TIDMFRR
RNS Number : 2725L
Frontera Resources Corporation
30 September 2016
FRONTERA RESOURCES CORPORATION
Houston, Texas, U.S.A. - 30 September 2016
FRONTERA RESOURCES RELEASES FIRST HALF 2016 FINANCIAL
RESULTS
Frontera Resources Corporation (London Stock Exchange, AIM
Market - Symbol: FRR), an independent oil and gas exploration and
production company ("Frontera" or the "Company"), today releases
its financial results for the first half of 2016.
Highlights
- Revenues from exploration pilot oil and gas production sales totaled $2.0 million.
- Ongoing exploration efforts resulted in a net loss of $10.9
million, or $0.003 per share on a fully diluted basis. Of this
total, approximately $1.1 million is reflected in one-time charges
associated with recorded impairment and inventory related
accounting due to significant decrease of crude oil prices.
Update:
During the first half of 2016, the Company continued to invest
in its focused exploration work programs in the country of Georgia
amidst a depressed commodity price environment. Ongoing technical
study of results from workover, drilling, and stimulation
completion programs associated with its ongoing Oil Window and Gas
Window operations at its South Kakheti Gas Complex provided the
basis for design and implementation of an accelerated and more
technically advanced work program over the remainder of this year
and next year. This planned program, as outlined in the Company's
Circular to shareholders provided on 10 June 2016, is currently
underway and is expected to result in increased revenue from
exploration related pilot production programs for oil and gas.
Ongoing work programs have this year resulted in important new
technical milestones that have been achieved in frac operations
with application of demonstrated stimulation methodology that has
improved overall hydrocarbon recovery. As the Company continues to
implement techniques that have been applied in similar zones across
North America, it continues to evolve completion designs in order
to maximize production rates and cumulative volumes. As announced
on September 26, 2016, well preparation, site construction and
associated materials procurement are in process for the next six
well campaign that is planned to commence in October.
Political challenges in Georgia's domestic gas market continue
to delay related gas-focused investment and production due to the
Ministry of Energy's discouragement of ongoing exploration of
domestic natural gas resources in favor of preserving existing gas
import monopolies. This continues to maintain a hold on previously
announced expectations to achieve daily gas production in excess of
7 million cubic feet per day from existing exploration pilot
production operations. As efforts are ongoing to address the
Ministry's opposition to this work, we are hopeful that it will
ultimately see the benefit of allowing for a free and competitive
market for U.S. and foreign investment in its domestic natural gas
sector.
Steve C. Nicandros, Chairman and Chief Executive Officer
commented:
"Frontera's exploration investments since the beginning of this
year continue to demonstrate our commitment to the methodical
technical progress that our work has achieved to date. Because of
the significant oil and gas resources that our historical
investments have identified, our focused efforts to evolve
stimulation completion designs are now yielding results that have
never before been achieved. As we continue our planned work
programs through the remainder of this year, we strongly believe
that our operations are reaching new milestones that will result in
bringing the giant oil and gas resources associated with Block 12
into increased, sustainable production levels."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Enquiries:
Frontera Resources Corporation
Jesse Jefferies
(713) 585-3216
info@fronteraresources.com
Nominated Adviser:
Cairn Financial Advisers LLP
61 Cheapside, London EC2V 6AX
Jo Turner / Liam Murray
+44 (0) 20 7148 7900
Broker
Cornhill Capital Limited
Nick Bealer
+44 (0) 207 710 9610
Financial PR:
Buchanan
Ben Romney
+44 (0) 20 7466 5000
frontera@buchanan.uk.com
Notes to Editors:
About Frontera Resources Corporation
Frontera Resources Corporation is an independent Houston, Texas,
U.S.A.-based international oil and gas exploration and production
company whose strategy is to identify opportunities and operate in
emerging markets in Eastern Europe around the Black Sea. Frontera
Resources Corporation shares are traded on the London Stock
Exchange, AIM Market - Symbol: FRR. For more information, please
visit www.fronteraresources.com.
1. Information on Resource Estimates: The independent contingent
and prospective resources estimates contained in this announcement
were determined by the independent consulting firm of Netherland,
Sewell & Associates (NSA) in accordance with the definitions
and guidelines set forth in the 2007 Petroleum Resources Management
System (PRMS) adopted by the Society of Petroleum Engineers (SPE).
