Caza Oil & Gas, Inc. ("Caza" or the "Company") (TSX:CAZ) (AIM:CAZA), is pleased
to provide its unaudited financial and operational results for the three-months
ended September 30, 2013.
Unaudited Third Quarter Financial Results
-- Caza's aggregate production increased 66% to 36,491 Boe for the three-
month period ended September 30, 2013, from 21,999 Boe for the
comparative period in 2012. This represents an average daily production
rate increase of 158 Boe/d to 397 Boe/d, as compared to 239 Boe/d for
the comparative period.
-- Caza's revenues from oil and gas sales increased 186% to $2,583,753 for
the three-month period ended September 30, 2013, from $902,622 for the
comparative period in 2012. The increase in production from the third
quarter of 2012 was primarily due to additional oil wells brought online
in the Bone Spring play.
-- The average combined price received by Caza increased 73% to $70.81 per
Boe during the three-month period ended September 30, 2013, from $41.03
per Boe during the comparative period in 2012, due to higher commodity
prices and the increase in oil & NGL production in relation to the
Company's combined oil and natural gas production.
-- The Company's ratio of oil and NGL production versus natural gas
continues to increase. Caza's oil and NGL production increased 160% to
22,958 bbls for the three-month period ended September 30, 2013, from
8,818 bbls for the comparative period in 2012. The Company's oil and NGL
production has increased to 63% of the Company's combined oil and
natural gas production in the nine-month period ended September 30,
2013, from 40% in the nine-month period ended September 30, 2012,
further mitigating the low US gas price.
-- Caza had a cash balance of $13,402,981 as of September 30, 2013, as
compared to $19,105,277 at June 30, 2013. Caza's working capital balance
at September 30, 2013, was $5,488,240 as compared to $11,168,013 at June
30, 2013. The decrease in Caza's working capital balance is due
primarily to drilling activities in the Bone Spring play in New Mexico.
Third Quarter Operational Results and Recent Events
The Company has been deploying proceeds from the Note Purchase Agreement ("NPA")
with Apollo Investment Corporation ("Apollo") to progress the properties
included in the initial Bone Spring drilling phase in Southeast New Mexico, as
outlined under the NPA. The initial drilling phase has been partially modified
from the original plan, as described in the property updates below. The modified
plan was mutually agreed between the Company and Apollo.
The initial Bone Spring drilling phase is still planned to include the drilling
of 12 oil and natural gas wells and two salt water disposal wells. Upon
completion of the initial drilling phase, the Company will plan a second phase,
largely based on the initial well results on specific properties, to drill 12
additional wells in the Bone Spring play to be funded from a subsequent sale of
notes, subject to the NPA.
-- Lennox: The Lennox State Unit 32 #2H well has been drilled and is
producing from the 2nd Bone Spring Sand. The well was recently deemed
commercial by the Commissioner of Public Lands for the State of New
Mexico and is holding the entire Lennox Unit, containing approximately
1,920 acres, across all depths. This is important for the future
development of this property. The Lennox State Unit 32 #4H well has been
permitted and was originally planned for Q4 2013, but has been replaced
by the Jazzmaster well (see below) and moved to the second phase of
drilling. The well is now scheduled for Q4 2014.
-- Copperline: The Caza Ridge 14 State #4H well was fracture stimulated and
completed in the 3rd Bone Spring Sand interval. The well produced at a
peak 24 hour rate of 1,004 bbls of oil and 1.3 million cubic feet of
natural gas, which equates to 1,221 Boe. Once meaningful production
began post frac, the 30 day average rates for the well, which included
the peak rate, were 573 bbls/d of oil and 622 Mcf/d, which equates to
677 Boe/d. Caza has a 58.75% working interest (44.8% net revenue
interest) in the Caza Ridge 14 State #4H well.
-- Gateway: The Gateway 2 State #1H well reached its intended total
measured depth ("TMD") of 13,550 feet in the 2nd Bone Spring Sand
interval on August 28, 2013. The well was subsequently fracture
stimulated beginning on September 19, 2013, and put on jet pump to help
unload frac fluids. The well is still in the completion phase and has
recently started producing oil and natural gas. The well was recently
shut in to repair the jet pump, but is now back online. As expected, the
rates continued to increase prior to shut in, and the well was producing
approximately 87 bbls/d of oil and 34 Mcf/d, which equates to 93 Boe/d.
It is anticipated that these rates will continue to rise as load water
from the frac is recovered. To date, approximately 53% of the load water
has been recovered. Caza has a 60% working interest (45.9% net revenue
interest) in the Gateway 2 State #1H well.
-- West Copperline: The West Copperline 29 Fed #1H horizontal Bone Spring
test well reached its intended TMD of approximately 15,035 feet in the
2nd Bone Spring Sand interval on October 11, 2013, and was subsequently
fracture stimulated beginning on November 1, 2013. The well is currently
beginning the initial flowback phase, and initial results should be
available within the next couple of weeks. Early indications and recent
drilling and producing results in very close proximity to this well are
very encouraging.
-- Forehand Ranch: The Forehand Ranch 27 State #3 (Ramsey Sand) vertical
well was initially planned for Q3 2013, but has been replaced with the
Mewbourne operated Two Mesas horizontal Bone Spring well (see below).
The Forehand Ranch 27 State #5 salt water disposal well has been drilled
and should be operational in the near term, which will significantly
reduce the Company's production expenses on this property and in the
general area.
