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EX-31.1 - EX-31.1 - TRANSATLANTIC PETROLEUM LTD.tat-ex311_7.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended: March 31, 2020

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

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class 

 

 

 

 

 

 

 

Ticker Symbol

 

 

 

 

 

 

 

Name of each exchange on which registered 

Common shares, par value $0.10

 

 

 

 

 

 

 

TAT

 

 

 

 

 

 

 

NYSE American

 

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

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

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  

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

As of June 12, 2020, the registrant had 62,719,448‬ common shares outstanding.

 

 

 

TABLE OF CONTENTS

 


 

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

 

 

Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019

4

 

 

Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three Months Ended March 31, 2020 and 2019

5

 

 

Unaudited Consolidated Statement of Shareholders’ Equity for the Three Months Ended March 31, 2020 and 2019

6

 

 

Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

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

24

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

29

 

 

Item 4. Controls and Procedures

30

 

 

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

31

 

 

Item 1A. Risk Factors

31

 

 

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

31

 

 

Item 6. Exhibits

32

 

 


2


As previously disclosed in the Current Report on Form 8-K filed by TransAtlantic Petroleum Ltd. (together with its subsidiaries, “we,” “us,” “our,” the “Company,” or “TransAtlantic”) on May 14, 2020, we delayed the filing of this Quarterly Report on Form 10-Q due to circumstances related to the COVID-19 pandemic and in reliance on the order of the U.S. Securities and Exchange Commission (the “SEC”) under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and certain rules thereunder (Release No. 34-88465) (the “Order”). The Order allows a registrant up to an additional 45 days after the original due date of certain reports required to be filed with the SEC if a registrant’s ability to file such report timely is affected due to COVID-19.

Our business has experienced disruptions due to the unprecedented conditions surrounding the COVID-19 pandemic, including, but not limited to, the limited availability of key personnel and professional advisors who are needed to prepare this Quarterly Report on Form 10-Q due in part to suggested and mandated social quarantining and work from home orders. This has, in turn, delayed our ability to prepare this Quarterly Report on Form 10-Q in a timely manner.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of applicable U.S. and Canadian securities legislation. Additionally, forward-looking statements may be made orally or in press releases, conferences, reports, on our website or otherwise, in the future, by us or on our behalf. Such statements are generally identifiable by the terminology used such as “plans,” “expects,” “estimates,” “budgets,” “intends,” “anticipates,” “believes,” “projects,” “indicates,” “targets,” “objective,” “could,” “should,” “may,” or other similar words.

By their very nature, forward-looking statements require us to make assumptions that may not materialize or that may not be accurate. Forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels of activity, and achievements to differ materially from those expressed or implied by such statements, including the factors discussed under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019. Such factors include, but are not limited to, the following: our ability to continue as a going concern; well development results; access to sufficient capital; market prices for natural gas, natural gas liquids, and oil products, including price changes resulting from COVID-19 fears as well as oil oversupply concerns; estimates of reserves and economic assumptions; the ability to produce and transport natural gas, natural gas liquids, and oil products, including price changes resulting from coronavirus fears as well as oil oversupply concerns; the results of exploration and development drilling and related activities; the effects of the coronavirus on our operations, demand for oil and natural gas as well as governmental actions in response to the coronavirus; economic conditions in the countries and provinces in which we carry on business, especially economic slowdowns; actions by governmental authorities; the unwinding of our hedges against a decline in the price of oil; receipt of required approvals; increases in taxes; legislative and regulatory initiatives relating to fracture stimulation activities; changes in environmental and other regulations; renegotiations of contracts; political uncertainty, including sanctions, armed conflicts, and actions by insurgent groups; outcomes of litigation; the negotiation and closing of material contracts; and the other factors discussed in other documents that we file with or furnish to the SEC and Canadian securities regulatory authorities. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors and our course of action would depend upon our assessment of the future, considering all information then available. In that regard, any statements as to: liquidity; ability to continue as a going concern; COVID-19; access to sufficient capital; future oil or natural gas production levels; capital expenditures; asset sales; the allocation of capital expenditures to exploration and development activities; sources of funding for our capital expenditure programs or operations; drilling of new wells; demand for oil and natural gas products; expenditures and allowances relating to environmental matters; dates by which certain areas will be developed or will come on-stream; expected finding and development costs; future production rates; ultimate recoverability of reserves, including the ability to convert probable and possible reserves to proved reserves; dates by which transactions are expected to close; future cash flows, uses of cash flows, collectability of receivables and availability of trade credit; expected operating costs; changes in any of the foregoing; and other statements using forward-looking terminology are forward-looking statements, and there can be no assurance that the expectations conveyed by such forward-looking statements will, in fact, be realized.

Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity, achievements or financial condition.

Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The foregoing statements are not exclusive and further information concerning us, including factors that potentially could materially affect our financial results, may emerge from time to time. We do not intend to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements, except as required by law.

 

3


PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

TRANSATLANTIC PETROLEUM LTD.