Internal resources estimates were determined by the Company. Gerard
Bono, Frontera's Vice President and Chief Reservoir Engineer, who
is a member of the SPE, is the qualified person who reviewed and
approved both independent and internal estimates in this
announcement.
2. This release may contain certain forward-looking statements,
including, without limitation, expectations, beliefs, plans and
objectives regarding the transactions, work programs and other
matters discussed in this release. Exploration for oil is a
speculative business that involves a high degree of risk. Among the
important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements
are: risks inherent in oil and gas production operations;
availability and performance of needed equipment and personnel; the
Company's ability to raise capital to fund its exploration and
development programs; seismic data; evaluation of logs, cores and
other data from wells drilled; inherent uncertainty in estimation
of oil and gas resources; fluctuations in oil and gas prices;
weather conditions; general economic conditions; the political
situation in Georgia and relations with neighboring countries; and
other factors listed in Frontera's financial reports, which are
available at www.fronteraresources.com. There is no assurance that
Frontera's expectations will be realized, and actual results may
differ materially from those expressed in the forward-looking
statements.
3. Glossary of Terms: BCF - means Billion Cubic Feet of gas. TCF
- means Trillion Cubic Feet of gas. Mcf - means Thousand Cubic Feet
of gas. OOIP - means Original Oil in Place. Bopd - means Barrels of
Oil Per Day.
Frontera Resources Corporation and Subsidiaries
Condensed Consolidated Balance Sheets(Unaudited)
-----------------------------------------------------------------------------------------
6/30/2016 12/31/2015 6/30/2015
----------------- ---------------------- ------------------
Cash and cash equivalents $50,811 $116,213 $2,213,286
Accounts receivable, net 1,341,801 327,810 269,602
Inventory 4,853,805 5,430,979 5,252,955
Prepaid expenses and other current
assets 1,618,514 1,038,252 904,420
Total current assets 7,864,931 6,913,254 8,640,263
Property and equipment, net 4,185,115 4,487,276 4,605,801
Properties being depleted 129,264,403 129,280,065 127,666,963
Less: Accumulated depletion (127,741,913) (126,760,180) (121,633,016)
Net oil and gas properties 1,522,490 2,519,885 6,033,947
Deferred financing costs, net 75,312 125,378 188,382
Total assets $13,647,848 $14,045,793 $19,468,393
----------------- ---------------------- ------------------
Accounts payable $2,991,084 $3,093,678 $1,461,221
Accrued liabilities 10,131,063 10,630,918 9,041,171
Related party notes payable 18,891,508 5,380,000 11,797,000
Current maturities of notes
payable 3,111,339 4,628,430 3,188,430
Convertible notes payable 29,798,401 28,266,745 -
Capital lease 5,790 5,595 6,818
Total current liabilities 64,929,185 52,005,366 25,494,640
Convertible note payable - - 26,821,379
Related party notes payable 300,000 8,170,000 300,000
Capital lease 15,123 18,068 19,504
Total liabilities 65,244,308 60,193,434 52,635,523
Common stock 171,223 132,176 130,328
Additional Paid In Capital 414,854,380 409,445,380 409,067,382
Accumulated Deficit (466,622,063) (455,725,197) (442,364,840)
Total stockholder's equity (deficit) (51,596,460) (46,147,641) (33,167,130)
Total liabilities and stockholders'
deficit $13,647,848 $14,045,793 $19,468,393
----------------- ---------------------- ------------------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Frontera Resources Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
---------------------------------------------------------------------------------
For the 6 month
For the 6 month period ended
period ended 6/30/2016 6/30/2015
--------------------------------- ------------------------ ------------------
Revenue - crude oil & natural
gas sales $2,028,953 $3,150,321
Field operating and project
costs 2,953,821 2,578,002
General and administrative 3,429,287 4,092,534
Depreciation, depletion
and amortization 632,707 1,035,868
Impairment of oil & natural
gas properties 731,187 -
Total operating expenses 7,747,002 7,706,404
Loss from operations (5,718,049) (4,556,083)
Interest income 8,930 13,418
Interest expense (5,116,972) (2,672,907)
Other, net (70,775) 56,268
Total other income (expense) (5,178,817) (2,603,221)
Net comprehensive loss ($10,896,866) ($7,159,304)
------------------------ ------------------
Loss per Share
Basic and diluted ($0.003) ($0.002)
Number of shares used in
calculating loss per share
Basic and diluted 3,778,947,148 2,933,117,576
The accompanying notes are an integral part of these condensed
consolidated financial statements
Frontera Resources Corporation and Subsidiaries
Condensed Consolidated Statement of Stockholders' Deficit (Unaudited)
