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EX-12.1 - EX-12.1 - TRANSATLANTIC PETROLEUM LTD.tat-ex121_9.htm
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EX-32.1 - EX-32.1 - TRANSATLANTIC PETROLEUM LTD.tat-ex321_201506308.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-34574

 

TRANSATLANTIC PETROLEUM LTD.

(Exact name of registrant as specified in its charter)

 

 

Bermuda

None

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

16803 Dallas Parkway

Addison, Texas

75001

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (214) 220-4323

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant is required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

As of August 3, 2015, the registrant had 41,006,823 common shares outstanding.

 

 

 

 

 


 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements

 

 

 

Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014

2

 

 

Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2015 and 2014

3

 

 

Consolidated Statement of Equity for the Six Months Ended June 30, 2015

4

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014

5

 

 

Notes to Consolidated Financial Statements

6

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

28

 

 

Item 4. Controls and Procedures

29

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

30

 

 

Item 1A. Risk Factors

30

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

Item 3. Defaults Upon Senior Securities

31

 

 

Item 4. Mine Safety Disclosures

31

 

 

Item 5. Other Information

32

 

 

Item 6. Exhibits

33

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

TRANSATLANTIC PETROLEUM LTD.

Consolidated Balance Sheets

(in thousands of U.S. Dollars, except share data)

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

ASSETS

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

19,323

 

 

$

35,132

 

Accounts receivable, net

 

 

 

 

 

 

 

Oil and natural gas sales

 

25,537

 

 

 

29,673

 

Joint interest and other

 

6,858

 

 

 

19,918

 

Related party

 

554

 

 

 

602

 

Prepaid and other current assets

 

9,045

 

 

 

8,930

 

Deferred income taxes

 

604

 

 

 

329

 

Derivative asset

 

10,377

 

 

 

12,518

 

Restricted cash

 

1,868

 

 

 

1,917

 

Assets held for sale

 

27

 

 

 

28

 

Total current assets

 

74,193

 

 

 

109,047

 

Property and equipment:

 

 

 

 

 

 

 

Oil and natural gas properties (successful efforts methods)

 

 

 

 

 

 

 

Proved

 

384,929

 

 

 

424,031

 

Unproved

 

66,323

 

 

 

65,438

 

Equipment and other property

 

40,192

 

 

 

42,343

 

 

 

491,444

 

 

 

531,812

 

Less accumulated depreciation, depletion and amortization

 

(143,093

)

 

 

(141,977

)

Property and equipment, net

 

348,351

 

 

 

389,835

 

Other long-term assets:

 

 

 

 

 

 

 

Other assets

 

8,380

 

 

 

8,836

 

Note receivable - related party

 

11,500

 

 

 

11,500

 

Derivative asset

 

14,499

 

 

 

19,069

 

Deferred income taxes

 

787

 

 

 

1,181

 

Goodwill

 

5,987

 

 

 

6,935

 

Total other assets

 

41,153

 

 

 

47,521

 

Total assets

$

463,697

 

 

$

546,403

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

30,327

 

 

$

39,407

 

Accounts payable - related party

 

11,282

 

 

 

18,488

 

Accrued liabilities

 

25,184

 

 

 

31,238

 

Deferred income taxes

 

1,448

 

 

 

2,138

 

Asset retirement obligations

 

270

 

 

 

323

 

Loans payable

 

31,601

 

 

 

45,806

 

Loan payable - related party

 

 

 

 

6,800

 

Liabilities held for sale

 

6,421

 

 

 

6,928

 

Total current liabilities

 

106,533

 

 

 

151,128

 

Long-term liabilities:

 

 

 

 

 

 

 

Asset retirement obligations

 

9,938

 

 

 

11,053

 

Accrued liabilities

 

12,397

 

 

 

12,336

 

Deferred income taxes

 

51,613

 

 

 

54,430

 

Loans payable

 

90,648

 

 

 

85,192

 

Loan payable - related party

 

20,800

 

 

 

20,800

 

Total long-term liabilities

 

185,396

 

 

 

183,811

 

Total liabilities

 

291,929

 

 

 

334,939

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

 

 

Common shares, $0.10 par value, 100,000,000 shares authorized; 40,994,565 shares and 40,708,120 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively

 

4,099

 

 

 

4,071

 

Additional paid-in-capital

 

572,706

 

 

 

571,150

 

Accumulated other comprehensive loss

 

(107,846

)

 

 

(79,310

)

Accumulated deficit

 

(297,191

)

 

 

(284,447

)

Total shareholders' equity

 

171,768

 

 

 

211,464

 

Total liabilities and shareholders' equity

$

463,697

 

 

$

546,403

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

2


TRANSATLANTIC PETROLEUM LTD.

