about the Company, its principal properties and its crude oil and natural gas reserves), will be available on SEDAR at and the Company''s website at . The Company''s financial statements have been in accordance with Canadian generally acceptable accounting principles applicable to publicly accountable enterprises. All dollar amounts disclosed in this press release are disclosed in United States dollars.
ADVISORY STATEMENT
Information in this news release that is not current or historical factual information may constitute forward-looking statements within the meaning of securities laws. Such information is often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. Information regarding future exploration, development and drilling activities (including the timing and scope thereof), the availability, sources, use and sufficiency of funding or capital, the ability to expand and accelerate the Company''s drilling programs and the results thereof, the ability to increase shareholder value, future dilution and the ability to mitigate same, the implementation and impact of the Company''s strategy, geologic and seismic interpretation, joint venture relationships, ability to generate projects, strategic acquisitions and Caza''s ability to execute its strategic plan contained in this news release constitutes forward-looking information within the meaning of securities laws. Statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future. Disclosure related to targeted internal rates of return and internal modeling are disclosed to further an understanding of the Company''s strategies and are not projections or forecasts. Actual rates of return are likely to differ materially.
Implicit in this information, particularly in respect of production are assumptions regarding projected revenue and expenses, the performance of wells, drilling and operating results, availability of funds, asset dispositions and the ability to secure joint venture partners and internally generate projects. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of the Company are subject to a number of risks and uncertainties, including general mechanical, economic, market and business conditions and could differ materially from what is currently expected as set out above. Production disclosed in this press release is provided as at the applicable date and the wells described herein are in early stages of production. Future production or flow rates may vary, perhaps materially. The individual well results disclosed herein are not necessarily indicative of long-term performance or of ultimate recovery.
For more exhaustive information on these risks and uncertainties you should refer to the Company''s most recently filed Annual Information Form filed on SEDAR at . You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time, except as required by applicable securities laws.
The term boe may be misleading, particularly if used in isolation. A boe conversion of six thousand cubic feet per one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.
Statements in this news release relating to net present value or future net revenue do not represent fair
market value. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.
Management''s Report to Shareholders
Management has prepared the accompanying consolidated financial statements of Caza Oil & Gas, Inc. in accordance with International Financial Reporting Standards.
Management is responsible for the integrity and objectivity of the financial statements. Where necessary, the financial statements include estimates, which are based on management''s informed judgments. Management has established systems of internal control that are designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and to produce reliable accounting records for financial reporting purposes.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control. It exercises its responsibilities primarily through the Audit Committee. The Audit Committee meets periodically with management and the external auditors to satisfy itself that management''s responsibilities are properly discharged, to review the consolidated financial statements and to recommend that the consolidated financial statements be presented to the Board of Directors for approval.
Deloitte LLP has audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards to enable them to express an opinion on the fairness of the consolidated financial statements.
(signed) "William M. Ford"
Chief Executive Officer and Director
March 30, 2016
(signed) "James M. Markgraf"
Chief Financial Officer
March 30, 2016
Independent Auditor''s Report
To the Shareholders of Caza Oil & Gas, Inc.
We have audited the accompanying consolidated financial statements of Caza Oil & Gas, Inc. which comprise the consolidated statements of financial position as at December 31, 2015 and 2014 and the consolidated statements of net loss and comprehensive loss, cash flows and changes in equity for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management''s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor''s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor''s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity''s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity''s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Caza Oil & Gas, Inc. as at December 31, 2015 and 2014 and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
(signed) "Deloitte LLP"
Chartered Professional Accountants
Calgary, Alberta
March 30, 2016
1. Basis of Presentation
Caza Oil & Gas, Inc. ("Caza" or the "Company") was incorporated under the laws of British Columbia on June 9, 2006 for the purposes of acquiring shares of Caza Petroleum Inc. ("Caza Petroleum"). The Company and its subsidiaries are engaged in the exploration for and the development, production and acquisition of, petroleum and natural gas reserves. The Company''s common shares are listed for trading on the Toronto Stock Exchange trading as the symbol "CAZ" and AIM stock exchange "AIM" as the symbol "CAZA". The corporate headquarters of the Company is located at 10077 Grogan''s Mill Road, Suite 200, The Woodlands, Texas 77380 and the registered office of the Company is located at Suite 2300, 550 Burrard Street Vancouver, British Columbia, V6C 2B5.
