Attached files
file | filename |
---|---|
EX-31.2 - EX-31.2 - TRANSATLANTIC PETROLEUM LTD. | tat-ex312_11.htm |
EX-31.1 - EX-31.1 - TRANSATLANTIC PETROLEUM LTD. | tat-ex311_6.htm |
EX-12.1 - EX-12.1 - TRANSATLANTIC PETROLEUM LTD. | tat-ex121_7.htm |
EX-32.1 - EX-32.1 - TRANSATLANTIC PETROLEUM LTD. | tat-ex321_10.htm |
EX-10.2 - EX-10.2 - TRANSATLANTIC PETROLEUM LTD. | tat-ex102_125.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: March 31, 2016
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 May 9, 2016, the registrant had 41,336,966 common shares outstanding.
TRANSATLANTIC PETROLEUM LTD.
(in thousands of U.S. Dollars, except share data)
|
March 31, |
|
|
December 31, |
|
||
|
2016 |
|
|
2015 |
|
||
ASSETS |
(unaudited) |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
2,339 |
|
|
$ |
7,480 |
|
Restricted cash |
|
10,742 |
|
|
|
3,758 |
|
Accounts receivable, net |
|
|
|
|
|
|
|
Oil and natural gas sales |
|
15,508 |
|
|
|
14,169 |
|
Joint interest and other |
|
6,047 |
|
|
|
5,885 |
|
Related party |
|
485 |
|
|
|
414 |
|
Prepaid and other current assets |
|
2,624 |
|
|
|
2,807 |
|
Derivative asset |
|
2,644 |
|
|
|
3,235 |
|
Assets held for sale |
|
1,578 |
|
|
|
51,511 |
|
Total current assets |
|
41,967 |
|
|
|
89,259 |
|
Property and equipment: |
|
|
|
|
|
|
|
Oil and natural gas properties (successful efforts methods) |
|
|
|
|
|
|
|
Proved |
|
279,287 |
|
|
|
271,080 |
|
Unproved |
|
31,894 |
|
|
|
31,135 |
|
Equipment and other property |
|
36,930 |
|
|
|
36,708 |
|
|
|
348,111 |
|
|
|
338,923 |
|
Less accumulated depreciation, depletion and amortization |
|
(160,294 |
) |
|
|
(148,218 |
) |
Property and equipment, net |
|
187,817 |
|
|
|
190,705 |
|
Other long-term assets: |
|
|
|
|
|
|
|
Other assets |
|
3,231 |
|
|
|
3,025 |
|
Note receivable - related party |
|
7,964 |
|
|
|
11,500 |
|
Derivative asset |
|
3,504 |
|
|
|
3,370 |
|
Total other assets |
|
14,699 |
|
|
|
17,895 |
|
Total assets |
$ |
244,483 |
|
|
$ |
297,859 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
$ |
12,723 |
|
|
$ |
12,675 |
|
Accounts payable - related party |
|
2,072 |
|
|
|
2,684 |
|
Accrued liabilities |
|
13,999 |
|
|
|
10,583 |
|
Loans payable |
|
34,341 |
|
|
|
36,676 |
|
Loans payable - related party |
|
3,593 |
|
|
|
3,593 |
|
Liabilities held for sale - related party |
|
– |
|
|
|
3,540 |
|
Liabilities held for sale |
|
16,004 |
|
|
|
65,649 |
|
Total current liabilities |
|
82,732 |
|
|
|
135,400 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
Asset retirement obligations |
|
9,590 |
|
|
|
9,237 |
|
Accrued liabilities |
|
12,740 |
|
|
|
11,940 |
|
Deferred income taxes |
|
27,919 |
|
|
|
27,360 |
|
Loans payable |
|
34,350 |
|
|
|
34,400 |
|
Loans payable - related party |
|
20,650 |
|
|
|
20,600 |
|
Total long-term liabilities |
|
105,249 |
|
|
|
103,537 |
|
Total liabilities |
|
187,981 |
|
|
|
238,937 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
Common shares, $0.10 par value, 100,000,000 shares authorized; 41,108,614 shares and 41,017,777 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively |
|
4,111 |
|
|
|
4,102 |
|
Treasury stock |
|
(970 |
) |
|
|
(970 |
) |
Additional paid-in-capital |
|
569,513 |
|
|
|
569,365 |
|
Accumulated other comprehensive loss |
|
(118,616 |
) |
|
|
(121,590 |
) |
Accumulated deficit |
|
(397,536 |
) |
|
|
(391,985 |
) |
Total shareholders' equity |
|
56,502 |
|
|
|
58,922 |
|
Total liabilities and shareholders' equity |
$ |
244,483 |
|
|
$ |
297,859 |
|
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 |
|
|||||
|
March 31, |
|
|||||
|
2016 |
|
|
2015 |
|
||
Revenues: |
|
|
|
|
|
|
|