Consolidated Balance Sheets

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

 

 

March 31, 2020

 

 

December 31, 2019

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

12,780

 

 

$

9,664

 

Accounts receivable, net

 

 

 

 

 

 

 

Oil and natural gas sales

 

6,181

 

 

 

13,299

 

Joint interest and other

 

1,267

 

 

 

1,218

 

Related party

 

456

 

 

 

561

 

Prepaid and other current assets

 

12,380

 

 

 

12,375

 

Inventory

 

3,763

 

 

 

7,091

 

Total current assets

 

36,827

 

 

 

44,208

 

Property and equipment:

 

 

 

 

 

 

 

Oil and natural gas properties (successful efforts method)

 

 

 

 

 

 

 

Proved

 

126,597

 

 

 

167,948

 

Unproved

 

10,872

 

 

 

12,978

 

Equipment and other property

 

12,947

 

 

 

10,202

 

 

 

150,416

 

 

 

191,128

 

Less accumulated depreciation, depletion and amortization

 

(91,286

)

 

 

(106,610

)

Property and equipment, net

 

59,130

 

 

 

84,518

 

Other long-term assets:

 

 

 

 

 

 

 

Other assets

 

3,524

 

 

 

3,827

 

Note receivable - related party

 

3,732

 

 

 

3,951

 

Total other assets

 

7,256

 

 

 

7,778

 

Total assets

$

103,213

 

 

$

136,504

 

LIABILITIES, SERIES A PREFERRED SHARES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

3,189

 

 

$

4,555

 

Accounts payable - related party

 

6,985

 

 

 

4,262

 

Accrued liabilities

 

12,790

 

 

 

15,244

 

Derivative liability

 

 

 

 

966

 

Loans payable

 

10,643

 

 

 

17,143

 

Total current liabilities

 

33,607

 

 

 

42,170

 

Long-term liabilities:

 

 

 

 

 

 

 

Asset retirement obligations

 

3,602

 

 

 

4,749

 

Accrued liabilities

 

9,592

 

 

 

10,370

 

Deferred income taxes

 

18,747

 

 

 

22,728

 

Loans payable

 

 

 

 

2,857

 

Total long-term liabilities

 

31,941

 

 

 

40,704

 

Total liabilities

 

65,548

 

 

 

82,874

 

Commitments and contingencies

 

 

 

 

 

 

 

Series A preferred shares, $0.01 par value, 100,000 shares authorized; 100,000 shares issued and outstanding with a liquidation preference of $50 per share as of March 31, 2020 and December 31, 2019

 

5,000

 

 

 

5,000

 

Series A preferred shares-related party, $0.01 par value, 821,000 shares authorized; 821,000 shares issued and outstanding with a liquidation preference of $50 per share as of March 31, 2020 and December 31, 2019

 

41,050

 

 

 

41,050

 

Shareholders' equity:

 

 

 

 

 

 

 

Common shares, $0.10 par value, 200,000,000 shares authorized; 62,349,063 shares and 62,230,058 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

6,235

 

 

 

6,223

 

Treasury stock

 

(970

)

 

 

(970

)

Additional paid-in-capital

 

582,426

 

 

 

582,359

 

Accumulated other comprehensive loss

 

(139,426

)

 

 

(147,347

)

Accumulated deficit

 

(456,650

)

 

 

(432,685

)

Total shareholders' equity (deficit)

 

(8,385

)

 

 

7,580

 

Total liabilities, Series A preferred shares and shareholders' equity

$

103,213

 

 

$

136,504

 

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

 

 

4


TRANSATLANTIC PETROLEUM LTD.

Consolidated Statements of Operations and Comprehensive (Loss) Income

(Unaudited)

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

 

 

For the Three Months Ended

 

 

March 31,

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

Oil and natural gas sales

$

8,343

 

 

$

18,861

 

Other

 

17

 

 

 

180

 

Total revenues

 

8,360

 

 

 

19,041

 

Costs and expenses:

 

 

 

 

 

 

 

Production

 

3,519

 

 

 

2,502

 

Transportation and processing

 

1,160

 

 

 

1,319

 

Exploration, abandonment and impairment

 

20,338

 

 

 

5,113

 

Seismic and other exploration

 

45

 

 

 

77

 

General and administrative

 

2,352

 

 

 

3,054

 

Depreciation, depletion and amortization

 

2,989

 

 

 

3,716

 

Accretion of asset retirement obligations

 

53

 

 

 

52

 

Total costs and expenses

 

30,456

 

 

 

15,833

 

Operating income (loss)

 

(22,096

)

 

 

3,208

 

Other income (expense):

 

 

 

 

 

 

 

Loss on sale

 

(10,128

)

 

 

-

 

Interest and other expense

 

(2,212

)

 

 

(2,478

)

Interest and other income

 

121

 

 

 

174

 

Gain (loss) on derivative contracts

 

7,513

 

 

 

(110

)

Foreign exchange loss

 

(128

)

 

 

(1,273

)

Total other expense

 

(4,834

)

 

 

(3,687

)

Loss from operations before income taxes

 

(26,930

)

 

 

(479

)

Income tax benefit (expense)

 

2,965

 

 

 

(3,423

)

Net loss

 

(23,965

)

 

 

(3,902

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

7,921

 

 

 

(4,226

)

Comprehensive loss

$

(16,044

)

 

$

(8,128

)

 

 

 

 

 

 

 

 

Net loss per common share

 

 

 

 

 

 

 

Basic net loss per common share

$

(0.38

)

 

$

(0.07

)

Weighted average common shares outstanding

 

62,310

 

 

 

52,483

 

Diluted net loss per common share

$

(0.38

)

 

$

(0.07

)

Weighted average common and common equivalent shares outstanding

 

62,310

 

 

 

52,483

 

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

 

 


5


TRANSATLANTIC PETROLEUM LTD.