-- Two Mesas: Caza recently received an election to participate in the
Mewbourne Oil Company operated Two Mesas 7 MP Federal #1H horizontal 2nd
Bone Spring test well in Eddy County, New Mexico. Caza elected to
participate in the well, which spudded on October 31, 2013. Caza has a
5.63% working interest (4.11% net revenue interest) in the Two Mesas
property.
-- Mad River: The Mad River 13 State #1H horizontal (Bone Spring or Brushy
Canyon) test well was originally planned for Q4 2013, but will be
replaced by the initial test well on the Gramma Ridge prospect (see
below).
-- Roja: The Madera 17 Fed #1H Lower Brushy Canyon well was fracture
stimulated, shut in for a period and placed on rod pump, which yielded
short term initial producing rates of 30 bbls/d of oil and 78 Mcf/d,
which equates to 43 Boe/d. Shortly thereafter, the well was shut in
again until permanent facilities could be installed. The facilities have
now been installed, and the operator has recently started producing the
well on pump at a deliberately controlled rate. The production rates
continue to increase, and the well has recently produced at 30 day
average rates of approximately 86 bbls/d of oil and 55 Mcf/d, which
equates to 96 Boe/d. This completion technique is different than that
being implemented by Caza, but both are considered sound practises by
industry standards, and this well continues to improve. Caza has a 20%
working interest (15.59% net revenue interest) in the Madera 17 Fed #1H
well.
-- Madera: The Madera 35 Fed #1H well reached its intended TMD in the 3rd
Bone Spring Sand interval, was fracture stimulated and yielded short
term initial producing rates of 288 bbls/d of oil and 136 Mcf/d, which
equates to 297 Boe/d. As with Roja, the well was then shut in to be
placed on rod pump and to await the installation of permanent
facilities. These facilities have now been installed, and it is
anticipated that the operator is ready to resume production in the very
near term. Caza has a 20% working interest (15.59% net revenue interest)
in the Madera 35 Fed #1H well.
-- Lynch: The Company has received an election and intends to participate
in the Marathon Road 15 PA Fed Com #1H horizontal Bone Spring well to be
operated by Mewbourne and drilled to a total vertical depth of
approximately 10,929 feet and a TMD of approximately 15,450 feet. The
anticipated spud date is late Q4 2013. Mewbourne has proposed the
formation of a 600 acre unit across Section 15, and Caza has agreed to
spread its current working interest percentage in 280 acres in the W/2
of the section across the unit, which will reduce the Company's working
interest from 34.38% to 18.71% (14.64% approximate net revenue
interest). The Mewbourne operated wells on the Lynch property will be
referred to as Marathon Road wells from this point forward. This
property directly offsets the Fasken Quail Ridge wells that Caza
participated in with a small interest. There have been four Quail Ridge
wells drilled to date. Two are still waiting to be fracture stimulated.
The other two had 30 day average initial producing rates of 640 bbls/d
of oil and 510 Mcf/d and 828 bbls/d of oil and 1,195 Mcf/d, which
equates to 725 Boe/d and 1,027 Boe/d respectively, which bodes well for
this property.
-- Jazzmaster: Caza has participated with a 25% working interest (19.44%
net revenue interest) in the Jazzmaster 17 State No. 4 well in Lea
County, New Mexico via the trade outlined in the Gramma Ridge section
immediately below. The well reached its intended TMD on September 29,
2013. Based on favorable log and core data obtained from the well, Caza
elected to participate in the completion procedure proposed for the 2nd
Bone Spring Sand interval. The well is currently being fracture
stimulated.
-- Gramma Ridge: Caza was the winning bidder on 320 acres at the State of
New Mexico Oil and Gas Lease Sale held on July 16, 2013. At that time
Caza participated with a 10% bidding partner, O'Neill Properties, and
retained a 90% working interest in the lease. Caza subsequently swapped
acreage at Gramma Ridge for acreage at the Jazzmaster prospect, also in
Lea County, New Mexico, operated by Endurance Resources, LLC. Caza
received an undivided 25% working interest from Endurance in 480 acres
at Jazzmaster, and Endurance received an undivided 37.5% working
interest in Caza's 320 acres at Gramma Ridge. Therefore, Caza now has a
52.5% working interest (40.82% net revenue interest) in the Gramma Ridge
property. This is considered a like kind trade and exposes Caza to
additional Bone Spring play opportunities. This type of acreage swap is
favorable to selling down in a project, because it reduces risk without
sacrificing reserve potential. Since the Jazzmaster well was already
scheduled to be drilled, the Gramma Ridge test well was pushed back and
has not yet been officially rescheduled.
-- Yorkville Loan Agreement: As announced on November 5, 2013, the Company
entered into an agreement in relation to a $4.3 million convertible
unsecured loan (the "Loan") which was made available by YA Global Master
SPV Ltd., an investment fund managed by Yorkville Advisors LLC
("Yorkville"). The Loan consists of $3.5 million of new credit
facilities along with an additional $0.84 million that was used to repay
amounts which were outstanding under the prior loan from Yorkville. Caza
intends to use the funds from the Loan, together with funds available
pursuant to the NPA, to continue its leasing and drilling program in the
Bone Spring Play in Lea and Eddy Counties in Southeastern New Mexico.