--------------------------------------------------------------------------------------------------
Additional Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Deficit
Balances at December
31, 2015 $ 132,176 $ 409,445,380 $ (455,725,197) $ (46,147,641)
Issuance of common
stock 39,047 5,409,000 - 5,448,047
Net loss for the
six-month
period ended June
30,2016 - - (10,896,866) (10,896,866)
------------ ----------------- ------------------ -----------------
Balances at June 30,
2016 171,223 $ 414,854,380 $ (466,622,063) $ (51,596,460)
-------- ------------- -------------- -------------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Frontera Resources Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows(Unaudited)
---------------------------------------------------------------------------------
Six Months Ended
June 30,
----------------------------------------------------------------
2016 2015
---------------------------- ----------------------------------
Cash flows from operating
activities
Net loss $ (10,896,866) $ (7,159,304)
Adjustments to reconcile net loss
to net
cash used in operating activities
Depreciation, depletion and
amortization 632,707 1,035,868
Loss on impairment of oil & gas
properties 731,187 -
Debt issuance cost amortization 199,502 159,488
Noncash interest expense 4,898,765 2,382,950
Non-Cash issuance of shares for
services 13,700 -
Non-Cash payroll expense 255,240 -
Changes in operating assets and
liabilities:
Accounts receivable (1,013,991) (350,712)
Inventory 577,174 187,225
Prepaid expenses and other
current assets 949,738 (52,015)
Accounts payable 96,249 (172,661)
Accrued liabilities 2,213,623 (192,258)
Net cash used
in operating
activities (1,342,972) (4,161,419)
---------------------------- ----------------------------------
Cash flows from investing
activities
Investment in oil and gas
properties (147,333) (314,230)
Investment in property and
equipment (103,348) (151,039)
Net cash used
in investing
activities (250,681) (465,269)
---------------------------- ----------------------------------
Cash flows from financing
activities
Proceeds from notes payable 1,150,000 2,000,000
Repayment of borrowings - (2,905,650)
Proceeds from issuance of common
stock - 5,292,578
Cost of debt issuance (69,000) (120,000)
Payments on capital lease (2,750) (2,577)
Proceeds from related party notes
payable 450,000 1,205,000
Net cash
provided by
financing
activities 1,528,250 5,469,351
---------------------------- ----------------------------------
Net increase
(decrease) in
cash
and cash
equivalents (65,402) 842,663
---------------------------- ----------------------------------
Cash and cash equivalents
Beginning of year 116,213 1,370,623
---------------------------- ----------------------------------
End of period $ 50,811 $ 2,213,286
-------- ------------------ ------------- -------------------
Supplemental cash flow information
Cash paid for interest expense $ 3,362 $ 151,773
Non-cash investing and financing
activities
Issuance of convertible notes in
lieu of
interest payments $ 1,451,219 $ 1,305,650
Issuance of related party
promissory notes
in lieu of salary payments 3,901,067 -
Change in AP and Accrued
investment in oil
and gas properties (162,995) (254,862)
Change in AP and Accrued
investment in non-oil
and gas properties (23,348) 23,668
Non-cash payment of debt &
interest via
share issuance 2,956,048 -
Issuance of shares for oil field
services
performed by 3(rd) party 2,492,000 -
Issuance of related party
promissory notes
for oil field services performed
by 3(rd)
party 1,290,441 -
The accompanying notes are an integral part of these condensed consolidated
financial statements
Frontera Resources Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements June 30,
2016 (Unaudited)
1. Nature of Operations
Frontera Resources Corporation, a Houston, Texas based Cayman
Islands corporation, and its subsidiaries (collectively "Frontera"
or the "Company") are engaged in the development of oil and gas
projects in emerging marketplaces. Frontera was founded in 1996 and
is headquartered in Houston, Texas. The Company emphasizes
development of reserves in known hydrocarbon-bearing basins, and is
attracted to projects that have significant exploration upside.
Since 2002, the Company has focused substantially all of its
efforts on the exploration and development of oilfields within the
Republic of Georgia ("Georgia").
In June 1997, the Company entered into a 25-year production
sharing agreement with the Ministry of Fuel and Energy of Georgia
and State Company Georgian Oil ("Georgian Oil"), which gives the
Company the exclusive right to explore, develop and produce crude
oil in a 5500 square kilometer area in eastern Georgia known as
Block 12, hereafter referred to as the "Block 12 PSA". The Block 12
PSA can be extended if commercial production remains viable upon
its expiration in June 2022.