Consolidated Statement of Equity for the Three Months Ended March 31, 2020 and 2019

(Unaudited)

(U.S. Dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Shareholders'

 

 

Common

 

 

Treasury

 

 

Common

 

 

Treasury

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

Shares

 

 

Shares

 

 

Shares

 

 

Stock

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

(Deficit)

 

Balance at December 31, 2018

 

52,413

 

 

 

333

 

 

$

5,241

 

 

$

(970

)

 

$

577,488

 

 

$

(142,021

)

 

$

(427,319

)

 

$

12,419

 

Issuance of restricted stock units

 

83

 

 

 

-

 

 

 

8

 

 

 

-

 

 

 

(8

)

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

102

 

 

 

-

 

 

 

-

 

 

 

102

 

Tax effect of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(89

)

 

 

-

 

 

 

-

 

 

 

(89

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,226

)

 

 

-

 

 

 

(4,226

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,902

)

 

 

(3,902

)

Balance at March 31, 2019

 

52,496

 

 

 

333

 

 

$

5,249

 

 

$

(970

)

 

$

577,493

 

 

$

(146,247

)

 

$

(431,221

)

 

$

4,304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

62,230

 

 

 

333

 

 

$

6,223

 

 

$

(970

)

 

$

582,359

 

 

$

(147,347

)

 

$

(432,685

)

 

$

7,580

 

Issuance of restricted stock units

 

119

 

 

 

-

 

 

 

12

 

 

 

-

 

 

 

(12

)

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

115

 

 

 

-

 

 

 

-

 

 

 

115

 

Tax effect of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(36

)

 

 

-

 

 

 

-

 

 

 

(36

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,921

 

 

 

-

 

 

 

7,921

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23,965

)

 

 

(23,965

)

Balance at March 31, 2020

 

62,349

 

 

 

333

 

 

$

6,235

 

 

$

(970

)

 

$

582,426

 

 

$

(139,426

)

 

$

(456,650

)

 

$

(8,385

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


6


TRANSATLANTIC PETROLEUM LTD.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands of U.S. Dollars)

 

 

For the Three Months Ended

 

 

March 31,

 

 

2020

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(23,965

)

 

$

(3,902

)

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

 

 

 

 

 

 

 

Share-based compensation

 

115

 

 

 

102

 

Foreign currency loss

 

255

 

 

 

1,637

 

(Gain) loss on derivative contracts

 

(7,513

)

 

 

110

 

Cash settlement on derivative contracts

 

6,547

 

 

 

 

Loss on sale

 

10,128

 

 

 

 

Amortization on loan financing costs

 

7

 

 

 

10

 

Deferred income tax (benefit) expense

 

(1,804

)

 

 

1,769

 

Exploration, abandonment and impairment

 

20,338

 

 

 

5,113

 

Depreciation, depletion and amortization

 

2,989

 

 

 

3,716

 

Accretion of asset retirement obligations

 

53

 

 

 

52

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

7,302

 

 

 

(10,216

)

Prepaid expenses and other assets

 

(950

)

 

 

(3,757

)

Accounts payable and accrued liabilities

 

589

 

 

 

9,880

 

Net cash provided by operating activities

 

14,091

 

 

 

4,514

 

Investing activities:

 

 

 

 

 

 

 

Additions to oil and natural gas properties

 

(2,937

)

 

 

(9,326

)

Additions to equipment and other properties

 

(158

)

 

 

 

Proceeds from sale

 

1,451

 

 

 

 

Net used in provided by investing activities

 

(1,644

)

 

 

(9,326

)

Financing activities:

 

 

 

 

 

 

 

Tax withholding on restricted share units

 

(36

)

 

 

(88

)

Note receivable - related party

 

 

 

 

1,000

 

Loan proceeds

 

 

 

 

20,000

 

Loan repayment

 

(9,357

)

 

 

(5,100

)

Net cash provided by (used in) financing activities

 

(9,393

)

 

 

15,812

 

Effect of exchange rate on cash flows, cash equivalents, and restricted cash

 

62

 

 

 

(1,018

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

3,116

 

 

 

9,982

 

Cash, cash equivalents and restricted cash, beginning of period (1)

 

9,804

 

 

 

9,892

 

Cash, cash equivalents and restricted cash, end of period (2)

$

12,920

 

 

$

19,874

 

Supplemental disclosures:

 

 

 

 

 

 

 

Cash paid for interest

$

1,851

 

 

$

526

 

Cash paid for taxes

$

214

 

 

$

1,178

 

 

 

 

 

 

 

 

 

 

(1)

 The beginning of period balance at December 31, 2019 includes cash and cash equivalents of $9.7 million and restricted cash of $0.1 million in other assets.  The beginning of period balance at December 31, 2018 includes cash and cash equivalents of $9.8 million and restricted cash of $0.1 million in other assets

 

 

(2)

The end of period balance at March 31, 2020 includes cash and cash equivalents of $12.8 million and restricted cash of $0.1 million in other assets. The end of period balance at March 31, 2019 includes cash and cash equivalents of $19.7 million and restricted cash of $0.1 million in other assets.