The consolidated financial statements (the "Financial Statements") were prepared in accordance with International Financial Reporting Standards ("IFRS"). Caza''s presentation currency is the United States ("U.S.") dollar as the majority of its transactions are denominated in this currency.
These consolidated financial statements were approved for issuance by the Board of Directors on March 30, 2016.
2. Significant Accounting Policies
The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements, and have been applied consistently by the Company and its subsidiaries.
(a) Basis of consolidation:
Subsidiaries:
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that currently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Details of the Company''s subsidiaries at the end of the reporting year are as follows:
The proportion not owned by the Company is shown as non-controlling interests in these financial statements and relates to exchangeable rights in Caza Petroleum which are held by management and which are exchangeable into the Company''s shares (see Note 7(f)).
Jointly controlled operations and jointly controlled assets:
Many of the Company''s oil and natural gas activities involve jointly controlled assets. The consolidated financial statements include the Company''s share of these jointly controlled assets and a proportionate share of the relevant revenue and related costs.
Transactions eliminated on consolidation:
Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.
(b) Foreign currency:
The Company and its subsidiary companies each determines their functional currency of the primary economic environment in which they operate. The Company''s (and its subsidiaries) functional currency is the U.S. Dollar. Transactions denominated in a currency other than the functional currency of the entity are translated at the exchange rate in effect on the transaction date.
(c) Financial instruments:
Derivatives
Derivatives, including derivative liabilities and hedging contracts, are classified as fair value through profit or loss. Changes in the fair value of derivatives are recognized through profit or loss.
Non-derivative financial instruments:
Non-derivative financial instruments comprise accounts receivable, cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, and notes payable. Non-derivative financial instruments are recognized initially at fair value. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
Cash and cash equivalents:
Cash and cash equivalents comprise cash on hand, term deposits held with banks, other short-term highly liquid investments (including money market instruments) with original maturities of three months or less.
Financial assets at fair value through profit or loss:
An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition attributable transaction costs are recognized in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. The Company has designated cash and cash equivalents as fair value through profit and loss.
Loans and receivables:
Non-derivative financial instruments classified as loans and receivables, such as accounts receivable, accounts payable and accrued liabilities, and notes payable, are measured at amortized cost using the effective interest method, less any impairment losses.
(d) Evaluation and exploration assets:
Pre-license costs are expensed in the statement of operations as incurred.
Exploration and evaluation ("E&E") costs, including the costs of acquiring licenses and directly attributable general and administrative costs, initially are capitalized as either tangible or intangible exploration and evaluation assets according to the nature of the assets acquired. The costs are accumulated in cost centers by well, field or exploration area pending determination of technical feasibility and commercial viability. If exploration does not meet capitalization criteria at this time amounts are expensed as exploration and evaluation.
Assets classified as E&E are not amortized, but are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For purposes of impairment testing, exploration and evaluation assets are allocated to cash-generating units ("CGU").
The technical feasibility and commercial viability of extracting a mineral resource is considered to be determinable when proven reserves are determined to exist. A review of each exploration license or field is carried out, at least annually, to ascertain whether proven reserves have been discovered. Upon determination of proven reserves, exploration and evaluation assets attributable to those reserves are first tested for impairment and then reclassified from exploration and evaluation assets to a separate category within tangible assets referred to as petroleum and natural gas interests.
(e) Development and production costs:
Items of property, plant and equipment ("PPE"), which include oil and gas development and production assets, are measured at cost less accumulated depletion and depreciation and accumulated impairment losses. Development and production assets are grouped into CGU''s for impairment testing.
Development costs that may be capitalized as PPE include land acquisition costs, geological and geophysical expenses, the costs of drilling productive wells, the cost of petroleum and natural gas production equipment, directly attributable and incremental general overhead and estimated abandonment costs. When significant parts of an item of property, plant and equipment, including oil and natural gas interests, have different useful lives, they are accounted for as separate items.