Under the terms of the Block 12 PSA, the Company is entitled to
conduct exploration and production activities and is entitled to
recover its cumulative costs and expenses from the crude oil
produced from Block 12. Following recovery of cumulative costs and
expenses from Block 12 production, the remaining crude oil sales,
referred to as "Profit Oil", are allocated between Georgian Oil and
Frontera in the proportion of 51% and 49%, respectively.
Under the terms of the Block 12 PSA, Frontera is exempt from all
taxes imposed by the government of Georgia, and any taxes imposed
on the Company are paid by Georgian Oil on behalf of the Company
from Georgian Oil's 51% share of Profit Oil. Taxes are defined by
the Block 12 PSA to mean all levies, duties, payments, fees, taxes
or contributions payable to or imposed by any government agency,
subdivision, municipal or local authorities within the government
of Georgia.
Frontera's future revenues depend on operating results from its
operations in the Republic of Georgia. The success of Frontera's
operations is subject to various contingencies beyond management
control. These contingencies include general and regional economic
and political conditions, prices for crude oil, competition and
changes in regulation. Frontera is subject to various additional
political and economic uncertainties in Georgia which could include
restrictions on transfer of funds, import and export duties, quotas
and embargoes, domestic and international customs and tariffs, and
changing taxation policies, foreign exchange restrictions,
political conditions and regulations.
On August 2, 2011, the Company completed a merger with and into
a new Cayman Islands exempted company ("Frontera Cayman"), with
Frontera Cayman being the surviving entity (the "Merger"). By
operation of the Merger, all assets, liabilities, properties,
corporate acts, plans, policies, contracts, approvals and
authorizations of each of the Company and Frontera Cayman and their
respective shareholders, boards of directors, committees elected or
appointed thereby, officers and agents, which were effective
immediately before the Merger, were vested in, assumed by or taken,
as applicable, for all purposes as the acts, plans, policies,
contracts, approvals and authorizations of Frontera Cayman and are
effective and binding on Frontera Cayman in the same manner as they
were with respect to the Company or Frontera Cayman, as the case
may be, before the Merger.
Frontera Resources Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements June 30,
2016 (Unaudited)
Simultaneously with the Merger, Frontera Cayman completed a
private equity fundraising pursuant to which Frontera Cayman
received aggregate gross proceeds (before deduction of placing
agent commissions, corporate finance fees and offering expenses) of
approximately GBP6.8 million ($11.0 million), through (i) the issue
of 115,678,351 new Frontera Cayman ordinary shares ("Frontera
Cayman Shares") under a Placing Agreement with Strand Hanson
Limited (as nominated advisor), and Arbuthnot Securities Limited
and Old Park Lane Capital plc as Placing Agents, and (ii)
subscription agreements with an affiliate of one of the Company's
directors and a member of senior management for the purchase of
53,959,053 new Frontera Cayman Shares (the "Equity Fundraising").
Frontera Cayman also entered into a Standby Equity Distribution
Agreement with YA Global Master SPV, Ltd. ("YAGM"), pursuant to
which YAGM has agreed (subject to certain conditions) to make
available over a 36-month period, a facility of up to GBP21.6
million ($35.0 million) in consideration for the issue of Frontera
Cayman Shares. This agreement was extended in April 2015 through
December 31, 2018.
Frontera Cayman simultaneously exchanged $121.6 million
aggregate amount of the Company's 10% convertible notes payable
plus accrued interest, for (i) 1,593,853,570 Frontera Cayman
Shares, and (ii) $18.2 million aggregate principal amount of new
10% convertible notes due 2016 issued by Frontera Resources
Holdings, LLC, a Delaware limited liability company and a
wholly-owned subsidiary of Frontera Cayman. These convertible notes
payable were exchanged for shares of common stock at a price lower
than the conversion price at inception of the notes. The difference
in the value of the original conversion price to the actual
conversion price was recorded in 2011 as inducement expense in the
statement of comprehensive loss of approximately $99.4 million.
Frontera Cayman also exchanged $9.2 million principal amount plus
accrued interest of its related party notes payable for 141,515,879
newly issued Frontera Cayman Shares pursuant to note exchange
agreements.