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

 

 


7


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, 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 June 22, 2020, approximately 49.9% of our outstanding common shares were beneficially owned by N. Malone Mitchell 3rd, our chief executive officer and chairman of our board of directors. Persons and entities associated with Mr. Mitchell also owned 739,000 of our 12.0% Series A Convertible Redeemable Preferred Shares (“Series A Preferred Shares”). Mr. Mitchell’s affiliates are currently prohibited from converting any of their Series A Preferred Shares to common shares if such conversion would cause Mr. Mitchell or his affiliates to obtain beneficial ownership in excess of 49.9% of the outstanding common shares; however, Mr. Mitchell, upon 61 days’ prior notice, may increase or decrease such percentage cap.

We are a holding company with two operating segments – Turkey and Bulgaria. Our assets consist of our 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 (“USD”) 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 USD unless otherwise indicated. The unaudited consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 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 financial derivatives, the recoverability and impairment of long-lived assets, 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 SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

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 $24.0 million for the three months ended March 31, 2020.  At March 31, 2020, we had cash and cash equivalents of $12.8 million, $ 10.6 million in short-term debt, and a working capital surplus of $5.9 million, compared to cash and cash equivalents of $9.7 million, $2.9 million in long-term debt, $17.1 million in short-term debt and a working capital surplus of $2.0 million at December 31, 2019.

In March 2020, crude oil prices declined to approximately $25 per barrel for Brent crude as a result of market concerns about the economic impact from the COVID-19 as well as the ability of OPEC and Russia to agree on a perceived need to implement further production cuts in response to weaker worldwide demand.  Since then, Brent crude prices have rebounded to approximately $39.00 per barrel as of June 12, 2020 and remain volatile and unpredictable. The current futures forward curve for Brent crude indicates that prices may continue at or near current prices for an extended time.

As a result of the decline in Brent crude prices, the current near term price outlook and resulting lower current and projected cash flows from operations, we have reduced our planned capital expenditures to those necessary for production lease maintenance and those projecting a return on invested capital at current prices. In order to mitigate the impact of reduced prices on our 2020 cash flows and liquidity, we implemented cost reduction measures to reduce our operating costs and general and administrative expenses. In

8


connection therewith, we intend to prioritize funding operating expenditures over general and administrative expenditures, whenever possible.

On March 9, 2020, we unwound our commodity derivative contracts with respect to our future crude oil production. In connection with these transactions, we received $6.5 million. In order to reduce future interest expense, we used these proceeds to pay down the 2019 Term Loan (as defined in Note 8. “Loans Payable”). On April 3, 2020, we entered into a new swap contract with DenizBank, A.S. (“DenizBank”), which hedged approximately 2,000 barrels of oil per day. The swap contract is in place from May 2020 through February 2021, has an ICE Brent Index strike price of $36.00 per barrel, and is settled monthly. Therefore, DenizBank is required to make a payment to us if the average monthly ICE Brent Index price is less than $36.00 per barrel, and we are required to make a payment to DenizBank if the average monthly ICE Brent Index price is greater than $36.00 per barrel.

Türkiye Petrol Rafinerileri A.Ş. (“TUPRAS”), a privately-owned oil refinery in Turkey, purchases substantially all of our crude oil production. The price of substantially all of the oil delivered pursuant to the purchase and sale agreement with TUPRAS is tied to Arab Medium oil prices adjusted upward based on an API adjustment, Suez Canal tariff costs, and freight charges. Recently, there has been a significant widening of the differential between the ICE Brent Index price and our realized oil prices. In 2018 and 2019, the average monthly differential between the ICE Brent Index Price and our realized oil prices was $2.44 and $0.17 per barrel, respectively. In April and May 2020, the average monthly differential between the ICE Brent Index Price and our realized oil prices was $6.90 and $8.34 per barrel, respectively. The widening of the differential between ICE Brent Index Price and our realized oil prices has rendered our hedges less effective, resulting in significantly lowered revenues. This differential may expand or contract in the future.

The price of the oil delivered pursuant to the purchase and sale agreement with TUPRAS is determined under the Petroleum Market Law No. 5015 under the laws of the Republic of Turkey. In November 2019, TUPRAS filed a lawsuit seeking restitution from us for alleged overpayments resulting from a February 2019 amendment to the Turkish domestic crude oil pricing formula under Petroleum Market Law No. 5015 (the “Pricing Amendment”). TUPRAS also claimed that the Pricing Amendment violates the Constitution of the Republic of Turkey and seeks to have the Pricing Amendment cancelled. Additionally, in April 2020, TUPRAS notified us that it intends to extend payment terms for oil purchases by 60 days. The outcome of the TUPRAS lawsuit and negotiations regarding the extension of payment terms is uncertain; however, a conclusion of the lawsuit in TUPRAS’s favor or an extension of payment terms would reduce or delay our cash flow and decrease our cash balances.