Oil and natural gas sales |
$ |
14,526 |
|
|
$ |
25,408 |
|
Sales of purchased natural gas |
|
1,026 |
|
|
|
298 |
|
Other |
|
14 |
|
|
|
51 |
|
Total revenues |
|
15,566 |
|
|
|
25,757 |
|
Costs and expenses: |
|
|
|
|
|
|
|
Production |
|
2,886 |
|
|
|
3,621 |
|
Exploration, abandonment and impairment |
|
1,305 |
|
|
|
347 |
|
Cost of purchased natural gas |
|
896 |
|
|
|
266 |
|
Seismic and other exploration |
|
66 |
|
|
|
58 |
|
General and administrative |
|
4,843 |
|
|
|
7,123 |
|
Depreciation, depletion and amortization |
|
7,966 |
|
|
|
11,054 |
|
Accretion of asset retirement obligations |
|
92 |
|
|
|
96 |
|
Total costs and expenses |
|
18,054 |
|
|
|
22,565 |
|
Operating (loss) income |
|
(2,488 |
) |
|
|
3,192 |
|
Other income (expense): |
|
|
|
|
|
|
|
Interest and other expense |
|
(2,656 |
) |
|
|
(3,108 |
) |
Interest and other income |
|
212 |
|
|
|
163 |
|
Gain on commodity derivative contracts |
|
771 |
|
|
|
3,812 |
|
Foreign exchange gain (loss) |
|
342 |
|
|
|
(6,451 |
) |
Total other expense |
|
(1,331 |
) |
|
|
(5,584 |
) |
Loss from continuing operations before income taxes |
|
(3,819 |
) |
|
|
(2,392 |
) |
Income tax expense |
|
(1,747 |
) |
|
|
(1,631 |
) |
Net loss from continuing operations |
|
(5,566 |
) |
|
|
(4,023 |
) |
Loss from discontinued operations before income taxes |
|
(938 |
) |
|
|
(1,580 |
) |
Gain on disposal of discontinued operations |
|
749 |
|
|
|
- |
|
Income tax benefit |
|
204 |
|
|
|
109 |
|
Net gain (loss) from discontinued operations |
|
15 |
|
|
|
(1,471 |
) |
Net loss |
$ |
(5,551 |
) |
|
$ |
(5,494 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
2,974 |
|
|
|
(23,619 |
) |
Comprehensive loss |
$ |
(2,577 |
) |
|
$ |
(29,113 |
) |
|
|
|
|
|
|
|
|
Net loss per common share |
|
|
|
|
|
|
|
Basic net loss per common share |
|
|
|
|
|
|
|
Continuing operations |
$ |
(0.14 |
) |
|
$ |
(0.10 |
) |
Discontinued operations |
$ |
0.00 |
|
|
$ |
(0.04 |
) |
Weighted average common shares outstanding |
|
40,738 |
|
|
|
40,767 |
|
Diluted net loss per common share |
|
|
|
|
|
|
|
Continuing operations |
$ |
(0.14 |
) |
|
$ |
(0.10 |
) |
Discontinued operations |
$ |
0.00 |
|
|
$ |
(0.04 |
) |
Weighted average common and common equivalent shares outstanding |
|
40,738 |
|
|
|
40,767 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
Consolidated Statement of Equity
(Unaudited)
(U.S. Dollars and shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
Total |
|
|||
|
Common |
|
|
Treasury |
|
|
|
|
|
|
Common |
|
|
Treasury |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Accumulated |
|
|
Shareholders' |
|
||||||||
|
Shares |
|
|
Shares |
|
|
Warrants |
|
|
Shares |
|
|
Stock |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
Equity |
|
|||||||||
Balance at December 31, 2015 |
|
41,018 |
|
|
|
333 |
|
|
699 |
|
|
$ |
4,102 |
|
|
$ |
(970 |
) |
|
$ |
569,365 |
|
|
$ |
(121,590 |
) |
|
$ |
(391,985 |
) |
|
$ |
58,922 |
|
|
Issuance of warrants |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Contingent payment event |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of restricted stock units |
|
91 |
|
|
|
- |
|
|
|
- |
|
|
|
9 |
|
|
|
- |
|
|
|
(9 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Tax withholding on restricted stock units |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(21 |
) |
|
|
- |
|
|
|
- |
|
|
|
(21 |
) |
Repurchase of treasury stock |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Share-based compensation |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
178 |
|
|
|
- |
|
|
|
- |
|
|
|
178 |
|
Foreign currency translation adjustment |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,974 |