Gains and losses on disposal of an item of property, plant and equipment, including oil and natural gas interests, are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment. The carrying amount of any replaced or sold component is derecognized.
Maintenance:
The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.
Depletion and depreciation:
The net carrying value of development or production assets is depleted using the unit of production method by reference to the ratio of production in the year to the related proven reserves, taking into account estimated future development costs necessary to bring those proved reserves into production. Future development costs are estimated taking into account the level of development required to produce the reserves. These estimates are reviewed by independent reserve engineers at least annually.
Other Property and Equipment:
For other assets, depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives for other assets for the current and comparative years are as follows:
Office equipment 5 - 7 years
Fixtures and fittings 5 - 7 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
(f) Impairment:
Financial assets:
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows.
All impairment losses are recognized in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in profit or loss.
Non-financial assets:
The carrying amounts of the Company''s non-financial assets, other than "E&E" assets and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset''s recoverable amount is estimated. An impairment test is completed each year for other intangible assets that have indefinite lives or that are not yet available for use. E&E assets are also assessed for impairment if facts and circumstances suggest that the carrying amount exceeds the recoverable amount and before they are reclassified to property and equipment, as oil and natural gas interests.
For the purpose of impairment testing, assets are grouped together into CGUs. A CGU is a grouping of assets that generate cash flows independently of other assets held by the Company. The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.
Impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset''s carrying amount does not exceed the carrying amount that would have been determined, net of depletion and depreciation or amortization, if no impairment loss had been recognized.
(g) Decommissioning liabilities:
The Company recognizes a decommissioning liability in the period in which it has a present legal or constructive liability and a reasonable estimate of the amount can be made. Liabilities are measured based on current requirements, technology and price levels and the present value is calculated using amounts discounted over the useful economic life of the assets. Amounts are discounted using a risk-free rate. On a periodic basis, management reviews these estimates and changes, if any, will be applied prospectively. The fair value of the estimated decommissioning liability is recorded as a long-term liability, with a corresponding increase in the carrying amount of the related asset. The capitalized amount is depleted on a unit-of-production basis over the life of the proved reserves. The liability amount is increased each reporting period due to the passage of time and the amount of accretion is charged to finance expense. Periodic revisions to the estimated timing of cash flows or to the original estimated undiscounted cost can also result in an increase or decrease to the decommissioning liability. Actual costs incurred upon settlement of the obligation are recorded against the decommissioning liability to the extent of the liability recorded.
(h) Notes payable and warrants
The component parts of the notes payable (debt and warrants) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar instruments without the attached warrants. The discount on the liability component amount is recorded as a contra amount to the notes payable and amortized using the effective interest method until maturity.
The amount recorded as warrants was determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. The warrants are classified as equity, are not subsequently re-measured and will remain in equity until the warrant is exercised. On exercise, the balance will be transferred to share capital.
Transaction costs that relate to the issue of the notes payable are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component and are amortized over the lives of the notes payable using the effective interest method.
(i) Share capital:
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects.
(j) Share-based payments:
Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date.
The grant date fair value of options granted to employees is recognized as share-based payment compensation expense on a graded basis over the vesting period, within general and administrative expenses, with a corresponding increase in share based compensation reserve. A forfeiture rate is estimated on the grant date; however, at the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized on a prospective basis.
(k) Revenue:
Revenue from the sale of oil and natural gas is recorded when the significant risks and rewards of ownership of the product is transferred to the buyer which is usually when legal title passes to the external party. This is generally at the time product enters the pipeline or any other means of transportation. Revenue is measured net of royalties.
(l) Finance income and expenses:
Finance expense comprises interest expense on borrowings, if any, and the unwinding of the discount on decommissioning liabilities.
Borrowing costs incurred for the construction of qualifying assets are capitalized during the period of time that is required to complete and prepare the assets for their intended use or sale. All other borrowing costs are recognized in profit or loss using the effective interest method. The capitalization rate used to determine the amount of borrowing costs to be capitalized is the weighted average interest rate applicable to the Company''s outstanding borrowings during the period.
Interest income is recognized as it accrues in profit or loss, using the effective interest method.