In the second quarter of 2020, we borrowed approximately $626,000 pursuant to the U.S. Payment Protection Program (the “PPP”) to cover certain payroll, benefit, and rent expenses. We have forecast that amounts borrowed or received pursuant to the PPP will be forgiven for cash flow purposes. New guidance on the criteria for forgiveness continues to be released. Additionally, in the second quarter of 2020, the Turkish government passed legislation permitting employers to reduce the working hours of employees, reducing payroll and benefit expenses, through the end of June 2020. The projected reduction in payroll and benefit expenses due to this legislation is approximately $360,000.  

As of March 31, 2020, we had $10.6 million of outstanding principal under the 2019 Term Loan. The 2019 Term Loan is payable in one monthly installment of $0.6 million in June 2020 and seven monthly installments of $1.4 million plus accrued interest from July 2020 through the maturity date in February 2021. In addition, dividends on our Series A Preferred Shares are payable quarterly at our election in cash, common shares, or a combination of cash and common shares at an annual dividend rate of 12.0% of the liquidation preference if paid in cash or 16.0% of the liquidation preference if paid in common shares. If paid partially in cash and partially in common shares, the dividend rate on the cash portion is 12.0%, and the dividend rate on the common share portion is 16.0%. In order to conserve cash, we elected to pay the second dividend in 2020 in common shares.

As of the date hereof, based on cash on hand and projected future cash flow from operations, our current liquidity position is severely constrained and is forecast to worsen during 2020 as revenues are insufficient to meet our ordinary course expenditures and debt obligations. Based on our current cash flow forecasts, we may be unable to pay the scheduled monthly installments on the 2019 Term Loan in the fourth quarter of 2020 unless we can increase revenues, obtain additional financing, or restructure our current obligations. To date, we have been unable to restructure our current obligations or obtain additional financing to alleviate these liquidity issues. As a result, substantial doubt exists regarding our ability to continue as a going concern. Our management is actively pursuing improving our working capital position in order to remain a going concern for the foreseeable future.  

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 June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including

9


trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for a fiscal year beginning after December 15, 2018, including interim periods within that fiscal year. Entities will apply the standards provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently assessing the potential impact of ASU 2016-13 on our consolidated financial statements and results of operations.

In November 2018, the FASB ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. This update clarifies that receivables arising from operating leases are not in scope of this topic, but rather Topic 842, Leases. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This update will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We adopted this standard effective January 1, 2020. The adoption of this update had no impact on our consolidated financial statements and results of operations.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. This update removes certain exceptions to the general principles in Topic 740 and provides clarifications related to certain franchise taxes, transactions with a government that result in a step-up in the tax basis of goodwill, allocation of current and deferred income tax expense and the annual effective tax rate.  This update is effective January 1, 2021.  We are currently assessing the potential impact of this update 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. Series A Preferred Shares

Series A Preferred Shares

As of March 31, 2020 and 2019, we had 921,000 outstanding Series A Preferred Shares. The Series A Preferred Shares contain a substantive conversion option, are mandatorily redeemable and convert into a fixed number of common shares. As a result, under U.S. GAAP, we have classified the Series A Preferred Shares within mezzanine equity in our consolidated balance sheets. As of March 31, 2020, there were $5.0 million of Series A Preferred Shares and $41.1 million of Series A Preferred Shares – related party outstanding (See Note 15. “Related party transactions”).

Pursuant to the Certificate of Designations for the Series A Preferred Shares (as amended to date, the “Certificate of Designations”), each Series A Preferred Share may be converted at any time, at the option of the holder, into 45.754 common shares (which is equal to an initial conversion price of approximately $1.0928 per common share and is subject to customary adjustments for stock splits, stock dividends, recapitalizations or other fundamental changes).

If not converted sooner, on November 4, 2024, we are required to redeem the outstanding Series A Preferred Shares in cash at a price per share equal to the liquidation preference plus accrued and unpaid dividends. At any time on or after November 4, 2020, we may redeem all or a portion of the Series A Preferred Shares at the redemption prices listed below (expressed as a percentage of the liquidation preference amount per share) plus accrued and unpaid dividends to the date of redemption, if the closing sale price of the common shares equals or exceeds 150% of the conversion price then in effect for at least 10 trading days (whether or not consecutive) in a period of 20 consecutive trading days, including the last trading day of such 20 trading day period, ending on, and including, the trading day immediately preceding the business day on which we issue a notice of optional redemption. The redemption prices for the 12-month period starting on the dates below are:

 

Period Commencing

Redemption Price

November 4, 2020

105.000%

November 4, 2021

103.000%

November 4, 2022

101.000%

November 4, 2023 and thereafter

100.000%

Additionally, upon the occurrence of a change of control (as defined in the Certificate of Designations), we are required to offer to redeem the Series A Preferred Shares within 120 days after the first date on which such change of control occurred, for cash at a redemption price equal to the liquidation preference per share, plus any accrued and unpaid dividends.  A change of control excludes a transaction with Mr. Mitchell, his family members, and their affiliates.  