|
|
|
- |
|
|
|
2,974 |
|
Net loss |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(5,551 |
) |
|
|
(5,551 |
) |
Balance at March 31, 2016 |
|
41,109 |
|
|
|
333 |
|
|
|
699 |
|
|
$ |
4,111 |
|
|
$ |
(970 |
) |
|
$ |
569,513 |
|
|
$ |
(118,616 |
) |
|
$ |
(397,536 |
) |
|
$ |
56,502 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands of U.S. Dollars)
|
For the Three Months Ended |
|
|||||
|
March 31, |
|
|||||
|
2016 |
|
|
2015 |
|
||
Operating activities: |
|
|
|
|
|
|
|
Net loss |
$ |
(5,551 |
) |
|
$ |
(5,494 |
) |
Adjustment for net (gain) loss from discontinued operations |
|
(15 |
) |
|
|
1,471 |
|
Net loss from continuing operations |
|
(5,566 |
) |
|
|
(4,023 |
) |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Share-based compensation |
|
178 |
|
|
|
267 |
|
Foreign currency (gain) loss |
|
(155 |
) |
|
|
4,599 |
|
Gain on commodity derivative contracts |
|
(771 |
) |
|
|
(3,812 |
) |
Cash settlement on commodity derivative contracts |
|
1,228 |
|
|
|
4,384 |
|
Amortization on loan financing costs |
|
190 |
|
|
|
172 |
|
Deferred income tax expense |
|
407 |
|
|
|
110 |
|
Exploration, abandonment and impairment |
|
1,305 |
|
|
|
347 |
|
Depreciation, depletion and amortization |
|
7,966 |
|
|
|
11,054 |
|
Accretion of asset retirement obligations |
|
92 |
|
|
|
96 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
(949 |
) |
|
|
12,691 |
|
Prepaid expenses and other assets |
|
94 |
|
|
|
681 |
|
Accounts payable and accrued liabilities |
|
2,490 |
|
|
|
(5,867 |
) |
Net cash provided by operating activities from continuing operations |
|
6,509 |
|
|
|
20,699 |
|
Net cash used in operating activities from discontinued operations |
|
(84 |
) |
|
|
(6,907 |
) |
Net cash provided by operating activities |
|
6,425 |
|
|
|
13,792 |
|
Investing activities: |
|
|
|
|
|
|
|
Additions to oil and natural gas properties |
|
(2,205 |
) |
|
|
(6,329 |
) |
Restricted cash |
|
(6,619 |
) |
|
|
– |
|
Additions to equipment and other properties |
|
(139 |
) |
|
|
(3,374 |
) |
Net cash used in investing activities from continuing operations |
|
(8,963 |
) |
|
|
(9,703 |
) |
Net cash used in investing activities from discontinued operations |
|
– |
|
|
|
(527 |
) |
Net cash used in investing activities |
|
(8,963 |
) |
|
|
(10,230 |
) |
Financing activities: |
|
|
|
|
|
|
|
Tax withholding on restricted share units |
|
(21 |
) |
|
|
(78 |
) |
Loan proceeds |
|
– |
|
|
|
7,600 |
|
Loan repayment |
|
(2,588 |
) |
|
|
(4,450 |
) |
Net cash (used in) provided by financing activities from continuing operations |
|
(2,609 |
) |
|
|
3,072 |
|
Net cash used in financing activities from discontinued operations |
|
– |
|
|
|
(12,277 |
) |
Net cash used in financing activities |
|
(2,609 |
) |
|
|
(9,205 |
) |
Effect of exchange rate on cash flows and cash equivalents |
|
6 |
|
|
|
(1,338 |
) |
Net decrease in cash and cash equivalents |
|
(5,141 |
) |
|
|
(6,981 |
) |
Cash and cash equivalents, beginning of period |
|
7,480 |
|
|
|
35,132 |
|
Cash and cash equivalents, end of period |
$ |
2,339 |
|
|
$ |
28,151 |
|
Supplemental disclosures: |
|
|
|
|
|
|
|
Cash paid for interest |
$ |
998 |
|
|
$ |
1,823 |
|
Cash paid for taxes |
$ |
96 |
|
|
$ |
738 |
|
Supplemental non-cash financing activities: |
|
|
|
|
|
|
|
Repayment of the prepayment agreement |
$ |
– |
|
|
$ |
609 |
|
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 and Bulgaria. As of May 9, 2016, approximately 36% of our outstanding common shares were beneficially owned by N. Malone Mitchell 3rd, our chief executive officer and chairman of our board of directors.