-- Hedging Arrangements: On November 6, 2013, the Company entered into swap
contracts to limit potential exposure to declining crude oil prices for
approximately 75% of its oil production from currently producing wells.
Under these swaps, the Company pays or receives, whichever the case may
be, a monthly cash settlement on the covered oil production representing
the difference between the swap price and the monthly average of the
daily closing quoted spot price per barrel of West Texas Intermediate
NYMEX crude oil. For the remainder of 2013 the swap covers 9,685 barrels
of oil at a swap price of $94.25. During the 12 months ending December
2014, the swap covers 40,524 barrels of oil at a swap price of $92.55.
During the 12 months ending December 2015, the swap covers 28,410
barrels of oil at a swap price of $87.05.
W. Michael Ford, Chief Executive Officer commented:
"We are very pleased with the progression of the initial drilling phase of our
Bone Spring program in Southeast New Mexico. Early well results have continued
Caza's trend of positive operational and financial performance, increasing both
production and revenues. Production from these wells also continues to increase
Caza's oil to natural gas ratio. The Company's oil and NGL production is up 9%
from Q2 2013, and now represents 63% of the Company's combined production. We
expect these increases to continue as more Bone Spring play wells are brought
online in the next quarter."
"Our production increased 79% and revenue increased 142% from Q2 2013. These
increases did not include production from the Madera wells due to delays in
bringing them online. We are very pleased this has been remedied by the operator
and look forward to drilling additional wells across this large acreage block as
they are proposed."
"In addition to the Madera wells, the wells at Gateway, West Copperline and
Jazzmaster should all be contributing to production and revenue streams in the
next quarter. We're excited to get these wells online and producing. The Gateway
well appears to be tight in the 2nd Bone Spring, but early indications at West
Copperline appear very good. We look forward to updating the market once the
West Copperline and Jazzmaster wells are completed."
"In this initial drilling phase, we are testing our various acreage blocks and
gathering valuable log and core date across prospective intervals. This will
allow us to develop specifically targeted areas during the second drilling phase
of our program, which should lower risk and continue to grow our production,
revenue and reserves, creating value for our shareholders."
Copies of the Company's unaudited financial statements for the third quarter
ended September 30, 2013, and the accompanying management's discussion and
analysis are available on SEDAR at www.sedar.com and the Company's website at
www.cazapetro.com.
About Caza
Caza is engaged in the acquisition, exploration, development and production of
hydrocarbons in the following regions of the United States of America through
its subsidiary, Caza Petroleum, Inc.: Permian Basin (West Texas and Southeast
New Mexico) and Texas and Louisiana Gulf Coast (on-shore).
The Toronto Stock Exchange has neither approved nor disapproved the information
contained herein.
In accordance with AIM Rules - Guidance Note for Mining, Oil and Gas Companies,
the information contained in this announcement has been reviewed and approved by
Anthony B. Sam, Vice President Operations of Caza who is a Petroleum Engineer
and a member of The Society of Petroleum Engineers.
ADVISORY STATEMENT
Information in this news release that is not current or historical factual
information may constitute forward-looking information within the meaning of
securities laws. Such information is often, but not always, identified by the
use of words such as "seek", "anticipate", "plan", "schedule", "continue",
"estimate", "expect", "may", "will", "project", "predict", "potential",
"intend", "could", "might", "should", "believe", "develop", "test",
"anticipation" and similar expressions. In particular, information regarding the
depth, timing and location of future drilling, elections to participate in
future drilling, future production rates and revenue streams, future completion
operations, intended production testing, availability of future funding, use of
funds, future production expenses and the Company's future working interests and
net revenue interests in properties contained in this news release constitutes
forward-looking information within the meaning of securities laws.
Implicit in this information, are assumptions regarding the success and timing
of drilling operations, rig availability, projected revenue and expenses,
availability of funding and well performance. These assumptions, although
considered reasonable by the Company at the time of preparation, may prove to be
incorrect. Readers are cautioned that actual future operations, operating
results and economic performance of the Company are subject to a number of risks
and uncertainties, including general economic, market and business conditions
and could differ materially from what is currently expected as set out above. In
addition, the geotechnical analysis and engineering to be conducted in respect
of certain wells is not complete. Future flow rates from wells may vary, perhaps
materially, and will be subject to decline. In addition, certain wells may prove
to be technically or economically unviable. The flow rates disclosed herein are
not necessarily indicative of long-term performance or of ultimate recovery. Any
future flow rates will be subject to the risks and uncertainties set out herein.
Information in this news release regarding areas in the Bone Spring Formation in
which the Company does not have an interest may not have been prepared by a
qualified reserves evaluator or auditor in accordance with the Canadian Oil &
Gas Evaluators Handbook. Such information relates to areas which are proximate
to areas in which the Company has or intends to acquire an interest and has been
provided so that readers may better understand oil and gas activities in areas
in which the Company operates or plans to operate. There is no warranty, express
or implied, that the results of the Company will be consistent with such
information. The Company's results may differ materially and readers should not
assume the Company's results will be consistent with those of other operators or
use such information for any purpose other than as specified herein.
For more exhaustive information on these risks and uncertainties you should
refer to the Company's most recently filed annual information form which is
available at www.sedar.com and the Company's website at www.cazapetro.com. You
should not place undue importance on forward-looking information and should not
rely upon this information as of any other date. While we may elect to, we are
under no obligation and do not undertake to update this information at any
particular time except as may be required by securities laws.