By operation of the Merger, each share of common stock of the
Company has been converted into and represents the right to receive
either (i) one Frontera Cayman Share (the "Stock Consideration") or
(ii) GBP0.04 ($US0.065) (the "Cash Consideration"). As a result,
all stockholders of the Company received the Stock Consideration,
except for US stockholders who were not "accredited investors" as
defined in Rule 501 under the US Securities Act of 1933, who
received the Cash Consideration.
2. Liquidity and Capital Resources
The following key financial measurements reflect the Company's
financial position and capital resources as of June 30, 2016,
December 31, 2015, and June 30, 2015 (USD):
June 30, December 31, June 30,
2016 2015 2015
------------------ ----------------- -----------------
Cash and cash equivalents $ 50,811 $ 116,213 $ 2,213,286
Working capital (deficit) $ (57,064,254) $ (45,092,112) $ (16,854,377)
Total debt $ 52,122,161 $ 46,468,838 $ 42,133,131
Frontera Resources Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements June 30,
2016 (Unaudited)
The Company has incurred net losses and negative cash flows from
operations in most fiscal periods since inception. Management plans
to continue to reduce costs and continue to raise additional
financing in order to continue to facilitate the Company's 2016
operating plan. Additionally the Company has approximately $36.1
million of debt as of June 30, 2016 that is scheduled to mature in
fiscal 2016.
Throughout 2016 and 2015, there has been volatility and
disruption in the global commodity, capital and credit markets.
While these market conditions persist, the Company's ability to
access the capital and credit markets may be adversely affected.
Notwithstanding management's plan to manage costs and raise
additional financing, the Company's viability is dependent upon
producing oil and gas in sufficient quantities and marketing such
oil and gas at sufficient prices to provide positive operating cash
flow to the Company. Commencement of production from its
Mtsarekhavi gas field in second quarter of 2014, participation of
farm-in partner in Taribani, together with periodic access to the
SEDA facility (see discussion in Note 4) could provide positive
cash flows for the seeable future. The Company is also in the
process of addressing the outstanding debt which mature in fiscal
2016 with their current debt holders. See further discussion in
Note 6.
The Company is responsible for providing funding for the
development of Block 12 in Georgia and will require additional
funding in order to obtain certain levels of production and
generate sufficient cash flows to meet future capital and operating
spending requirements. This is dependent upon, among other factors,
achieving significant increases in production, production of oil
and gas at costs that provide acceptable margins, reasonable levels
of taxation from local authorities, and the ability to market the
oil and gas produced at or near world prices.
Management's plan for addressing the above uncertainties is
partially based on forward looking events which have yet to occur,
including the commencement of additional production, refinancing of
debt maturing in 2016 and ability to access capital markets and,
accordingly, there is no assurance that those events will transpire
or succeed as initially contemplated.
3. Basis of Presentation and Summary of Significant Accounting Policies
The condensed consolidated balance sheet of the Company at
December 31, 2015 was derived from the Company's audited
consolidated financial statements as of that date, but does not
include all disclosures required by accounting principles generally
accepted in the United States of America ("US GAAP"). The condensed
consolidated balance sheets at June 30, 2016 and June 30, 2015, the
condensed consolidated statements of operations for the six month
periods ended June 30, 2016 and 2015, the condensed consolidated
statement of changes in stockholders' deficit for the six month
period ended June 30, 2016, and the condensed consolidated
statements of cash flows for the six month periods ended June 30,
2016 and 2015 were prepared by the Company.
In the opinion of Company management, all adjustments,
consisting of normal recurring adjustments, necessary to state
fairly the consolidated financial position, results of operations
and cash flows were recorded. The results of operations for the six
month period ended June 30, 2016 are not necessarily indicative of
the operating results for a full year or of future operations.
Frontera Resources Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements June 30,
2016 (Unaudited)
Certain information and footnote disclosures normally included
in financial statements presented in accordance with US GAAP have
been condensed or omitted. The accompanying condensed consolidated
financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's
consolidated financial statements for the year ended December 31,
2015.
For a description of the Company's accounting policies, refer to
Note 3 of the Company's 2015 consolidated financial statements.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent asset and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Estimates of oil and natural gas reserves and their values,
future production rates and future costs and expenses are
inherently uncertain for numerous reasons, including many factors
beyond the Company's control. Reservoir engineering is a subjective
process of estimating underground accumulations of oil and natural
gas that cannot be measured in an exact manner. The accuracy of any
reserve estimate is a function of the quality of data available and
of engineering and geological interpretation and judgment. In
addition, estimates of reserves may be revised based on actual
production, results of subsequent exploitation and development
activities, prevailing commodity prices, operating costs and other
factors. These revisions may be material and could materially
affect the Company's future depletion, depreciation and
amortization expenses.