TransAtlantic is a holding company with two operating segments – Turkey and Bulgaria. Its assets consist of its ownership interests in subsidiaries that primarily own assets in Turkey and Bulgaria.
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 the 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, 2015.
2. Going concern
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. These principles assume that we will be able to realize our assets and discharge our obligations in the normal course of operations for the foreseeable future.
We incurred a net loss of $5.6 million for the three months ended March 31, 2016, which included net gain from discontinued operations of $15,000. At March 31, 2016, the outstanding principal amount of our debt was $94.3 million (excluding unamortized deferred financing costs), and we had a working capital deficit (excluding assets and liabilities held for sale) of $26.3 million.
Due to the significant decline in Brent crude oil prices during 2015, the borrowing base under our senior credit facility (the “Senior Credit Facility”) with BNP Paribas (Suisse) SA (“BNP Paribas”) and the International Finance Corporation (“IFC”, and together with BNP Paribas, the “Lenders”) was decreased to $16.6 million effective December 30, 2015. The decline in the borrowing base resulted in a $15.5 million borrowing base deficiency under the Senior Credit Facility as of December 30, 2015.
As of March 31, 2016, we had $30.8 million outstanding under the Senior Credit Facility and no availability, and we were not in compliance with the current ratio financial covenant in the Senior Credit Facility.
On April 19, 2016, we entered into a second waiver and consent to credit agreement (the “Second Waiver and Consent”) with BNP Paribas and IFC, which granted us a conditional waiver of defaults under the Senior Credit Facility and the current ratio financial covenant non-compliance at December 31, 2015 and March 31, 2016. The Second Waiver and Consent also permitted the borrowers to make certain limited transfers and withdrawals from the collection accounts pledged to the Lenders under the Senior Credit Facility.
6
The Second Waiver and Consent included certain conditions, including the following:
|
(i) |
The borrowing base deficiency must be repaid by September 30, 2016 (provided that the Lenders may, in their sole and absolute discretion, agree in writing to extend such date to December 31, 2016) (the “Waiver Period”); |
|
(ii) |
All monthly hedge settlement proceeds shall be used to pay down debt outstanding under the Senior Credit Facility; |
|
(iii) |
Net proceeds from certain asset sales shall be used to prepay loans outstanding under the Senior Credit Facility; |
|
(iv) |
By June 30, 2016, the Lenders shall be granted a security interest over all of the equity interest in, and assets and property of, Thrace Basin Natural Gas (Turkiye) Corporation (“TBNG”); and |
|
(v) |
On or before September 30, 2016, all holders of our 13.0% convertible notes due 2017 (the “Convertible Notes”) shall either (a) convert their debt interest under the Convertible Notes into equity interest, or (b) agree to extend the maturity of the Convertible Notes to April 1, 2019 or later on substantially identical terms. |
As of May 10, 2016, we had a borrowing base deficiency of $20.4 million and no availability.
Even if we obtain the funds to repay our borrowing base deficiency, we will need some form of debt restructuring, capital raising effort or asset sale in order to fund our operations and meet our substantial debt service obligations of approximately $39.3 million in 2016 and $55.0 million in 2017. We have engaged Seaport Global Inc. as an independent advisor, and our management is actively pursuing improving our working capital position and/or restructuring our future debt service obligations in order to remain a going concern for the foreseeable future.
As a result there is substantial doubt regarding our ability to continue as a going concern.
Management believes the going concern assumption to be appropriate for these consolidated financial statements. If the going concern assumption was not appropriate, adjustments would be necessary to the carrying values of assets and liabilities, reported revenues and expenses and in the balance sheet classifications used in these consolidated financial statements.