GLOSSARY OF ABBREVIATIONS
bbl one barrel, each barrel Mcf one thousand cubic feet of
representing 34.972 Imperial Mcf/d natural gas
gallons or 42 U.S. gallons one thousand cubic feet of
natural gas per day
bbls/d barrels per day
Boe barrels of crude oil Mcfe one thousand cubic feet of
equivalent derived by natural gas equivalent derived
converting natural gas to by converting crude oil to
crude oil in the ratio of six natural gas in the ratio of one
thousand cubic feet of natural barrel of oil into six thousand
gas to one barrel of crude oil cubic feet of natural gas
Boe/d barrels of crude equivalent NGL natural gas liquids
per day
Boe may be misleading, particularly if used in isolation. A Boe conversion ratio
of 6 Mcf: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
well head.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Caza Oil & Gas, Inc.
Condensed Consolidated Statements of Financial Position
(Unaudited)
September 30, December 31,
(In United States dollars) 2013 2012
----------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 13,402,981 $ 6,809,640
Restricted cash (Note 8) 444,647 -
Accounts receivable 5,349,442 3,854,146
Prepaid and other 165,675 368,745
----------------------------------
19,362,745 11,032,531
Other assets 98,686 98,336
Exploration and evaluation assets (Note 2) 14,669,289 10,085,746
Petroleum and natural gas properties
and equipment (Note 3) 32,170,084 20,552,077
----------------------------------
$ 66,300,804 $ 41,768,690
----------------------------------
Liabilities
Current
Accounts payable and accrued Liabilities $ 13,050,344 $ 8,645,896
Derivative liability (Note 8) 212,962 -
Notes payable (Note 8) 709,883 1,941,476
Decommissioning liabilities (Note 4) 92,063 210,696
----------------------------------
14,065,252 10,798,068
Notes payable (Note 8) 23,170,502 -
Decommissioning liabilities (Note 4) 1,080,148 757,102
----------------------------------
38,315,902 11,555,170
Shareholders' Equity
Share capital 77,191,483 75,064,216
Share capital to be issued (Note 9) 776,003 -
WarrantsShare based compensation reserve 89,674 89,674
10,238,778 9,648,162
Deficit (58,268,024) (53,298,407)
----------------------------------
Equity attributable to owners of the
Company 30,027,914 31,503,645
Non-controlling interests (2,043,012) (1,290,125)
----------------------------------
Total equity 27,984,902 30,213,520
----------------------------------
$ 66,300,804 $ 41,768,690
----------------------------------
See accompanying notes to the condensed consolidated financial statements
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Caza Oil & Gas, Inc.
Condensed Consolidated Statements of Net Loss and Comprehensive Loss
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
(In United States
dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue and other
Petroleum and
natural gas $ 2,583,753 $ 902,622 $ 4,931,040 $ 3,389,045
Interest income 475 1,953 1,017 2,746
--------------------------------------------------------
2,584,228 904,575 4,932,057 3,391,791
--------------------------------------------------------
Expenses
Production 688,080 470,165 1,737,923 1,583,036
General and
administrative 1,404,028 1,387,003 4,446,606 4,293,022
Depletion and
depreciation
(Note 3) 1,040,021 605,562 2,193,665 2,010,571
Financing costs 747,790 3,819 1,318,211 12,085
Other expense
(income) 74,441 - 97,438 (176,004)
Development and
production
impairment (Note
3) - - - 2,688,506
Exploration and
evaluation
impairment (Note
2) - - 740,677 -
Loss on disposal
of assets - 634,019 120,041 634,019
Remediation and
maintenance - 8,005 - 209,902
--------------------------------------------------------
3,954,360 3,108,573 10,654,561 11,255,137
--------------------------------------------------------
Net loss and
comprehensive loss
for the period (1,370,132) (2,203,998) (5,722,504) (7,863,346)
--------------------------------------------------------
Attributable to:
Owners of the
Company (1,192,313) (1,898,578) (4,969,617) (6,773,678)
Non-controlling
interests (177,819) (305,420) (752,887) (1,089,668)
--------------------------------------------------------
$ (1,370,132) $ (2,203,998) $ (5,722,504) $ (7,863,346)
--------------------------------------------------------
Net loss per share
- basic and
diluted (0.01) (0.01) (0.03) (0.05)
--------------------------------------------------------
Weighted average
shares outstanding
- basic and
diluted (1) 177,701,939 164,743,667 172,458,003 164,743,667
--------------------------------------------------------
--------------------------------------------------------
(1) All options and warrants have been excluded from the diluted loss per
share computation as they are anti-dilutive.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Caza Oil & Gas, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
(In United States dollars) 2013 2012
----------------------------------------------------------------------------
OPERATING
Net loss for the period (5,722,504) (7,863,346)
Adjustments for items not affecting cash:
Depletion and depreciation 2,193,665 2,010,571
Unwinding of the discount 15,208 12,085
Share-based compensation 610,216 121,926
Development and production impairment (Note 3) - 2,688,506
Exploration and evaluation impairment (Note 2) 740,677 -
Loss on disposal of assets 120,041 634,019
Unrealized gain on foreign exchange (28,596) -
Non cash financing costs 384,831 -
Other expense (income) 154,013 (176,004)
Interest income (1,017) (2,746)
Changes in non-cash working capital (Note 7a) (689,704) 2,746,880
----------------------------
Cash flows used in operating activities (2,223,170) 171,891
----------------------------
FINANCING