(m) Earnings per share:
Basic earnings per share is calculated by dividing the profit or loss attributable to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of dilutive instruments such as options granted to employees. Diluted per share calculations reflect the exercise or conversion of potentially dilutive securities or other contracts to issue shares at the later of the date of grant of such securities or the beginning of the year. The Company computes diluted earnings per share using the treasury stock method to determine the dilutive effect of its options and warrants. Under this method, the diluted weighted average number of shares is calculated assuming the proceeds that arise from the exercise of outstanding, in-the-money options and warrants are used to purchase common shares of the Company at their average market price for the year. No adjustment to diluted earnings per share or diluted shares outstanding is made if the result of the calculations is anti-dilutive.
(n) Future accounting pronouncements
On May 28, 2014, the IASB issued IFRS 15 - Revenue from Contracts with Customers, a new standard that specifies recognition requirements for revenue as well as requiring entities to provide the users of financial statements with more informative and relevant disclosures. The standard replaces IAS 11 - Construction Contracts and IAS 18 - Revenue as well as a number of revenue-related interpretations. The Company will adopt the standard for reporting periods beginning January 1, 2018 The Company is currently evaluating the impact of adoption of this standard and the effect on Caza''s consolidated financial statements has not yet been determined.
On January 13, 2016, the IASB published a new standard, IFRS 16, Leases. The new standard brings most leases on balance sheet for lessees under a single model, eliminating the distinction between operating and financing leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. The Company will adopt the standard for reporting periods beginning January 1, 2019. The Company is currently evaluating the impact of adoption of this standard and the effect on Caza''s consolidated financial statements has not yet been determined.
Since November 2009, the IASB has been in the process of completing a three phase project to replace IAS 39, "Financial Instruments: Recognition and Measurement" with IFRS 9 "Financial Instruments", which includes requirements for hedge accounting, accounting for financial assets and liabilities and impairment of financial instruments. As of February 2014, the mandatory effective date of IFRS 9 has been tentatively set to January 1, 2018. The Company is assessing the effect of this future pronouncement on its financial statements.
(o) Critical accounting judgments and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements have, in management''s opinion, been properly prepared using careful judgment with reasonable limits of materiality.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Critical judgements in applying accounting policies
The following are the critical judgments, apart from those involving estimations (see below), that management has made in the process of applying the Company''s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements include:
i. Estimation of reserves
Estimtes of recoverable quantities of proved and probable reserves include judgmental assumptions and require interpretation of complex geological and geophysical models in order to make an assessment of the size, shape, depth and quality of reservoirs, and their anticipated recoveries. The economic, geological and technical factors used to estimate reserves may change from period to period. Reserve estimates are prepared in accordance with the Canadian Oil and Gas Evaluation Handbook and are reviewed by third party reservoir engineers.
Estimates of oil and gas reserves are inherently imprecise, require the application of judgment and are subject to regular revision, either upward or downward, based on new information such as from the drilling of additional wells, observation of long-term reservoir performance under producing conditions and changes in economic factors, including product prices, contract terms or development plans
Changes in reported reserves can impact property, plant and equipment impairment calculations, estimates of depletion and the provision for decommissioning obligations due to changes in expected future cash flows based on estimates of proved and probable reserves, production rates, future petroleum and natural gas prices, future costs and the remaining lives and period of future benefit of the related assets.
ii. Identification of cash-generating units
Management reviews the CGU determination on a periodic basis. The recoverability of property, plant and equipment carrying values are assessed at the CGU level. Determination of what constitutes a CGU is subject to management judgments. The asset composition of a CGU can directly impact the recoverability of the related assets.
iii. Estimation of fair value of stock options
The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company''s employee''s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management''s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. By their nature, these estimates are subject to measurement uncertainty and the effect on the consolidated financial statements of changes of estimates in future periods could be significant.
iv. Valuation of financial instruments
Caza uses valuation techniques that include inputs that are not based on observable market data to estimate the fair value of certain types of financial instruments. The notes provide detailed information about the key assumptions used in the determination of the fair value of the financial instruments.
Key sources of estimation uncertainty
The following are the key assumptions concerning the key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing adjustments to the carrying amounts of assets and liabilities within the next financial year.