The Company's revenue, profitability, and future growth are
substantially dependent upon the prevailing and future prices for
oil and natural gas, which are dependent upon numerous factors
beyond its control such as economic, regulatory developments and
competition from other energy sources. The energy markets have
historically been volatile and there can be no assurance that oil
and natural gas prices will not be subject to wide fluctuations in
the future. A substantial or extended decline in oil and natural
gas prices could have a material adverse effect on the Company's
financial position, results of operations, cash flows and
quantities of oil and natural gas reserves that may be economically
produced.
Impairment
Under the full cost method of accounting, the net book value of
natural gas and crude oil properties may not exceed a calculated
"ceiling." The ceiling limitation is the discounted estimated
future net revenue from proved natural gas and crude oil properties
plus the cost of properties not subject to amortization. In
calculating future net revenues, costs used are those as of the end
of the appropriate period. The prices used are the unweighted
average first-day-of-the-month commodity prices for the prior
twelve months. These prices are not changed except where different
prices are fixed and determinable from applicable contracts for the
remaining term of those contracts.
Frontera Resources Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements June 30,
2016 (Unaudited)
The net book value is compared to the ceiling limitation on both
a quarterly and annual basis. Any excess of the net book value is
written off as impairment expense. Impairment expense recorded in
one period may not be reversed in a subsequent period even though
higher natural gas and crude oil prices may have increased the
ceiling limitation in the subsequent period. For the year ended
December 31, 2015, the Company recorded an impairment of $4.1
million to the carrying value of the oil & natural gas
properties in Georgia. For the period ending June 30, 2016 and
2015, the Company recorded an impairment of $0.7 million and $0 to
the carrying value of the oil & natural gas properties in
Georgia. The lower ceiling value resulted primarily from
significant decreases in the trailing 12 month average prices for
oil & natural gas, which significantly reduced proved
reserves.
Fair Value Measurements
The Company's financial instruments consist primarily of cash
and cash equivalents, trade receivables, trade payables and
long-term debt. Management considers the carrying values of cash
and cash equivalents, trade receivables and trade payables to be
representative of their respective fair values. As such, the
measurement was categorized as a Level 1 measurement per the fair
value hierarchy.
The authoritative guidance related to fair value defines a
hierarchy of inputs to valuation techniques based upon whether
those inputs reflect assumptions other market participants would
use based upon market data obtained from independent sources
(observable inputs). Refer to the fair value of debt disclosed in
Note 4. The Company does not have any assets or liabilities
classified within Level 3 of the fair value hierarchy.
4. Debt
Debt consists of the following:
June 30,
----------------------------------
2016 2015
Related party notes
payable $ 19,191,508 $ 12,097,000
Convertible notes
payable 29,798,401 26,821,379
Other notes
payable 3,111,339 3,188,430
Capital Lease 20,913 26,322
--------------- -----------------
Total debt 52,122,161 42,133,131
Less: Current notes
payable 51,807,038 14,992,248
Total long-term
debt $ 315,123 $ 27,140,883
----------- ---- -----------
Frontera Resources Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements June 30,
2016 (Unaudited)
Related Party Notes Payable
On January 11, 2011, a revolving credit facility ("Credit
Facility") was put in place by and between the Company, Steve C.
Nicandros, a Director of the Company, and Zaza Mamulaishvili, then
a member of the Company's senior management team and now a Director
of the Company (together, the "Lenders") in the amount of
$2,000,000. The $2,000,000 borrowing limit pursuant to the Credit
Facility was removed on October 30, 2012. Accordingly, during
respective reporting periods of 2016 and 2015, the Company entered
into a series of further notes payable governed by this Credit
Facility with the Lenders in the aggregate amounts of $5.6 million
and $1.2 million, respectively. As of June 30, 2016 and 2015, the
Company had $19.2 million and $12.1 million total related party
notes outstanding. These notes have a one-year term, bear interest
of 15%, and are classified within Related Party Notes Payable on
the consolidated Balance Sheet. As of June 30, 2016, the fair value
of the related party notes was approximately $15.1 million.