Interest received 1,017 2,746
Proceeds from issuance of shares 2,647,661 -
Proceeds from issuance of notes payable (Note
8) 25,000,000 -
Note principal payments (1,127,500) -
Financing costs paid (1,899,912) -
Changes in non-cash working capital (Note 7a) 182,447 -
----------------------------
Cash flow from financing activities 24,803,713 2,746
----------------------------
INVESTING
Exploration and evaluation expenditures (Note
2) (18,378,756) (4,159,360)
Development and production expenditures (Note
3) (871,642) (1,687,956)
Purchase of office furniture and equipment
(Note 3) (1,250) (1,944)
Restricted cash (416,048) -
Joint interest billings partner reimbursements 61,364 1,166,215
Proceeds from sale and disposal of assets - 5,947,500
Changes in non-cash working capital (Note 7a) 3,619,130 1,133,038
----------------------------
Cash flows used in investing activities (15,987,202) 2,397,493
----------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,593,341 2,572,130
CASH AND CASH EQUIVALENTS, BEGINNING OF THE
PERIOD 6,809,640 10,204,176
----------------------------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD 13,402,981 12,776,306
----------------------------
----------------------------
See accompanying notes to the condensed consolidated financial statements
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Caza Oil & Gas, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
For the nine month periods ended September
30,
(in United States Dollars) 2013 2012
----------------------------------------------------------------------------
Share Capital
Balance, beginning of period $ 75,064,216 $ 75,064,216
Common shares issued 2,127,267 -
--------------------------------
Balance, end of period $ 77,191,483 $ 75,064,216
--------------------------------
Share capital to be issued
Balance, beginning of period $ - $ -
Common shares issued (Note 9) 776,003 -
--------------------------------
Balance, end of period $ 776,003 $ -
--------------------------------
Warrants
Balance, beginning of period $ 89,674 $ -
Issuance costs - -
--------------------------------
Balance, end of period $ 89,674 $ -
--------------------------------
Share based compensation reserve
Balance, beginning of period $ 9,648,162 $ 9,430,656
Share based compensation 590,616 121,926
--------------------------------
Balance, end of period $ 10,238,778 $ 9,552,582
--------------------------------
Deficit
Balance, beginning of period $ (53,298,407) $ (42,747,681)
Net loss allocated to owners of the
Company (4,969,617) (6,773,678)
--------------------------------
Balance, end of period $ (58,268,024) $ (49,521,359)
--------------------------------
Non-controlling Interests
Balance, beginning of period $ (1,290,125) $ 407,148
Net loss allocated to non-controlling
interests (752,887) (1,089,668)
--------------------------------
Balance, end of period $ (2,043,012) $ (682,520)
--------------------------------
Total Shareholders' Equity $ 27,984,902 $ 34,412,919
--------------------------------
--------------------------------
See accompanying notes to the condensed consolidated financial statements
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 TSX (symbol "CAZ") and AIM stock exchanges (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 1700, Park Place, 666 Burrard Street Vancouver, British
Columbia, V6C 2X8.
Caza's functional and presentational currency is the United States ("U.S.")
dollar as the majority of its transactions are denominated in the currency.
The condensed consolidated financial statements (the "Financial Statements")
were prepared in accordance with IAS 34 - Interim Financial Reporting using
accounting policies consistent with International Financial Reporting Standards
("IFRS").
These Financial Statements should be read in conjunction with the Company's
audited annual consolidated financial statements as at and for the year ended
December 31, 2012, which outline the Company's significant accounting policies
in Note 2 thereto, as well as the Company's critical accounting judgments and
key sources of estimation uncertainty, which have been applied consistently in
these Financial Statements. The note disclosure requirements of annual
consolidated financial statements provide additional disclosures to that
required for interim unaudited condensed consolidated financial statements.
These Financial Statements were approved for issuance by the Board of Directors
on November 10, 2013.
Changes in Accounting Policies
As disclosed in the December 31, 2012 consolidated financial statements,
effective January 1, 2013, Caza adopted IFRS 10 "Consolidated Financial
Statements", IFRS 11 "Joint Arrangements", IFRS 12 "Disclosure of Interests in
Other Entities", and the amendments to IAS 28 "Investments in Associates and
Joint Ventures."
There were no changes to the consolidated financial statements or the
consolidation process as a result of adoption of IFRS 10. IFRS 11 classifies
interests in joint arrangements as joint ventures or joint operations depending
on the rights and obligations of the parties in the arrangement. Caza performed
a review of interests in joint arrangements and concluded that shared wells
operate as joint operations and accordingly there is no change in the accounting
for these assets as a result of adoption of this standard. As a result, there
were no changes as a result of the adoption of IFRS 12 as well.
Furthermore Caza was also required to adopt IFRS 13 "Fair Value Measurements",
amendments to IAS 1 "Presentation of Financial Statements", amendments to IFRS 7
"Financial Instruments: Disclosures". There were no material changes as a result
of the adoption of these standards.