The above judgments, estimates and assumptions relate primarily to unsettled transactions and events as of the date of the consolidated financial statements. Actual results could differ from these estimates and the differences could be material.
3. Exploration and Evaluation Assets
During the year ended December 31, 2015, the Company impaired expired leases in the amount of $142,100 (2014 - $1,045,875) relating to expiring leasehold in Southern Louisiana and East Texas and New Mexico as well as the plugging of the CML 35 State 3H non-operated well located in New Mexico.
4. Petroleum and Natural Gas Properties and Equipment
Future development costs of proved undeveloped reserves of $141,506,000 were included in the depletion calculation at December 31, 2015 (2014 - $76,719,200).
The Company reviewed each CGU comprising its property and equipment at September 30, 2015 and December 31, 2015 for indicators of impairment and determined that indicators were present related to continued decreases in current and future oil and natural gas prices. The company performed an impairment test at September 30, 2015 and recorded a $17,451,220 impairment loss associated with the New Mexico CGU, based on fair value less costs to sell estimates as at September 30, 2015, due to declining commodity prices. The company performed an additional impairment test at December 31, 2015 and concluded that the reserve values estimates at December 31, 2015 as compared to the carrying value of its petroleum and natural gas properties justified the reversal of the previously recorded impairment.
The key assumptions used in determining the recoverable amounts for purposes of the impairment test were the discount rate, commodity prices, resource volumes, future capital cost estimates, and timing of future capital investments.
The impairment test used a 12.5% discount rate at September 30, 2015 and December 31, 2015 (2014 - 12.5%). The petroleum and natural gas future prices for the December 31, 2015 impairment test, are based on commodity price forecasts of the Company''s independent reserve evaluators for 2015 as follows:
(1) Prices used in the impairment test were adjusted for commodity price differentials specific to the Company.
During the year ended December 31, 2015, the Company completed the sales of certain oil and gas properties for total cash consideration of $478,274 (2014 - $1,555,000), subject to final adjustments. The sales resulted in a loss recognized in comprehensive loss of $509,445 (2014 - $8,687,750).
5. Decommissioning Liabilities
The following is the continuity schedule of the obligation associated with the retirement of oil and gas properties for the years ended December 31, 2015 and December 31, 2014:
The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $2,922,088 (December 31, 2014 - $3,254,986). The December 31, 2015 obligation was calculated using a risk free discount rate of 2.67 percent (December 31, 2014 - 2.5%) and an inflation rate of 3 percent (2014 - 3%). The Company expects these obligations to be settled in approximately 1 to 41 years.
6. Income taxes
The following is a reconciliation of income taxes, calculated at the combined statutory federal and provincial income tax rates, to the income tax recovery included in the consolidated statements of net loss.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The components of the Company''s deferred income tax assets and liabilities are as follows:
The Company has the following net operating losses available to be carried forward to offset future operating income for Caza''s US entities:
7. Share Capital and Warrants
a. Authorized
Unlimited number of voting common shares.
b. Issued
On July 4, 2014, the Company completed an equity raise of US$9,368,418 net of issuance costs (approximately GBP 5.9 million or C$10.7 million) through the placing of 32,679,739 common shares at a price of GBP 0.18 (approximately C$0.33) per share. The Company also issued 20,711,048 shares at an average price of $0.14 for $2,990,683 servicing the Yorkville convertible note.
On November 4, 2015, the Company issued 24,537,897 common shares to YA Global Masters SPV Ltd. at a price of GBP 0.004649 per share pursuant to receiving a conversion notice in accordance with the terms of the $4.0 million convertible unsecured loan, see note 15.
On December 24, 2015, the Company closed a private placement through a ("Lender Settlement Agreement") of 9,467,419,937 common shares at US$0.0048 per share for gross proceeds of US$45,500,000, issued 26,502,000 common shares of the Company in exchange of 26,502,000 exchangeable shares in Caza Petroleum held by management. In addition, 29,878,886 common shares held by Global Master SPV Ltd. were returned and cancelled, see note 15.