Dividends on the Series A Preferred Shares are payable quarterly at our election in cash, common shares or a combination of cash and common shares at an annual dividend rate of 12.0% of the liquidation preference if paid all in cash or 16.0% of the liquidation preference if paid in common shares. If paid partially in cash and partially in common shares, the dividend rate on the cash portion is

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12.0%, and the dividend rate on the common share portion is 16.0%. Dividends are payable quarterly on March 31, June 30, September 30, and December 31 of each year, except for the first dividend payable after March 31, 2020, which dividend will be payable thirty business days following our public filing of this Quarterly Report on Form 10-Q. The holders of the Series A Preferred Shares also are entitled to participate pro-rata in any dividends paid on the common shares on an as-converted-to-common shares basis. For the three months ended March 31, 2020 and 2019, we paid $1.3 million in cash dividends on the Series A Preferred Shares, which is recorded in our consolidated statements of comprehensive (loss) income under the caption Interest and other expense. In order to conserve cash, we have elected to pay the second dividend in 2020 in common shares.  

Except as required by Bermuda law, the holders of Series A Preferred Shares have no voting rights, except that for so long as at least 400,000 Series A Preferred Shares are outstanding, the holders of the Series A Preferred Shares voting as a separate class have the right to elect two directors to our Board of Directors. For so long as between 80,000 and 399,999 Series A Preferred Shares are outstanding, the holders of the Series A Preferred Shares voting as a separate class have the right to elect one director to our Board of Directors. Upon less than 80,000 Series A Preferred Shares remaining outstanding, any directors elected by the holders of Series A Preferred Shares shall immediately resign from our Board of Directors.

The Certificate of Designation also provides that without the approval of the holders of a majority of the outstanding Series A Preferred Shares, we will not issue indebtedness for money borrowed or other securities which are senior to the Series A Preferred Shares in excess of the greater of (i) $100 million or (ii) 35% of our PV-10 of proved reserves as disclosed in our most recent independent reserve report filed or furnished by us on EDGAR.

5. 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, 2020

 

 

December 31, 2019

 

 

(in thousands)

 

Oil and natural gas properties, proved:

 

 

 

 

 

 

 

Turkey

$

126,107

 

 

$

167,446

 

Bulgaria

 

490

 

 

 

502

 

Total oil and natural gas properties, proved

 

126,597

 

 

 

167,948

 

Oil and natural gas properties, unproved:

 

 

 

 

 

 

 

Turkey

 

10,872

 

 

 

12,978

 

Total oil and natural gas properties, unproved

 

10,872

 

 

 

12,978

 

Gross oil and natural gas properties

 

137,469

 

 

 

180,926

 

Accumulated depletion

 

(86,281

)

 

 

(101,232

)

Net oil and natural gas properties

$

51,188

 

 

$

79,694

 

 

At March 31, 2020 and December 31, 2019, we excluded $0.3 million and $0.2 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, 2020, the capitalized costs of our oil and natural gas properties, net of accumulated depletion, included $3.4 million relating to acquisition costs of proved properties, which are being depleted by the unit-of-production method using total proved reserves, and $56.8 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, 2019, the capitalized costs of our oil and natural gas properties included $5.0 million relating to acquisition costs of proved properties, which are being amortized by the unit-of-production method using total proved reserves, and $63.8 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 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.

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During the three months ended March 31, 2020, we recorded $2.1 million of exploratory dry-hole costs and $18.2 million of impairment of proved properties, which are primarily measured using Level 3 inputs.  During the three months ended March 31, 2019, we recorded $5.1 million of exploratory dry-hole costs, which are primarily measured using Level 3 inputs.  

Capitalized cost greater than one year

As of March 31, 2020, there were no exploratory well costs greater than one year.

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, 2020

 

 

December 31, 2019

 

 

(in thousands)

 

Other equipment

$

1,156

 

 

$

1,121

 

Land

 

121

 

 

 

132

 

Inventory

 

6,671

 

 

 

3,209

 

Gas gathering system and facilities

 

78

 

 

 

172

 

Vehicles

 

252

 

 

 

304

 

Leasehold improvements, office equipment and software

 

4,669

 

 

 

5,264

 

Gross equipment and other property

 

12,947

 

 

 

10,202

 

Accumulated depreciation

 

(5,005

)

 

 

(5,378

)

Net equipment and other property

$

7,942

 

 

$

4,824

 

 

At March 31, 2020, in addition to the above, we have classified $3.8 million of inventory as a current asset, which represents our expected inventory consumption during the next twelve months. We classify our remaining materials and supply inventory as a long-term asset because such materials will ultimately be classified as a long-term asset when the material is used in the drilling of a well.

At March 31, 2020 and December 31, 2019, we excluded $10.4 million and $10.3 million of inventory, respectively, from depreciation as the inventory had not been placed into service.

6. Asset retirement obligations

The following table summarizes the changes in our asset retirement obligations (“ARO”) for the three months ended March 31, 2020 and for the year ended December 31, 2019:

 

 

March 31, 2020

 

 

December 31, 2019

 

 

(in thousands)

 

Asset retirement obligations at beginning of period

$

4,749

 

 

$

4,667

 

Liabilities settled

 

(791

)

 

 

 

Foreign exchange change effect

 

(409

)

 

 

(519

)

Additions

 

 

 

 

388

 

Accretion expense

 

53

 

 

 

213

 

Asset retirement obligations at end of period

$

3,602

 

 

$

4,749

 

 

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.

 

During the three months ended March 31, 2020 and 2019, we recorded accretion expense of $0.1 million and $0.1 million, respectively.