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

(U.S. Dollars and shares in thousands, except per share amounts)

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas sales

$

27,950

 

 

$

40,441

 

 

$

54,597

 

 

$

73,425

 

Sales of purchased natural gas

 

490

 

 

 

491

 

 

 

788

 

 

 

1,036

 

Other

 

50

 

 

 

129

 

 

 

101

 

 

 

246

 

Total revenues

 

28,490

 

 

 

41,061

 

 

 

55,486

 

 

 

74,707

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production

 

6,760

 

 

 

4,666

 

 

 

12,689

 

 

 

8,797

 

Transportation costs

 

337

 

 

 

-

 

 

 

404

 

 

 

-

 

Exploration, abandonment and impairment

 

4,093

 

 

 

3,775

 

 

 

4,440

 

 

 

7,916

 

Cost of purchased natural gas

 

469

 

 

 

440

 

 

 

735

 

 

 

925

 

Seismic and other exploration

 

93

 

 

 

892

 

 

 

151

 

 

 

4,186

 

Revaluation of contingent consideration

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,500

)

General and administrative

 

7,844

 

 

 

7,460

 

 

 

16,463

 

 

 

14,012

 

Depreciation, depletion and amortization

 

9,591

 

 

 

12,588

 

 

 

21,169

 

 

 

22,678

 

Accretion of asset retirement obligations

 

107

 

 

 

106

 

 

 

218

 

 

 

204

 

Total costs and expenses

 

29,294

 

 

 

29,927

 

 

 

56,269

 

 

 

56,218

 

Operating (loss) income

 

(804

)

 

 

11,134

 

 

 

(783

)

 

 

18,489

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other expense

 

(3,673

)

 

 

(1,769

)

 

 

(6,983

)

 

 

(2,972

)

Interest and other income

 

1,168

 

 

 

327

 

 

 

1,821

 

 

 

600

 

(Loss) gain on commodity derivative contracts

 

(3,274

)

 

 

(9,522

)

 

 

538

 

 

 

(8,560

)

Foreign exchange gain (loss)

 

147

 

 

 

2,494

 

 

 

(5,001

)

 

 

1,150

 

Total other expense

 

(5,632

)

 

 

(8,470

)

 

 

(9,625

)

 

 

(9,782

)

(Loss) income from continuing operations before income taxes

 

(6,436

)

 

 

2,664

 

 

 

(10,408

)

 

 

8,707

 

Income tax expense

 

(814

)

 

 

(1,227

)

 

 

(2,336

)

 

 

(3,277

)

Net (loss) income from continuing operations

 

(7,250

)

 

 

1,437

 

 

 

(12,744

)

 

 

5,430

 

Net loss from discontinued operations

 

-

 

 

 

-

 

 

 

-

 

 

 

(20

)

Net (loss) income

$

(7,250

)

 

$

1,437

 

 

$

(12,744

)

 

$

5,410

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(4,917

)

 

 

5,092

 

 

 

(28,536

)

 

 

1,797

 

Comprehensive (loss) income

$

(12,167

)

 

$

6,529

 

 

$

(41,280

)

 

$

7,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net (loss) income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.18

)

 

$

0.04

 

 

$

(0.31

)

 

$

0.15

 

Discontinued operations

$

0.00

 

 

$

0.00

 

 

$

0.00

 

 

$

0.00

 

Weighted average common shares outstanding

 

40,973

 

 

 

37,411

 

 

 

40,870

 

 

 

37,402

 

Diluted net (loss) income per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

(0.18

)

 

$

0.04

 

 

$

(0.31

)

 

$

0.15

 

Discontinued operations

$

0.00

 

 

$

0.00

 

 

$

0.00

 

 

$

0.00

 

Weighted average common and common equivalent shares outstanding

 

40,973

 

 

 

37,411

 

 

 

40,870

 

 

 

37,402

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

3


 

TRANSATLANTIC PETROLEUM LTD.