2. Exploration and evaluation assets ("E&E")
----------------------------------------------------------------------------
September 30, December 31,
2013 2012
----------------------------------------------------------------------------
Balance, beginning of the period $ 10,085,746 $ 4,941,256
Additions to exploration and evaluation
assets 18,708,601 10,464,696
Transfers to petroleum and natural gas
properties (13,384,381) (4,417,633)
Disposals of assets - (272,989)
Joint interest billings partner
reimbursements - (436,649)
Exploration and evaluation impairment (740,677) (192,935)
----------------------------------------------------------------------------
Balance, end of the period $ 14,669,289 $ 10,085,746
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the period ended September 30, 2013, the Company added $18,708,601 of
exploration and evaluation costs to E&E relating to the W. Copperline 29 St.Com
#1H and the Gateway 2 State #2H wells drilled in the Bone Spring play in New
Mexico. The Company also transferred $13,384,381 to the Petroleum and natural
gas properties and equipment relating to the Caza Ridge 14#4H and Lennox 33
State #2H wells that were completed during the second and third quarters of
2013. During the three and nine month periods ended September 30, 2013 the
Company expensed nil and $740,677 respectively associated with the expiration of
leasehold costs.
3. Petroleum and natural gas properties and equipment
----------------------------------------------------------------------------
Development & Corporate
Production Assets Assets Total
----------------------------------------------------------------------------
Cost
Balance, December 31, 2012 $ 43,849,877 $ 828,826 $ 44,678,703
Additions 871,642 1,250 872,892
Disposals (411,614) - (411,614)
Transfers from E&E 13,384,381 - 13,384,381
Other (61,364) - (61,364)
----------------------------------------------------------------------------
Balance, September 30, 2013 $ 57,632,922 $ 830,076 $ 58,462,998
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Development & Corporate
Production Assets Assets Total
----------------------------------------------------------------------------
Accumulated Depletion and
Depreciation
----------------------------------------------------------------------------
Balance, December 31, 2012 $ 23,345,971 $ 780,655 $ 24,126,626
Depletion and depreciation 2,165,409 28,256 2,193,665
Sale of assets (27,377) - (27,377)
----------------------------------------------------------------------------
Balance, September 30, 2013 $ 25,484,003 $ 808,911 $ 26,292,914
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Carrying amounts
At December 31, 2012 $ 20,503,906 $ 48,171 $ 20,552,077
At September 30, 2013 $ 32,148,919 $ 21,165 $ 32,170,084
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Future development costs of proved undeveloped reserves of $38,583,900 were
included in the depletion calculation at September 30, 2013 and December 31,
2012. The Company did not note any indications of impairment as at September 30,
2013.
During the three months ended March 31, 2012, the Company recorded an impairment
of $2,688,506 primarily due to changes in the estimates of expected future
natural gas prices used in determining the fair value. The March 31, 2012
impairment was recognized using a 16% discount rate.
4. Decommissioning Liabilities
The following table presents the reconciliation of the beginning and ending
aggregate carrying amount of the obligation associated with the retirement of
petroleum and natural gas properties:
Nine months ended Year ended
September 30, December 31,
2013 2012
-----------------------------------
Decommissioning liabilities, beginning of
the period $ 967,798 $ 1,052,091
Obligations incurred 329,850 74,899
Revision in estimated cash flows and
discount rate - 181,776
Obligations settled (140,645) (355,954)
Unwinding of the discount 15,208 14,986
-----------------------------------
Decommissioning liabilities, end of the
period $ 1,172,211 $ 967,798
Current portion 92,063 210,696
-----------------------------------
Long-term decommissioning liabilities $ 1,080,148 $ 757,102
-----------------------------------
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 $1,985,802 (December 31, 2012 - $1,415,507). The obligation was
calculated using a risk free discount rate of 2.5 percent (2012 - 2.5 percent)
and an inflation rate of 3 percent (2012 - 3 percent). It is expected that this
obligation will be funded from general Company resources at the time the costs
are incurred with the majority of costs expected to occur between 2013 and 2030.
5. Related Party Transactions
The aggregate amount of expenditures made to related parties:
Singular Oil & Gas Sands, LLC ("Singular") is a related party as it is a company
under common control with Zoneplan Limited, which is a significant shareholder
of Caza.
Singular participates in the drilling of the Matthys McMillan Gas Unit #2 and
the O B Ranch #1 and 2 wells located in Wharton County, Texas. Under the terms
of that agreement, Singular paid 14.01% of the drilling costs through completion
to earn a 10.23% net revenue interest on the Matthys McMillan Gas Unit #2 well
and paid 12.5% of the drilling costs to earn a 6.94% net revenue interest on the
O B Ranch #1 well. Under the terms of the agreement of the O B Ranch #2 Singular
paid 9.375% of the drilling costs to earn approximately 6.8% net revenue
interest. This participation was in the normal course of Caza's business and on
the same terms and conditions to those of other joint interest partners.
Singular owes the Company $50,666 in joint interest partner receivables as at
September 30, 2013 (December 31, 2012 - $ 6,336).
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.
6. Commitments and Contingencies
As of September 30, 2013, the Company is committed under operating leases for
its offices and corporate apartment in the following aggregate minimum lease
payments which are shown below:
2013 $ 68,344
2014 $ 258,075
2015 $ 184,402
The Company is required under the Apollo Note Agreement to convey a
proportionately reducible 2% overriding royalty interest in each lease acquired
by Caza using proceeds advanced under this agreement. These amounts are not
payable until such a time that these leases produce petroleum and natural gas
revenues. See Note 8 for additional information.