3. Recent accounting pronouncements
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. 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. As of March 31, 2016, we adopted ASU 2015-03 with no material impact on our consolidated financial statements and results of operations.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), an amendment to ASC Subtopic 330-10. The amendment states that entities should measure inventory at the lower of cost and net realizable value. The amendment does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendment applies to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. ASU 2015-11 is effective for fiscal years beginning after December 31, 2016, including interim periods within those fiscal years. We are currently assessing the potential impact of ASU 2015-11 on our consolidated financial statements and results of operations.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). ASU 2016-08 does not change the core principle of Topic 606 but clarifies the implementation guidance on principal versus agent considerations. ASU 2016-08 is effective for the annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-08 on our consolidated financial statements and results of operations.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. We are currently assessing the potential impact of ASU 2016-09 on our consolidated financial statements and results of operations.
7
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”). ASU 2016-10 does not change the core principle of Topic 606 but clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective for annual and interim periods beginning December 15, 2017. We are currently assessing the potential impact of ASU 2016-10 on our consolidated financial statements and 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.
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:
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
(in thousands) |
|
|||||
Oil and natural gas properties, proved: |
|
|
|
|
|
|
|
Turkey |
$ |
278,778 |
|
|
$ |
270,591 |
|
Bulgaria |
|
509 |
|
|
|
489 |
|
Total oil and natural gas properties, proved |
|
279,287 |
|
|
|
271,080 |
|
Oil and natural gas properties, unproved: |
|
|
|
|
|
|
|
Turkey |
|
31,894 |
|
|
|
31,135 |
|
Total oil and natural gas properties, unproved |
|
31,894 |
|
|
|
31,135 |
|
Gross oil and natural gas properties |
|
311,181 |
|
|
|
302,215 |
|
Accumulated depletion |
|
(150,535 |
) |
|
|
(139,002 |
) |
Net oil and natural gas properties |
$ |
160,646 |
|
|
$ |
163,213 |
|
For the three months ended March 31, 2016, we recorded foreign currency translation adjustments, which increased proved properties and reduced accumulated other comprehensive loss within shareholders’ equity on our consolidated balance sheet.
At March 31, 2016 and December 31, 2015, we excluded $0.4 million and $0.7 million, respectively, from the depletion calculation for proved development wells currently in progress and for costs associated with fields currently not in production.
At March 31, 2016, the capitalized costs of our oil and natural gas properties, net of accumulated depletion, included $19.9 million relating to acquisition costs of proved properties, which are being depleted by the unit-of-production method using total proved reserves, and $108.5 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, 2015, the capitalized costs of our oil and natural gas properties included $20.0 million relating to acquisition costs of proved properties, which are being amortized by the unit-of-production method using total proved reserves, and $111.4 million relating to well costs and additional development costs, which are being amortized by the unit-of-production method using proved developed reserves
Impairments of proved properties and impairment of exploratory well costs
Proved oil and natural gas properties are reviewed for impairment when events and circumstances indicate the carrying value of such properties may not be recoverable. We primarily use Level 3 inputs to determine fair value, including but are not limited to, estimates of proved reserves, future commodity prices, the timing and amount of future production and capital expenditures and discount rates commensurate with the risk reflective of the lives remaining for the respective oil and natural gas properties.
During the three months ended March 31, 2016 and 2015, we recorded $1.3 million and $0.3 million, respectively, of impairment of proved properties and exploratory well costs which are primarily measured using Level 3 inputs. Of the $1.3 million of impairment recorded during the three months ended March 31, 2016, $0.2 million was related to cash spent during the three months ended March 31, 2016.
8
Capitalized cost greater than one year
As of March 31, 2016, we had $1.3 million and $2.2 million of exploratory well costs capitalized for the Hayrabolu-10 and Pinar-1 wells, respectively, in Turkey, which we spud in February 2013 and March 2014, respectively. The Hayrabolu-10 and Pinar-1 wells continue to be held for completion.
Equipment and other property
The historical cost of equipment and other property, presented on a gross basis with accumulated depreciation, is summarized as follows:
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
(in thousands) |
|
|||||
Inventory |
$ |
21,192 |
|
|
$ |
21,338 |
|
Leasehold improvements, office equipment and software |
|
7,965 |
|
|
|
7,794 |
|
Gas gathering system and facilities |
|
4,923 |
|
|
|
4,798 |
|
Other equipment |
|
2,441 |
|
|
|
2,378 |
|
Vehicles |
|
409 |
|
|
|
400 |
|
Gross equipment and other property |
|
36,930 |
|
|
|
36,708 |
|
Accumulated depreciation |
|
(9,759 |
) |
|
|
(9,216 |
) |
Net equipment and other property |
$ |
27,171 |
|
|
$ |
27,492 |
|
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 March 31, 2016 and December 31, 2015, we excluded $21.2 million and $21.3 million of inventory, respectively, from depreciation as the inventory had not been placed into service.