Consolidated Statement of Equity

(Unaudited)

(U.S. Dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

Common

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Shareholders'

 

 

Shares

 

 

Warrants

 

 

Shares ($)

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2014

 

40,708

 

 

233

 

 

$

4,071

 

 

$

571,150

 

 

$

(79,310

)

 

$

(284,447

)

 

$

211,464

 

Issuance of warrants

 

-

 

 

 

233

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of restricted stock units

 

287

 

 

 

-

 

 

 

28

 

 

 

1,133

 

 

 

-

 

 

 

-

 

 

 

1,161

 

Tax withholding on restricted stock units

 

-

 

 

 

-

 

 

 

-

 

 

 

(391

)

 

 

-

 

 

 

-

 

 

 

(391

)

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

814

 

 

 

-

 

 

 

-

 

 

 

814

 

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(28,536

)

 

 

-

 

 

 

(28,536

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,744

)

 

 

(12,744

)

Balance at June 30, 2015

 

40,995

 

 

 

466

 

 

 

4,099

 

 

 

572,706

 

 

 

(107,846

)

 

 

(297,191

)

 

 

171,768

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

4


 

TRANSATLANTIC PETROLEUM LTD.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands of U.S. Dollars)

 

 

For the Six Months Ended

 

 

June 30,

 

 

2015

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

Net (loss) income

$

(12,744

)

 

$

5,410

 

Adjustment for net loss from discontinued operations

 

 

 

 

20

 

Net (loss) income from continuing operations

 

(12,744

)

 

 

5,430

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Share-based compensation

 

814

 

 

 

713

 

Foreign currency loss

 

6,760

 

 

 

74

 

(Gain) loss on commodity derivative contracts

 

(538

)

 

 

8,560

 

Cash settlement on commodity derivative contracts

 

7,248

 

 

 

(2,533

)

Amortization on loan financing costs

 

445

 

 

 

764

 

Deferred income tax (benefit) expense

 

(123

)

 

 

2,370

 

Exploration, abandonment and impairment

 

4,440

 

 

 

7,916

 

Depreciation, depletion and amortization

 

21,169

 

 

 

22,678

 

Accretion of asset retirement obligations

 

218

 

 

 

204

 

Vendor settlements

 

(1,731

)

 

 

 

Revaluation of contingency consideration

 

 

 

 

(2,500

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

12,443

 

 

 

2,215

 

Prepaid expenses and other assets

 

(1,921

)

 

 

2,056

 

Accounts payable and accrued liabilities

 

(14,672

)

 

 

(6,487

)

Net cash provided by operating activities from continuing operations

 

21,808

 

 

 

41,460

 

Net cash used in operating activities from discontinued operations

 

 

 

 

(64

)

Net cash provided by operating activities

 

21,808

 

 

 

41,396

 

Investing activities:

 

 

 

 

 

 

 

Additions to oil and natural gas properties

 

(17,136

)

 

 

(62,993

)

Additions to equipment and other properties

 

(3,283

)

 

 

(2,589

)

Net cash used in investing activities from continuing operations

 

(20,419

)

 

 

(65,582

)

Net cash provided by investing activities from discontinued operations

 

 

 

 

500

 

Net cash used in investing activities

 

(20,419

)

 

 

(65,082

)

Financing activities:

 

 

 

 

 

 

 

Tax withholding on restricted share units

 

(391

)

 

 

(68

)

Loan proceeds

 

7,600

 

 

 

26,092

 

Loan repayment

 

(16,349

)

 

 

(7,804

)

Loan repayment - related party

 

(6,800

)

 

 

 

Loan financing costs

 

 

 

 

(2,176

)

Net cash (used in) provided by financing activities

 

(15,940

)

 

 

16,044

 

Effect of exchange rate on cash flows and cash equivalents

 

(1,258

)

 

 

(78

)

Net decrease in cash and cash equivalents

 

(15,809

)

 

 

(7,720

)

Cash and cash equivalents, beginning of period

 

35,132

 

 

 

12,881

 

Cash and cash equivalents, end of period

$

19,323

 

 

$

5,161

 

Supplemental disclosures:

 

 

 

 

 

 

 

Cash paid for interest

$

3,551

 

 

$

1,212

 

Cash paid for taxes

$

1,390

 

 

$

 

Supplemental non-cash financing activities:

 

 

 

 

 

 

 

Repayment of the Prepayment Agreement

$

2,130

 

 

$

 

Repayment of amended and restated credit facility from refinancing

$

 

 

$

49,766

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 


5


Transatlantic Petroleum Ltd.