7. Supplementary Information
(a) net change in non-cash working capital (nine months ended):
September 30, September 30,
2013 2012
----------------------------------------------------------------------------
Provided by (used in)
-------------------------------------------
Accounts receivable $ (1,495,294) $ 1,641,275
Prepaid and other 202,719 214,600
Accounts payable and accrued liabilities 4,404,448 2,024,043
---------------------------------
$ 3,111,873 $ 3,879,918
---------------------------------
Summary of changes
Operating $ (689,704) $ 2,746,880
Financing 182,447 -
Investing 3,619,130 1,133,038
---------------------------------
$ 3,111,873 $ 3,879,918
---------------------------------
(b) supplementary cash flow information
September 30, September 30,
2013 2012
----------------------------------------------------------------------------
Interest paid $ 623,395 $ -
Interest received 1,017 2,746
(c) cash and cash equivalents
September 30, December 31,
2013 2012
----------------------------------------------------------------------------
Cash on deposit $ 1,533,842 $ 6,073,807
Money market instruments 11,869,139 735,833
-----------------------------------
Cash and cash equivalents $ 13,402,981 $ 6,809,640
-----------------------------------
-----------------------------------
The money market instruments bear interest at a rate of 0.020% as at September
30, 2013 (December 31, 2012 - 0.082%).
8. Financial Instruments
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 interest
participants in the oil and 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 three and nine
month periods ended September 30, 2013, the Company sold 67.7% and 67.7%,
respectively (2012 - 81.8% and 79.1%, respectively) of its natural gas and
condensates to a single purchaser. These sales were conducted on transaction
terms that are typical for the sale of natural gas and condensates in the United
States. In addition, when joint operations are conducted on behalf of a joint
interest partner relating to capital expenditures, costs of such operations are
paid for in advance to the Company by way of a cash call to the partner of the
operation being conducted.
Caza management assesses quarterly whether there should be any impairment of the
financial assets of the Company. At September 30, 2013, the Company had overdue
accounts receivable from certain joint interest partners of $34,671 which were
outstanding for greater than 60 days and $104,969 that were outstanding for
greater than 90 days; management believes these amounts are collectible and not
impaired. During the three and nine month periods ended September 30, 2013 the
Company expensed nil and $12,478 respectively (nil for 2012) of uncollectable
receivables. At September 30, 2013, the Company's two largest joint interest
partners represented approximately 10% and 8% of the Company's receivable
balance (September 30, 2012 - 6% and 5% 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, restricted cash, accounts
receivable and deposits.
Other Financial Instruments
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 in conjunction with its Standby Equity
Distribution Agreement (the "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 February 28, 2014 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. The fair value of this derivative was
calculated at the date of issuance using inputs as of that date and at September
30, 2013 using inputs as of September 30, 2013, including the share price, the
strike price and the estimated volatility over the remaining term. The
derivative liability is classified as a financial instrument measured at fair
value though profit or loss. The fair value of the derivative liability
amounting $212,962 as of September 30, 2013 has been included within current
liabilities on the consolidated statement of financial position, and the change
in fair value of $174,775 since the date of issuance is included in other
expenses in the consolidated statement of net loss and comprehensive loss.
The Company has deposited in escrow GBP 275,000 (US$ - $444,647) as security for
this contingent payment obligation, which has been recorded within restricted
cash on the consolidated statements of financial position.
The outstanding balance of the notes payable relating to the SEDA Agreement as
of September 30, 2013 was US$709,883 (net of unamortized transaction costs of
US$115,117). These notes payable are classified as other financial liabilities
and are measured at amortized cost. The note matures December 15, 2013.
Notes Payable
The Company also entered into a Note Purchase Agreement ( the" Note Agreement")
dated May 23, 2013 with Apollo Investment Corporation ("the Note Holder"), an
investment fund managed by Apollo Investment Management, pursuant to which the
Note Holder has agreed to purchase from the Company up to US$50,000,000 of its
senior secured notes. The Company received US$20,000,000 at the closing of the
Note Agreement ("Tranche A Apollo Note") and the Company may draw additional
advances up to US$30,000,000 until August 23, 2014, if at the time of the
advance, the Company meets the specified minimum production and drilling cost
requirements for previous wells drilled under the program that were financed
with funding from the Note Purchase Agreement. In addition to these funds, the
Company will have the ability to reinvest cash flow from program wells back into
the drilling program.
In connection with the Tranche A Apollo Note, the Company incurred a total of
US$1,487,412 in transaction costs (consisting of US$1,359,912 in issuance costs
and US$127,500 relating to the fair value of the 2% overriding royalty conveyed
at the closing of the Note Purchase Agreement). In addition, the Company also
incurred structuring fees of US$440,000 in connection with the Note Purchase
Agreement. The Tranche A Apollo Note is classified as other financial
liabilities and is measured at amortized cost.
The outstanding balance of the Tranche A Apollo Note as at September 30, 2013
was US$23,170,502 which includes an additional draw down of $5,000,000 on
September 11, 2013(net of unamortized transaction costs US$1,829,498). This
outstanding balance matures on May 23, 2017. The Tranche A Apollo Note bears
interest at a floating rate of one-month LIBOR (with a floor of 2%) plus 10% per
annum, payable monthly. In an event of default under the Note Purchase
Agreement, additional interest will be payable at a default rate of 5% per
annum, but only during the period of default.