The further draw-downs under the Credit Facility as noted above,
constitute related party transactions pursuant to the AIM Rules for
Companies as the Lenders are directors or applicable employees of
the Company, as the case may be.
Convertible Notes Payable
During May 2007, the Company raised approximately $67.0 million
through a private placement of convertible unsecured notes due May
2012. The notes were issued at par and bear interest at 10% per
annum, payable quarterly in arrears in cash or in kind at the
Company's discretion. The notes are convertible into shares of
common stock at a conversion price of $1.67 per share. The notes
will be automatically converted into common stock at the conversion
price if the stock price exceeds two times the conversion price for
at least 20 consecutive trading days. On August 2, 2011, 85.1% of
the 2012 Notes were converted into the common stock and another
14.6% were exchanged for the 2016 Notes.
On July 3, 2008, the Company raised $23.5 million through a
private placement of convertible unsecured notes due July 2013. The
notes were issued at par and bear interest at 10% per annum,
payable quarterly in arrears in cash or in kind at the Company's
discretion. The notes are convertible into common stock at a
conversion price of $1.71 per share. On August 2, 2011, 84.0% of
the 2013 Notes were converted into the common stock and another
16.0% were exchanged for the 2016 Notes.
On August 2, 2011, note holders exchanged $18,220,312 of 2012
and 2013 Notes into new notes issued under the 2016 Note Purchase
Agreement due August 2016 (the "2016 Notes"). As of June 30, 2016
and 2015, the Company had $29.8 million and $26.8 million total
convertible notes payable. The 2016 Notes accrue interest at the
rate of 10% per annum, mature five years from the date of issuance
and are convertible into Frontera Cayman Shares, at the option of
the holder, at a conversion rate of $0.25 per share. As of June 30,
2016, the fair value of the convertible notes payable was
approximately $27.1 million.
During the six month periods ended June 30, 2016 and 2015, the
Company elected to pay the quarterly interest payments in kind and
issued approximately $1.5 million and $1.3 million, respectively,
in additional convertible notes in accordance with terms of the
note purchase agreements.
Frontera Resources Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements June 30,
2016 (Unaudited)
Other Notes Payable
On June 28, 2011 the Company entered into the SEDA facility with
YA Global Master SPV Ltd, an investment fund managed by Yorkville
Advisors LLC providing for up to approximately GBP21.6 million
(US$35 million) of additional equity investment, through the issue
of the new shares in the Company. As of June 30, 2016 approximately
GBP16.3 million (US$21.6 million) of commitment amount was still
available for drawdown. This agreement was extended in April 2015
through December 31, 2018.
The Company drew down from their SEDA-backed loan agreements
with YA II PN, Ltf. (formerly YA Global Master SPV Ltd.). Under
these drawdowns, $3.1 million and $3.2 million remained outstanding
as of June 30, 2016 and 2015, respectively. As of June 30, 2016,
the fair value of the other notes payable was approximately $2.6
million.
Future principal maturities as of June 30, 2016 for long-term
debt obligations are as follows:
2016 $ 36,073,678
2017 16,036,404
2018 6,405
2019 5,674
2020 -
-------------
Total future principal payments on debt $ 52,122,161
-------------
5. Commitments and Contingencies
ARAR Arbitration
On January 9, 2008, Frontera Eastern Georgia Limited ("FEGL")
served a notice of arbitration and claim on ARAR, Inc., for breach
of contract under drilling services contract dated May 2, 2007. On
December 16, 2008, FEGL entered into a settlement agreement with
ARAR Inc, ARAR Petrol ve Gas Arama Uretim Paz A.S., and Mr. Fatih
Alpay (collectively, "Defendants"), which was confirmed by the
arbitration panel and pursuant to which Defendants were required to
make a series of payments to FEGL through December 2009 in the
aggregate amount of $1.25 million. In August 2009, the Defendants
defaulted on monthly payments and remained in default on payments
due August - December 2009. FEGL applied to the arbitration panel
for entry of an agreed award pursuant to the settlement agreement
and, on April 16, 2010, the arbitration panel entered a final,
binding award in favor of FEGL against Defendants in the amount of
$1.43 million ("Final Award"). Following series of subsequent court
hearings in the US courts, on July 16, 2012, the US Court of
Appeals for the Fifth Circuit confirmed the Final Award granting
FEGL total amount of $1,552,707, which included total amount of the
Final Award and FEGL's attorney's fees and expenses.