The 2,529,333 common share warrants are exercisable at $0.17 and expire on November 1, 2016. On December 24, 2015, under the conditions of the Lender Settlement agreement the Company cancelled all remaining common share warrants, see note 15.
c. Stock options
The maximum number of common shares for which options may be granted, together with shares issuable under any other share compensation arrangement of the Company, is limited to 10% of the total number of outstanding common shares (plus common shares that would be outstanding upon the exercise of all exchangeable rights) at the time of grant of any option. The exercise price of each option may not be less than the fair market value of the Company''s common shares on the date of grant. Except as otherwise determined by the Board and subject to the limitation that the stock options may not be exercised later than the expiry date provided in the relevant option agreement but in no event later than 10 years (or such shorter period required by a stock exchange) from their date of grant, options cease to be exercisable: (i) immediately upon a participant''s termination by the Company for cause, (ii) 90 days (30 days in the case of a participant engaged in investor relations activities) after a participant''s termination from the Company for any other reason except death and (iii) one year after a participant''s death. Subject to the Board''s sole discretion in modifying the vesting of stock options, stock options will vest, and become exercisable, as to 33 1/3% on the first anniversary of the date of grant and 33 1/3% on each of the following two anniversaries of the date of grant. All options granted to a participant but not yet vested will vest immediately upon a change of control or upon the Company''s termination of a participant''s employment without cause. On December 24, 2015, under the conditions of the Lender Settlement agreement the Company cancelled all remaining outstanding stock options and the remaining unvested stock based compensation expense of $109,813 was recorded.
A summary of the Company''s stock option plan as the years ended December 31, 2015 and year end December 31, 2014 presented below:
During the year ended December 31, 2015, nil (2014 - 500,000) options were granted with a fair value of $nil (2014 - 124,500). The fair value of these options was determined using the Black-Sholes model with the following assumptions:
d. Long term incentive plan
The Company''s 2014-2016 Inventive Performance Program consists of three measurement periods of one, two and three years ending at each of the respective years 2014 through 2016. Performance awards are payable after the end of each year, based on a specified percentage of each participant''s salary determined by the amount of the total shareholder return of the Company during each measurement period compared to the total shareholder return of 10 companies designated in a peer group. Subject to the discretion of the Board of Directors, performance awards are payable one-half in cash and one-half in common shares. Compensation expense resulting from the Performance Program will be accrued over the term of the program.
The Board of Directors reserved for issuance an aggregate of 4,289,608 common shares in connection with outstanding performance awards during the three-year performance program, based on the Company''s attaining the midpoint of the payout performance range. On March 19, 2015 the Board of Directors approved the issuance of 2,051,308 common shares for the 2014 period under the performance program. The Company has previously recorded an expense of $201,849 to contributed surplus for these shares issued in the second quarter of 2015. On December 24, 2015, under the conditions of the Lender Settlement agreement the Company cancelled all remaining outstanding undistributed performance awards.
e. Share-based compensation reserve
The following table presents the changes in the share-based compensation reserve:
f. Non-controlling interest
On December 24, 2015, Management exchanged 26,502,000 exchangeable shares in Caza Petroleum for a total of 26,502,000 common shares of the Company.
In 2015 and 2014, issuances of common shares had a nominal impact on the number of exchangeable rights in the year.
8. Related Party Transactions
All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties and which is comparable to those negotiated with third parties.
Remuneration of key management personnel of the Company, which includes directors, officers and other key personnel, is set out below in aggregate:
9. Commitments and Contingencies
As of December 31, 2015 the Company is committed under operating leases for its offices in the following aggregate minimum lease payments which are shown below as operating commitments:
10. Supplementary Information
(a) Net change in non-cash working capital
(b) Supplementary cash flow information
(c) Cash and cash equivalents
The money market instruments bear interest at a rate of 0.19% as at December 31, 2015 (December 31, 2014 -
0.010%).
11. Capital Risk Management
The Company''s objectives when managing capital is to safeguard the entity''s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Company defines capital as shareholders'' equity, working capital (excluding current portion of decommissioning liabilities), credit facilities and notes payable when available. The Company manages the capital structure in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company''s objective is met by retaining adequate equity and working capital to provide for the possibility that cash flows from assets will not be sufficient to meet future cash flow requirements.