The Company is required to comply with financial covenants, which are tested
quarterly, providing for specified interest coverage ratios beginning in the
quarter ending September 30, 2013, and asset coverage ratios and minimum
production, beginning in the quarter ending March 31, 2014. Furthermore, the
Company is required to maintain a limit on expenditures for general and
administrative costs. Any outstanding balances in the Note Purchase Agreement
may be prepaid at the option of the Company at any time at premiums that vary
over time. The Note Purchase Agreement is also subject to a mandatory prepayment
from the proceeds of the sale of assets and from funds received from
transactions outside of the ordinary course of business. Additionally, if in any
period the Company fails to comply with any financial or performance covenants,
certain mandatory payments are required. Outstanding balances under the Note
Purchase Agreement are secured by first-priority security interests in all of
the Company's assets.
In addition to the 2% overriding royalty interest conveyed at the closing of the
Note Purchase Agreement in its properties in Eddy and Lea Counties, New Mexico,
the Company is also required to convey a proportionately reducible 2% overriding
royalty interest in each lease acquired by Caza using proceeds from the Note
Purchase Agreement. These amounts are not payable until such a time that these
leases produce petroleum and natural gas revenues.
Upon full repayment of Tranche A Apollo Note, the overriding royalty interests
will convert to a 25% net profits interest in each property, proportionately
reduced to reflect the Company's working interest as provided in the Agreement,
which will reduce to a 12.5% net profits interest at such time as the Note
Holder achieves specified investment criteria pursuant to the Note Purchase
Agreement. The Note Agreement provides for customary events of default.
Additionally, an event of default would occur upon a change of control of the
Company, which consists of (i) a shareholder acquiring more than 35% of the
Company's outstanding Common Shares, (ii) a change in the composition of the
board of directors by more than 1/3 during a 12-month period or (iii) a
termination of service by any three of the five executive officers of the
Company.
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,
deposits 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. The fair values of other financial
instruments are discussed below.
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:
-- Level 1: Values based on unadjusted quoted prices in active markets that
are accessible at the measurement date for identical assets or
liabilities.
-- Level 2: Values based on quoted prices in markets that are not active or
model inputs that are observable either directly or indirectly for
substantially the full term of the asset or liability.
-- Level 3: Values based on prices or valuation techniques that require
inputs that are both unobservable and significant to the overall fair
value measurement.
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.
The Company's notes payable issued in 2012 were categorized as Level 2 financial
instruments and were recorded at fair value on issuance using a market interest
rate for similar debt issued without the warrants attached. The notes payable
issued pursuant to the Note Purchase Agreement as described above were
categorized as Level 2 financial instruments and were recorded at fair value on
issuance using a market interest rate for similar debt issued without the
overriding royalty interest attached.
The Company's derivative liability as described above under "Other Financial
Instruments - Equity facility" is also a Level 2 financial instrument.
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. There have been no changes to the aforementioned
classifications during the periods presented.
9. Subsequent Events
On September 30, 2013 the Company received cash in the amount of $776,003 for
shares to be issued in October 2013. On October 24, 2013 Caza issued 5,263,158
common shares to Yorkville at a price of GBP 0.095 per share.
On November 1, 2013 the Company entered into an agreement in relation to a $4.3
million convertible unsecured loan (the "Loan") to be made available by YA
Global Master SPV Ltd., an investment fund managed by Yorkville. The Loan
consists of $3.5 million of new credit facilities along with an additional $0.84
million that will be used to repay amounts which remain outstanding under the
prior loan from Yorkville. The Loan will mature in two years, which may be
extended to three years by Yorkville. The Loan bears interest on outstanding
principal at 8% per annum and interest is payable quarterly only in Common
Shares based on a conversion price equal to 92.5% of the average price of the
Common Shares during the ten trading days prior to the interest payment date. At
Yorkville's option, outstanding principle of the loan is convertible into Common
Shares of the Company and the conversion price will be a price per Common Share
equal to either (a) 92.5% of the average price of the Common Shares during the
ten trading days prior to the conversion to a maximum of $450,000 per month or
(b) at Yorkville's option, a fixed price of GBP 0.14.
On November 6, 2013, the Company entered into swap contracts to limit exposure
to declining crude oil prices for approximately 75% of its production from
currently producing wells. 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. For the remainder of 2013 the
swap covers 9,685 barrels of oil at a swap price of $94.25. During the 12 months
ending December 2014, the swap covers 40,524 barrels of oil at a swap price of
$92.55. During the 12 months ending December 2015, the swap covers 28,410
barrels of oil at a swap price of $87.05.
FOR FURTHER INFORMATION PLEASE CONTACT:
Caza Oil & Gas, Inc.
Michael Ford
CEO
+1 432 682 7424
Caza Oil & Gas, Inc.
John McGoldrick
Chairman
+65 9731 7471 (Singapore)
www.cazapetro.com
Cenkos Securities plc
Jon Fitzpatrick
+44 20 7397 8900 (London)
Cenkos Securities plc
Neil McDonald
+44 131 220 6939 (Edinburgh)
VSA Capital Limited
Andrew Raca
+44 20 3005 5004
VSA Capital Limited
Malcolm Graham-Wood
+44 20 3005 5012
VIGO Communications
Chris McMahon
+44 20 7016 9570
Alphinat (TSXV:NPA)
Historical Stock Chart
From Apr 2024 to May 2024
Alphinat (TSXV:NPA)
Historical Stock Chart
From May 2023 to May 2024