In order to enforce the Final Award against Defendants' assets
located in in Turkey, in July 2010 FEGL filed an enforcement action
in the 4th Commercial Court in Ankara, Turkey. The 4th Commercial
Court conducted a series of hearings on the enforcement action, and
by its order dated November 23, 2012, rejected FEGL's request for
enforcement. FEGL filed its appeal with the appeals court in Ankara
on June 7, 2013. On June 20, 2014, the appeals court granted
Frontera's appeal, overturned the 4th Commercial Court's decision
and remanded the case back to the 4th Commercial Court with
instruction to adopt a new decision in line with the appeals
court's ruling. On December 20, 2015, the 4th Commercial Court
adopted new decision granting Frontera enforcement of the Final
Award. The Defendants appealed this decision and the case is
currently pending at the appeals court
Frontera Resources Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements June 30,
2016 (Unaudited)
Georgian Tax Refund
From the inception of operations in Georgia Company has incurred
certain tax expenses which per the terms of the Production Sharing
Agreement signed with Georgian government are subject of
reimbursement from the state. The Company has notified appropriate
authorities and is in the process of collecting a tax refund from
the Georgian government. As of June 30, 2016 the amount of refund
due to the Company was $5.4 million.
The Company has not recognized a receivable as of June 30, 2016
or 2015 for these ongoing proceedings.
6. Subsequent Events
On July 21, 2016, Frontera Resources Holdings, LLC (FRH), a
wholly owned subsidiary of Frontera Resources Corporation
("Frontera"), initiated liquidation proceedings pursuant to Chapter
7 of the United States Bankruptcy Code in a proceeding styled Case
No 16-80220; In re Frontera Resources Holdings, LLC, in the United
States Bankruptcy Court for the Southern District of Texas (the
"Chapter 7 Proceeding"). This Chapter 7 Proceeding relates to a
series of 10% Convertible Notes (the "Notes") that were issued by
FRH on August 1, 2011, and that matured and became payable by FRH
on August 1, 2016. Frontera is not a debtor in the Chapter 7
Proceeding, however in order to seek a declaration and confirmation
that it is not a surety or guarantor of the Notes, or otherwise
liable to repay them as parent of FRH, Frontera initiated adversary
proceeding in the United States Bankruptcy Court for the Southern
District of Texas, which is styled Adversary No. 16-08008; Frontera
Resources Corp. v. Casciato-Northrup, et al.; in the United States
Bankruptcy Court for the Southern District of Texas (the "Adversary
Proceeding"). In addition, Frontera asserted claims in the
Adversary Proceeding against the holders of the largest outstanding
group of Notes, Outrider Master Fund LP and Outrider Management,
LLC (collectively "Outrider"), contending that Outrider was
complicit in a scheme to misappropriate the Company's confidential
information and trade secrets on a number of occasions in 2014,
2015 and 2016, and through those actions interfered with Frontera's
financing efforts and ability to capitalize on financing and
development opportunities that were then available to Frontera. The
Adversary Proceeding and Chapter 7 Proceeding each are in their
preliminary stages.
On August 1, 2016, the Company has issued 2,398,786,214 new
ordinary shares of US$0.00004 each in the Company ("New Ordinary
Shares") in order to create strategic alliances with service
providers associated with its operations in the country of Georgia.
The issuance of these New Ordinary Shares was in consideration of
procurement of $4,000,000 of oilfield services by the Service
Providers to enable implementation of accelerated and more
technically advanced operations over the remainder of this year and
next year at the Company's South Kakheti Gas Complex and Shallow
Fields Production Unit assets within its Block 12 portfolio. In
addition, the Company raised about $545,000 through a draw down on
the Standby Equity Distribution Agreement ("SEDA") with YA II PN,
Ltd. (formerly as YA Global Master SPV Ltd.) and issue of
513,365,718 new ordinary shares of $0.00004 each in the
Company.
On September 26, 2016, the Company raised GBP527,475.24 through
a draw down on the Standby Equity Distribution Agreement ("SEDA")
with YA II PN, Ltd. (formerly as YA Global Master SPV Ltd.). and
issue of 753,536,060 new ordinary shares of US$0.00004 each in the
Company.
Events occurring after June 30, 2016 were evaluated through
September 27, 2016, the date these financial statements were
available to be issued, to ensure that any subsequent events
meeting the criteria for recognition or disclosure were
included.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SELEFUFMSESU
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September 30, 2016 02:01 ET (06:01 GMT)
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