Notes to Consolidated Financial Statements

(Unaudited)

 

1. General

Nature of operations

TransAtlantic Petroleum Ltd. (together with its subsidiaries, “we,” “us,” “our,” the “Company” or “TransAtlantic”) is an international oil and natural gas company engaged in acquisition, exploration, development and production. We have focused our operations in countries that have established, yet underexplored petroleum systems, have stable governments, are net importers of petroleum, have an existing petroleum transportation infrastructure and provide favorable commodity pricing, royalty rates and tax rates to exploration and production companies. We hold interests in developed and undeveloped oil and natural gas properties in Turkey, Albania and Bulgaria. As of August 3, 2015, approximately 40% of our outstanding common shares were beneficially owned by N. Malone Mitchell 3rd, our chief executive officer and chairman of our board of directors.

Basis of presentation

Our consolidated financial statements are expressed in U.S. Dollars and have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All amounts in these notes to the consolidated financial statements are in U.S. Dollars unless otherwise indicated. In preparing financial statements, management makes informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews estimates, including those related to fair value measurements associated with acquisitions and financial derivatives, the recoverability and impairment of long-lived assets and goodwill, contingencies and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2014.

Decline in Oil Price

As a result of the decline in prices for Brent crude since December 2014, we have reduced our planned capital expenditures and deferred a significant amount of our planned exploration and development until prices for Brent crude improve. In order to mitigate the impact of reduced prices on our 2015 cash flows and liquidity, we have implemented cost reduction measures and will continue to implement cost-cutting initiatives to reduce our operating costs and general and administrative expenses.

 

During the first half of 2015, we have undertaken significant cost saving efforts including staff reductions, office relocations, negotiations of exploration and development expenses and operating cost reductions with several key vendors and optimization of well designs. We believe this strategy will allow us to preserve our liquidity in order to execute the remainder of our 2015 development program and continue to meet our contractual obligations.  Additionally, at current Brent crude prices, our current hedge positions provide additional liquidity on a monthly recurring basis.

 

Notwithstanding these measures, there remain risks and uncertainties that could negatively impact our results of operations and financial condition. For example, reductions in our borrowing capacity as a result of a redetermination to our borrowing base could have an impact on our capital resources and liquidity. The borrowing base redetermination process considers assumptions related to future commodity prices; therefore, our borrowing capacity could be negatively impacted by the recent decline or any further declines in oil prices. The next borrowing base redetermination is October 1, 2015.

 

2. Recent accounting pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 amends the existing accounting standards for revenue recognition and is based on the principle that revenue should be recognized to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services.  In July 2015, the FASB decided to delay the effective date of the new revenue standard by one year. The new effective date is for annual reporting periods, and interim periods within that reporting period, beginning after December 15, 2017.  Reporting entities may choose to adopt the standard as of

6


the original effective date.  We are currently assessing the potential impact of ASU 2014-09 on our consolidated financial statements and results of operations.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"), an amendment to FASB Accounting Standards Codification ("ASC") Topic 205, Presentation of Financial Statements.  This update provides guidance on management's responsibility in evaluating whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. We do not expect the adoption of ASU 2014-15 to have a material impact on our consolidated financial statements or results of operations.  If events occur in future periods that affect our ability to continue as a going concern, we will provide the disclosures required by ASU 2014-15.

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-03"). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We currently recognize debt issuance costs as assets on our consolidated balance sheet. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. ASU 2015-03 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015 and early adoption is permitted.  Currently, we do not expect the adoption of ASU 2015-03 to have a material impact on our consolidated financial statements or results of operations.

We have reviewed other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operations, financial position and cash flows. Based on that review, we believe that none of these pronouncements will have a significant effect on current or future earnings or operations.

7


 

3. Acquisitions

Stream

On November 18, 2014, we acquired Stream Oil & Gas Ltd., a corporation existing under the laws of British Columbia (“Stream”), in exchange for (i) 3.2 million of our common shares issued at closing, and (ii) an additional 0.6 million of our common shares issuable if certain conditions are met (at a deemed price of $7.41 per common share).  We engaged independent valuation experts to assist in the determination of the fair value of the assets and liabilities acquired in the acquisition.  We are still assessing the assets acquired and liabilities assumed.  Thus, the final determination of the value of assets acquired and liabilities assumed may result in adjustments to the values presented below. The following tables summarize the consideration paid in the acquisition and the preliminary amounts of assets acquired and liabilities assumed that have been recognized at the acquisition date:

 

 

(in thousands)

 

Consideration:

 

 

 

Issuance of 3,218,641 common shares

$

23,850

 

Contingent payment event

 

4,188

 

Fair value of total consideration

$

28,038

 

Acquisition-Related Costs:

 

 

 

Included in general and administrative expenses on our consolidated statements of comprehensive income (loss) for the year ended December 31, 2014

$

1,129

 

 

 

 

 

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed at Acquisition:

 

 

 

Assets:

 

 

 

Cash

$

66

 

Accounts receivable

 

6,672

 

Other current assets

 

347

 

Total current assets

 

7,085

 

Oil and natural gas properties:

 

 

 

Proved properties

 

99,927

 

Unproved properties

 

16,140

 

Equipment and other property

 

964

 

Total oil and natural gas properties and other equipment

 

117,031

 

Total assets

$

124,116

 

Liabilities:

 

 

 

Accounts payable

 

20,673

 

Accounts payable - related party

 

2,820

 

Other current liabilities

 

10,000

 

Viking International note - related party

 

6,800

 

Loans payable - current

 

11,732

 

Other non-current liabilities

 

5,036

 

Loans payable - non-current

 

6,123

 

Asset retirement obligations

 

827

 

Deferred income taxes

 

32,067

 

Total liabilities

 

96,078

 

Total identifiable net assets

$

28,038

 

8


The following table presents the unaudited pro forma results of operations as though the acquisition of Stream had occurred as of January 1, 2014 (see our Annual Report on Form 10-K for the year ended December 31, 2014 for a discussion of this acquisition):

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30, 2014

 

 

June 30, 2014

 

 

(in thousands, except per share data)

 

Total revenues

$

47,284

 

 

$

87,090

 

Income from continuing operations before income taxes

 

5,130

 

 

 

11,818

 

Income from continuing operations

 

3,153

 

 

 

8,256

 

Loss from discontinued operations

 

-

 

 

 

(20

)

Net income

 

3,153

 

 

 

8,236

 

Net income per common share from continuing operations

 

 

 

 

 

 

 

Basic and diluted

$

0.07

 

 

$

0.20

 

 

4. Property and equipment

Oil and natural gas properties

The following table sets forth the capitalized costs under the successful efforts method for our oil and natural gas properties as of:

 

 

June 30, 2015

 

 

December 31, 2014

 

 

(in thousands)

 

Oil and natural gas properties, proved:

 

 

 

 

 

 

 

Turkey

$

284,191

 

 

$

323,442

 

Albania

 

100,238

 

 

 

100,037

 

Bulgaria

 

500

 

 

 

552

 

Total oil and natural gas properties, proved

 

384,929

 

 

 

424,031

 

Oil and natural gas properties, unproved:

 

 

 

 

 

 

 

Turkey

 

41,521

 

 

 

43,090

 

Albania

 

24,802

 

 

 

18,301

 

Bulgaria

 

 

 

 

4,047

 

Total oil and natural gas properties, unproved

 

66,323

 

 

 

65,438

 

Gross oil and natural gas properties

 

451,252

 

 

 

489,469

 

Accumulated depletion

 

(134,344

)

 

 

(133,304

)

Net oil and natural gas properties

$

316,908

 

 

$

356,165

 

At June 30, 2015 and December 31, 2014, we excluded $2.2 million and $0.9 million, respectively, from the depletion calculation for proved development wells currently in progress and for costs associated with fields currently not in production.

At June 30, 2015, the capitalized costs of our oil and natural gas properties, net of accumulated depletion, included $121.8 million relating to acquisition costs of proved properties, which are being depleted by the unit-of-production method using total proved reserves, and $126.6 million relating to well costs and additional development costs, which are being depleted by the unit-of-production method using proved developed reserves.

At December 31, 2014, the capitalized costs of our oil and natural gas properties, net of accumulated depletion, included $129.0 million relating to acquisition costs of proved properties, which are being depleted by the unit-of-production method using total proved reserves, and $160.8 million relating to well costs and additional development costs, which are being depleted by the unit-of-production method using proved developed reserves.

Exploratory well costs

During the three and six months ended June 30, 2015, we recorded $4.1 million and $4.4 million, respectively, of impairment and exploratory well costs. Of the $4.4 million of impairment and exploratory well costs incurred during the six months ended June 30, 2015, $3.7 million related to impairment of the Deventci-R2 well in the second quarter of 2015, and $0.8 million was cash spent during the period.