7. Derivative instruments

We use derivative instruments to manage certain risks related to commodity prices and foreign currency exchange rates. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by our senior management. We do not hold any derivatives for speculative purposes and do not use derivatives with leveraged or complex features. We have not

12


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 operations and comprehensive loss under the caption “(Loss) gain on derivative contracts.” Settlements of derivative contracts are included in operating activities on our consolidated statements of cash flows under the caption “Cash settlement on derivative contracts.”

On March 9, 2020, we unwound our three-way collar contract with DenizBank, which hedged approximately 1,000 Bbl/d of our oil production in Turkey. The three-way collar contract had a Brent floor of $55.00, a Brent ceiling of $72.90, and a Brent long call of $80.00, and was in place through April 30, 2020. We also unwound our swap contract with DenizBank, which hedged approximately 1,000 Bbl/d of our oil production in Turkey. The swap contract had a Brent strike price of $60.30 and was in place through December 31, 2020. In connection with these transactions, we received approximately $6.5 million. We used these proceeds to pay down the 2019 Term Loan to reduce our future interest expense.  

At March 31, 2020, we did not have any commodity or foreign exchange derivative contracts.  At December 31, 2019, we had outstanding commodity derivative contracts with respect to our future crude oil production as set forth in the tables below:

Fair Value of Derivative Instruments as of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Average

 

 

Additional

 

 

Estimated Fair

 

 

 

 

 

Quantity

 

 

Minimum

 

 

Maximum Price

 

 

Call Ceiling

 

 

Value of Asset

 

Type

 

Period

 

(Bbl/day)

 

 

Price (per Bbl)

 

 

(per Bbl)

 

 

(per Bbl)

 

 

(Liability)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Three-way collar

 

January 1, 2020 - April 30, 2020

 

 

1,000

 

 

$

55.00

 

 

$

72.90

 

 

$

80.00

 

 

 

21

 

Swap

 

January 1, 2020 - December 31, 2020

 

 

986

 

 

$

60.30

 

 

 

 

 

 

 

 

 

 

 

(987

)

Total Estimated Fair Value of Liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(966

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the three months ended March 31, 2020 and 2019, we recorded a net gain on derivative contracts of $7.5 million and a net loss of $0.1 million, respectively.

Balance sheet presentation

The following table summarizes both: (i) the gross fair value of our derivative instruments by the appropriate balance sheet classification even when the derivative instruments are subject to netting arrangements and qualify for net presentation in our consolidated balance sheets at December 31, 2019, and (ii) the net recorded fair value as reflected on our consolidated balance sheet at December 31, 2019.  At March 31, 2020 we did not have any commodity or foreign exchange derivative contracts.

 

 

 

 

 

As of December 31, 2019

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

 

Net Amount of

 

 

 

 

 

Gross

 

 

Offset in the

 

 

Liabilities

 

 

 

 

 

Amount of

 

 

Consolidated

 

 

Presented in the

 

 

 

Location on Consolidated

 

Recognized

 

 

Balance

 

 

Consolidated

 

Type of Derivative Contract

 

Balance Sheets

 

Liabilities

 

 

Sheets

 

 

Balance Sheets

 

 

 

 

 

(in thousands)

 

Crude Oil

 

Current liabilities

 

$

987

 

 

$

(21

)

 

$

966

 

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On April 3, 2020, we entered into a new swap contract DenizBank, which hedged approximately 2,000 barrels of oil per day. The swap contract is in place from May 2020 through February 2021, has an ICE Brent Index strike price of $36.00 per barrel, and is settled monthly. Therefore, DenizBank is required to make a payment to us if the average monthly ICE Brent Index price is less than $36.00 per barrel, and we are required to make a payment to DenizBank if the average monthly ICE Brent Index price is greater than $36.00 per barrel.

 

On May 20, 2020, we entered into foreign exchange forward contracts to hedge against currency fluctuations between the TRY and USD. The forward contract settlement dates are from June through August for $1.0 million at a strike price of 6.84 TRY to $1.00 USD.

 

8. Loans payable

As of the dates indicated, our third-party debt consisted of the following:

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

 

Fixed and floating rate loans

(in thousands)

 

Term Loans (1)

$

10,643

 

 

$

20,000

 

Less: current portion

 

10,643

 

 

 

17,143

 

Long-term portion

$

 

 

$

2,857

 

_________________________________________________________

 

(1)

Includes the 2019 Term Loan, the 2018 Term Loan, and the 2017 Term Loan (each as defined below and collectively, “Term Loans”).

 

On August 23, 2016, the Turkish branch of TransAtlantic Exploration Mediterranean International Pty Ltd (“TEMI”) entered into a Credit Agreement (the “Credit Agreement”) with DenizBank. The Credit Agreement is a master agreement pursuant to which DenizBank may make loans to TEMI from time to time pursuant to additional loan agreements.

On August 31, 2016, we and DenizBank entered into additional agreements with respect to up to $20.0 million of non-cash facilities, including guarantee letters and treasury instruments for future hedging transactions.

2017 Term Loan

On November 17, 2017, DenizBank entered into a $20.4 million term loan (the “2017 Term Loan”) with TEMI under the Credit Agreement.