The Company has evaluated its net working capital balance as at December 31, 2015 and December 31, 2014. Due to long lead times on several of the Company''s exploration and development projects, from time to time the Company secures capital to fund its investments in petroleum and natural gas exploration projects in advance. At December 31, 2015 the notes payable balance was reclassified to current which created a negative working capital balance. On February 18, 2015 the Company issued $4,000,000 under an unsecured convertible note. During 2014, the Company issued additional notes payable of $10.0 million. As exploration and development projects progress the Company expects the net working capital balance may decrease from current levels, and additional capital may be required to fund additional projects. If the Company is unsuccessful in raising additional capital, the Company may have to sell or farm out certain properties. If the Company cannot sell or farm out certain properties, it will be unable to participate with joint interest partners and may forfeit rights to some of its properties.
The Company prepares annual budgets, which are updated as necessary depending on varying factors, including current and forecast commodity prices, changes in capital structure, execution of the Company''s business plan and general industry conditions.
12. Financial Instruments
The Company holds various forms of financial instruments. The nature of these instruments and the Company''s operations expose the Company to commodity price, credit, and foreign exchange risks. The Company manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical. Except as noted below there have been no changes in the Company''s risks, or the objectives, policies and processes to manage these risks.
a. Commodity Price Risk
The Company is subject to commodity price risk for the sale of oil and natural gas. The Company may enter into contracts for risk management purposes only, in order to protect a portion of its future cash flow from the volatility of oil and natural gas commodity prices. The Company has entered into swap contracts to limit exposure to declining crude oil prices. Under these swaps, the Company receives or pays monthly a cash settlement on the covered production of the difference between the swap price and the month average of the daily closing quoted spot price per barrel of West Texas Intermediate NYMEX crude oil. The fair value of the Company''s commodity price derivative contracts represents the estimated amount that would be received for settling the outstanding contracts on December 31, 2015, and will be different than what will eventually be realized. The fair value of these assets at a particular point in time is affected by underlying commodity prices, expected commodity price volatility and the duration of the contract and is determined by the expected future settlements of the underlying commodity. The gain or loss on such contracts is made up of two components; the realized component, which reflects actual settlements that occurred during the period, and the unrealized component, which represents the change in the fair value of the contracts during the period. For the year ended December 31, 2015 the Company recognized a realized gain of $7,905,820 (2014 - $147,620 gain) on its settled commodity price derivative contracts. For the year ended December 31, 2015 the Company recorded an unrealized loss of $6,449,261 (2014 - $6,217,813 gain) on unsettled commodity price derivative contracts. The fair value of these contracts at December 31, 2015 was $(417,912) (December 31, 2014 $6,031,350).
The following information presents all outstanding positions by year for commodity financial instruments contracts.
b. Credit Risk
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the consolidated statement of financial position date. A majority of the Company''s financial assets at the consolidated statement of financial position date arise from natural gas liquids and natural gas sales and the Company''s accounts receivable that are with these customers and joint venture participants in the oil & natural gas industry. Industry standard dictates that commodity sales are settled on the 25th day of the month following the month of production. The Company''s natural gas and condensate production is sold to large marketing companies. Typically, the Company''s maximum credit exposure to customers is revenue from two months of sales. During the year ended December 31, 2015, the Company sold 58% (2014 - 62%) of its natural gas and condensates to a single purchaser. These sales were conducted on transaction terms that are typical for the sale of natural gas and condensates in the United States. In addition, when joint operations are conducted on behalf of a joint interest partner relating to capital expenditures, costs of such operations are paid for in advance to the Company by way of a cash call to the partner of the operation being conducted.
Caza management assesses quarterly whether there should be any impairment of the financial assets of the Company. At December 31, 2015, the Company had past due accounts receivable from certain joint interest partners of $102,665 which were outstanding for greater than 60 days (December 31, 2014 - $340,342) and $98,242 that were outstanding for greater than 90 days (December 31, 2014 - $481,887). At December 31, 2015, the Company''s three largest joint interest partners represented approximately 13%, 6% and 4% of the Company''s receivable balance (December 31, 2014 - 29%, 14% and 4% respectively). The maximum exposure to credit risk is represented by the carrying amount on the consolidated statement of financial position of cash and cash equivalents, accounts receivable and deposits.