9


Capitalized cost greater than one year

As of June 30, 2015, we had $1.4 million and $1.9 million of exploratory well costs capitalized for the Hayrabolu-10 and Bahar-2ST wells in Turkey, which we spud in February 2013 and March 2014, respectively. The Hayrabolu-10 and Bahar-2ST wells continue to be evaluated for completion pending more analysis.

Equipment and other property

The historical cost of equipment and other property, presented on a gross basis with accumulated depreciation, is summarized as follows:

 

 

June 30, 2015

 

 

December 31, 2014

 

 

(in thousands)

 

Other equipment

$

2,575

 

 

$

2,983

 

Inventory

 

23,707

 

 

 

24,309

 

Gas gathering system and facilities

 

5,193

 

 

 

6,016

 

Vehicles

 

428

 

 

 

488

 

Leasehold improvements, office equipment and software

 

8,289

 

 

 

8,547

 

Gross equipment and other property

 

40,192

 

 

 

42,343

 

Accumulated depreciation

 

(8,749

)

 

 

(8,673

)

Net equipment and other property

$

31,443

 

 

$

33,670

 

 

We have reclassified certain prior year costs of equipment and other property to conform to current period presentation.

We classify our materials and supply inventory, including steel tubing and casing, as long-term assets because such materials will ultimately be classified as long-term assets when the material is used in the drilling of a well.

At June 30, 2015, we excluded $23.7 million of inventory from depreciation as the inventory had not been placed into service. At December 31, 2014, we excluded $24.3 million of inventory and $3.0 million of software from depreciation as the inventory and software had not been placed into service.

 

5. Asset retirement obligations

The following table summarizes the changes in our asset retirement obligations (“ARO”) for the six months ended June 30, 2015 and for the year ended December 31, 2014:

 

 

June 30, 2015

 

 

December 31, 2014

 

 

(in thousands)

 

Asset retirement obligations at beginning of period

$

11,376

 

 

$

10,896

 

Change in estimates

 

 

 

 

 

Liabilities settled

 

 

 

 

(373

)

Foreign exchange change effect

 

(1,431

)

 

 

(900

)

Additions

 

45

 

 

 

513

 

Accretion expense

 

218

 

 

 

413

 

Acquisitions

 

 

 

 

827

 

Asset retirement obligations at end of period

 

10,208

 

 

 

11,376

 

Less: current portion

 

270

 

 

 

323

 

Long-term portion

$

9,938

 

 

$

11,053

 

 

Our ARO is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs.

 

6. Commodity derivative instruments

We use collar derivative contracts to economically hedge against the variability in cash flows associated with the forecasted sale of a portion of our future oil production. We have not designated the derivative contracts as hedges for accounting purposes, and accordingly, we record the derivative contracts at fair value and recognize changes in fair value in earnings as they occur.

10


To the extent that a legal right of offset exists, we net the value of our derivative contracts with the same counterparty in our consolidated balance sheets. All of our oil derivative contracts are settled based upon Brent crude oil pricing. We recognize gains and losses related to these contracts on a fair value basis in our consolidated statements of comprehensive income (loss) under the caption “(Loss) gain on commodity derivative contracts.” Settlements of derivative contracts are included in operating activities on our consolidated statements of cash flows under the caption “Cash settlement on commodity derivative contracts.” We are required under our senior secured credit facility (the “Senior Credit Facility”) with BNP Paribas (Suisse) SA (“BNP Paribas”) and the International Finance Corporation (“IFC”) to hedge at least 30% of our anticipated oil production volumes in Turkey.

During the three months ended June 30, 2015 and 2014, we recorded a net loss on commodity derivative contracts of $3.3 million and $9.5 million, respectively. During the six months ended June 30, 2015 and 2014, we recorded a net gain on commodity derivative contracts of $0.5 million and a net loss of $8.6 million, respectively.

At June 30, 2015 and December 31, 2014, we had outstanding contracts with respect to our future crude oil production as set forth in the tables below:

Fair Value of Derivative Instruments as of June 30, 2015

 

 

 

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

 

 

 

 

Quantity

 

 

Minimum

 

 

Maximum Price

 

 

Estimated Fair

 

Type

 

Period

 

(Bbl/day)

 

 

Price (per Bbl)

 

 

(per Bbl)