The 2017 Term Loan bore interest at a fixed rate of 6.0% (plus 0.3% for Banking and Insurance Transactions Tax per the Turkish government) per annum. The 2017 Term Loan had a grace period which bore no interest or payments due until July 2018. Thereafter, the 2017 Term Loan was payable in one monthly installment of $1.38 million, nine monthly installments of $1.2 million each through April 2019 and thereafter in eight monthly installments of $1.0 million each through December 2019, with the exception of one monthly installment of $1.2 million occurring in October 2019.

On December 30, 2019, we repaid the 2017 Term Loan in full in accordance with its terms.

2018 Term Loan

On May 28, 2018, DenizBank entered into a $10.0 million term loan (the “2018 Term Loan”) with TEMI under the Credit Agreement.

The 2018 Term Loan bore interest at a fixed rate of 7.25% (plus 0.3% for Banking and Insurance Transactions Tax per the Turkish government) per annum. The 2018 Term Loan had a grace period through July 2018 during which no payments were due. Thereafter, accrued interest on the 2018 Term Loan was payable monthly and the principal on the 2018 Term Loan was payable in five monthly installments of $0.2 million each through December 2018, four monthly installments of $0.5 million each through April 2019, four monthly installments of $1.0 million each through August 2019, and four monthly installments of $0.75 million each through December 2019.

On December 30, 2019, we repaid the 2018 Term Loan in full in accordance with its terms.

2019 Term Loan

On February 22, 2019, DenizBank entered into a $20.0 million term loan (the “2019 Term Loan”) with TEMI under the Credit Agreement.

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The 2019 Term Loan bears interest at a fixed rate of 7.5% (plus 0.375% for Banking and Insurance Transactions Tax per the Turkish government) per annum. The 2019 Term Loan had a grace period through December 2019 during which no payments were due. Thereafter, accrued interest on the 2019 Term Loan was payable monthly, and the principal on the 2019 Term Loan was payable in 14 monthly installments of $1.4 million each.

On March 9, 2020, we unwound our three-way collar contract with DenizBank and received approximately $6.5 million in proceeds, which we used to pay down the 2019 Term Loan.  As part of the pay down, DenizBank extended a grace period for principal repayments until June 29, 2020, at which time we will resume principal payments for one monthly installment in June 2020 of $0.6 million and seven monthly installments of $1.4 million beginning in July 2020.The 2019 Term Loan matures in February 2021. Amounts repaid under the 2019 Term Loan may not be reborrowed, and early repayments under the 2019 Term Loan are subject to early repayment fees. The 2019 Term Loan is guaranteed by Amity Oil International Pty Ltd (“Amity”), Talon Exploration, Ltd. (“Talon Exploration”), DMLP, Ltd. (“DMLP”), and TransAtlantic Turkey, Ltd. (“TransAtlantic Turkey”).

The 2019 Term Loan contains standard prohibitions on the activities of TEMI as the borrower, including prohibitions on encumbering or creating restrictions or limitations on all or a part of its assets, revenues, or properties, giving guaranties or sureties, selling assets or transferring revenues, dissolving, liquidating, merging, or consolidating, incurring additional debt, paying dividends, making certain investments, undergoing a change of control, and other similar matters. In addition, the 2019 Term Loan prohibits Amity, Talon Exploration, DMLP, and TransAtlantic Turkey from incurring additional debt. An event of default under the 2019 Term Loan includes, among other events, failure to pay principal or interest when due, breach of certain covenants, representations, warranties, and obligations, bankruptcy or insolvency, and the occurrence of a material adverse effect.

The 2019 Term Loan is secured by a pledge of (i) the stock of TEMI, DMLP, TransAtlantic Turkey, and Talon Exploration, (ii) substantially all of the assets of TEMI, (iii) certain Gundem real estate and Muratli real estate owned by Gundem (as defined in Note 15. “Related party transactions”), (iv) certain Diyarbakir real estate owned 80% by Mr. Mitchell and 20% by Mr. Uras, and (v) certain Ankara real estate owned 100% by Mr. Uras. In addition, TEMI assigned its Turkish collection accounts and its receivables from the sale of oil to DenizBank as additional security for the 2019 Term Loan.   

At March 31, 2020, we had $10.6 million outstanding under the 2019 Term Loan and no availability, and we were in compliance with the covenants in the 2019 Term Loan.

For the three months ended March 31, 2020 and 2019, we recorded interest expense related to the term loans of $0.3 million and $0.3 million, respectively.

9. Leases

Operating and financing leases

We lease office space in Dallas, Texas, Bulgaria and Turkey.  We also lease apartments, vehicles and operations yards in Turkey.    The terms of our lease agreements generally range from one to five years, with some containing options to renew or cancel. We determine if an arrangement meets the definition of a lease at inception, at which time we also perform an analysis to determine whether the lease qualifies as an operating or financing lease.

Our operating and financing leases are included in other assets and accrued liabilities (current and long-term) on our consolidated balance sheet.  Lease expense for our operating leases is recognized in our consolidated statements of comprehensive (loss) income under the caption “General and administrative”.  Lease expense for our operating leases for our operations yards in Turkey is recognized in our consolidated statements of comprehensive (loss) income under the caption “Production”.

Lease right-of-use assets and lease liabilities are measured using the present value of future minimum lease payments over the lease term at commencement date. The right-of-use asset also includes any lease payments made on or before the commencement date of the lease, less any lease incentive