5. Asset retirement obligations
The following table summarizes the changes in our asset retirement obligations (“ARO”) for the three months ended March 31, 2016 and for the year ended December 31, 2015:
|
March 31, 2016 |
|
|
December 31, 2015 |
|
||
|
(in thousands) |
|
|||||
Asset retirement obligations at beginning of period |
$ |
9,237 |
|
|
$ |
10,543 |
|
Change in estimates |
|
– |
|
|
|
385 |
|
Foreign exchange change effect |
|
261 |
|
|
|
(2,137 |
) |
Additions |
|
– |
|
|
|
78 |
|
Accretion expense |
|
92 |
|
|
|
368 |
|
Asset retirement obligations at end of period |
|
9,590 |
|
|
|
9,237 |
|
Less: current portion |
|
– |
|
|
|
– |
|
Long-term portion |
$ |
9,590 |
|
|
$ |
9,237 |
|
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.
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 (loss) income under the caption
9
“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 Credit Facility to hedge at least 30% of our anticipated oil production volumes in Turkey.
During the three months ended March 31, 2016 and 2015, we recorded a net gain on commodity derivative contracts of $0.8 million and $3.8 million, respectively.
At March 31, 2016 and December 31, 2015, 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 March 31, 2016
|
|
|
|
Puts |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
|
Estimated Fair |
|
||
|
|
|
|
Quantity |
|
|
Price |
|
|
Value of |
|
|||
Type |
|
Period |
|
(Bbl/day) |
|
|
(per Bbl) |
|
|
Asset |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
Put |
|
April 1, 2016— December 31, 2016 |
|
|
771 |
|
|
$ |
50.00 |
|
|
|
2,057 |
|
Put |
|
January 1, 2017— December 31, 2017 |
|
|
610 |
|
|
$ |
50.00 |
|
|
|
2,109 |
|
Put |
|
January 1, 2018— December 31, 2018 |
|
|
494 |
|
|
$ |
50.00 |
|
|
|
1,630 |
|
Put |
|
January 1, 2019— March 31, 2019 |
|
|
443 |
|
|
$ |
50.00 |
|
|
|
352 |
|
Total estimated fair value of asset |
|
|
|
|
|
|
|
|
|
|
|
$ |
6,148 |
|
Fair Value of Derivative Instruments as of December 31, 2015
|
|
|
|
Puts |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
|
Estimated Fair |
|
||
|
|
|
|
Quantity |
|
|
Price |
|
|
Value of |
|
|||
Type |
|
Period |
|
(Bbl/day) |
|
|
(per Bbl) |
|
|
Asset |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
Put |
|
January 1, 2016— December 31, 2016 |
|
|
808 |
|
|
$ |
50.00 |
|
|
|
3,235 |
|
Put |
|
January 1, 2017— December 31, 2017 |
|
|
610 |
|
|
$ |
50.00 |
|
|
|
1,798 |
|
Put |
|
January 1, 2018— December 31, 2018 |
|
|
494 |
|
|
$ |
50.00 |
|
|
|
1,292 |
|
Put |
|
January 1, 2019— March 31, 2019 |
|
|
443 |
|
|
$ |
50.00 |
|
|
|
280 |
|
Total estimated fair value of asset |
|
|
|
|
|
|
|
|
|
|
|
$ |
6,605 |
|
10
The following table summarizes both: (i) the gross fair value of our commodity derivative instruments by the appropriate balance sheet classification even when the commodity derivative instruments are subject to netting arrangements and qualify for net presentation in our consolidated balance sheets at March 31, 2016 and December 31, 2015, and (ii) the net recorded fair value as reflected on our consolidated balance sheets at March 31, 2016 and December 31, 2015.
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|
|
|
As of March 31, 2016 |
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Gross |
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|
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|
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|
|
|
|
Amount |
|
|
Net Amount of |
|
||
|
|
|
|
Gross |
|
|
Offset in the |
|
|
Assets |
|
|||
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|
|
|
Amount of |
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|
Consolidated |
|
|
Presented in the |
|
|||
|
|
|
|
Recognized |
|
|
Balance |
|
|
Consolidated |
|
|||
Underlying Commodity |
|
Location on Balance Sheet |
|
Assets |
|
|
Sheet |
|