Trade receivables disclosed above include amounts that are past due at the end of the reporting period for which the Group has not recognized an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts (which include interest accrued after the receivable is more than 60 days outstanding) are still considered recoverable. The Company manages exposure on cash balances by holding cash with large and reputable financial institutions. The Company also assesses the credit worthiness of each counterparty before entering into contracts and ensures the counterparties meet minimum credit quality requirements.
c. Foreign Currency Exchange Risk
The Company is exposed to foreign currency exchange fluctuations, as certain general and administrative expenses are or will be denominated in Canadian dollars and United Kingdom pounds sterling. The Company''s sales of oil and natural gas are all transacted in US dollars. At December 31, 2015, the Company considers this risk to be relatively limited and not material and therefore does not hedge its foreign exchange risk.
d. Fair Value of Financial Instruments
The Company has determined that the fair values of the financial instruments consisting of cash and cash equivalents, restricted cash, accounts receivable and accounts payable are not materially different from the carrying values of such instruments reported on the consolidated statement of financial position due to their short-term nature. At December 31, 2015, the fair value of the notes payable is $nil plus transaction costs (December 31, 2014 - $42,366,371) which approximates net book value as interest rates fluctuate.
IFRS establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:
The Company''s cash and cash equivalents and restricted cash, which are classified as fair value through profit or loss, are categorized as Level 1 financial instruments.
All other financial assets are classified as loans or receivables and are accounted for on an amortized cost basis. All financial liabilities are classified as other liabilities. There are no financial assets on the consolidated statement of financial position that have been designated as available-for-sale.
The Company''s derivative liabilities as described in Notes 13 and 15 are Level 2 financial instruments and commodity price contracts are a Level 2 financial instrument.
There have been no changes to the aforementioned classifications during the years presented.
e. Liquidity Risk
Liquidity risk includes the risk that, as a result of our operational liquidity requirements:
The Company''s operating cash requirements including amounts projected to complete the Company''s existing capital expenditure program are continuously monitored and adjusted as input variables change. These variables include but are not limited to, available bank lines, natural gas production from existing wells, results from new wells drilled, commodity prices, cost overruns on capital projects and regulations relating to prices, taxes, royalties, land tenure, allowable production and availability of markets. As these variables change, liquidity risks may necessitate the Company to conduct equity issues or obtain project debt financing. The Company also mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses. The financial liabilities as at December 31, 2015 that subject the Company to liquidity risk are accounts payable, accrued liabilities, notes payable and derivative liabilities. The contractual maturity of these financial liabilities is generally the following sixty days from the receipt of the invoices for goods of services and can be up to the following next six months, except for the notes payable which are a long term financial liability which is due on demand in an event of default. Management believes that current working capital will be adequate to meet these financial liabilities as they become due.
13. Equity Facility
The Company entered into an Equity Adjustment Agreement (the "Adjustment Agreement") on March 5, 2013 with Global Master SPV Ltd., an investment fund managed by Yorkville Advisors Global, LP ("Yorkville") in conjunction with its SEDA Agreement dated November 23, 2012 with Yorkville. Pursuant to the Adjustment Agreement, during the three months ended March 31, 2013, the Company issued 3,846,154 common shares to Yorkville at a price of GBP 0.13 per share for aggregate proceeds of GBP 500,000 (US$756,451).
Under the terms of the Adjustment Agreement, if on December 31 2014 and now extended until March 31, 2016 and April 30, 2016 settling one half in each period, the common share market price (determined as 95% of the average daily volume weighted average price of common shares (VWAP) during the preceding 22 trading days) is greater than GBP 0.13, then Yorkville will pay to the Company the difference multiplied by the number of New Common Shares, and if the market price is less than GBP 0.13 then the Company will pay to Yorkville the difference multiplied by the number of New Common Shares. This derivative liability is classified as a financial instrument measured at fair value though profit or loss. On December 24, 2015, as part of the Company''s Lender Settlement Agreement the Adjustment Agreement obligation and associated derivative liability (December 31, 2014 - US$292,088 liability) was extinguished for no consideration. The change in fair valu
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Datum: 31.03.2016 - 00:00 Uhr
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