Mr. John Harkins reports
GREENFIELDS PETROLEUM CORPORATION ANNOUNCES FINANCIAL RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND OPERATIONS UPDATE
Greenfields Petroleum Corp. has released its financial results and operating highlights for the second quarter and year-to-date 2015. (Except as otherwise indicated, all dollar amounts referenced herein are expressed in U.S. dollars.)
Second quarter and year-to-date 2015 financial results and operating highlights:
- Subsequent to Bahar Energy Operating Company Ltd., being the
operating company with respect to the Gum Deniz oil field and Bahar gas
field, receiving confirmation from Socar that the TPR1 (1) contractual
obligations under the ERDPSA have been fulfilled, Bahar Energy Ltd. paid the required $2.0-million bonus to the State Oil
Fund of the Republic of Azerbaijan. This payment secured Bahar Energy's
rights to the full 25-year development and production
term, through Sept. 30, 2035, for the contract rehabilitation area
(as defined in the ERDPSA). At Socar's request, the bonus payment had
been withheld until issuance of Socar's official confirmation letter,
which was received by BEOC in May, 2015.
- The company's 33.33-per-cent share of Bahar Energy entitlement sales volumes
averaged 347 barrels per day and 4,793,000 cubic feet per day or 1,145 barrels of oil equivalent per day in the second quarter
2015, and 311 barrels per day and 4,796,000 cubic feet per day or 1,110 boe per day year-to-date 2015. In
comparison with the average volumes for the same quarter in 2014, bbl per day,
thousand cubic feet per day and boe per day volumes increased 8 per cent for oil and decreased 31 per cent for gas,
and decreased 23 per cent for boe per day, respectively. Year-to-date 2015 average
volumes decreased for oil, gas and boe per day by 18 per cent, 40 per cent and 35 per cent,
respectively, when compared with same period in 2014.
- For the second quarter and year-to-date 2015, the company, through its
interest in Bahar Energy, realized an average oil price of $53.58 and
$50.31 per barrel, respectively. This price decreased in comparison with
an average of $99.47 and $100.04 per barrel realized for the same
periods in 2014. The company realized an average natural gas price of
$3.96 per thousand cubic feet for the same periods, which is a contractually constant
fixed price.
- For the second quarter and year-to-date 2015, the company's 33.33-per-cent share
of Bahar Energy financial results represented net income of $500,000 and $700,000, respectively. These results compare with a net loss of
$200,000 and net income of $3.0-million for the same periods in
2014.
- For the second quarter and year-to date 2015, the company realized net
losses of $3.0-million and $4.3-million, respectively, which represents
a loss per share (basic and diluted) of 14 cents and 21 cents. In comparison
with the same periods in 2014, the company realized net losses of $4.9-million and $3.8-million with losses per share of 24 cents and 20 cents.
- On June 30, 2015, the company secured temporary relief from its June 1,
2015, interest payment of $900,000 by way of a waiver from the
holders of more than 50 per cent of the principal amount of the convertible
debentures. The company failed to make the interest
payment due within 30 days of June 1, 2015, and such failure potentially
became an event of default (as defined in the indenture governing the debentures). On June 30, 2015, a majority of the
holders of debentures instructed the trustee under the indenture to
waive the event of default. Pursuant to the waiver, the June 1, 2015,
interest payment has been deferred until the earlier of: (i) Dec.
30, 2015; and (ii) 15 business days after the receipt of payment from
Bahar Energy of at least $9.0-million toward the balance of default
amounts due from Bahar Energy (as described herein).
- On May 27, 2015, the company's senior loan agreement dated Nov. 25,
2013, was amended to allow for an increase to the
existing credit facilities made available to the company. Pursuant to
the amendment, the company secured an additional $2.0-million. The funds available under the new tranche are intended to
finance the company's continuing development operations in Azerbaijan as it
relates to the Gum Deniz oil field and Bahar gas field. The terms of the
amendment also allowed for the deferral until Dec. 31, 2015, of $1.1-million in interest payment due on July 1, 2015.
- On Jan. 22, 2015, the company completed a non-brokered private
placement of two million common shares of the company at a price of
$1.11 (Canadian) per share (90 U.S. cents) for aggregate gross proceeds of $1.8-million. The common shares were subject to a four-month hold period that
expired on May 23, 2015.
- Pursuant to a shareholder agreement of Bahar Energy, as at June
30, 2015, Greenfields Petroleum International Company Ltd., a
wholly owned subsidiary of the company, had financed, by way of loans to
Bahar Energy, a total of $22.1-million and accrued $3.2-million of
interest and financing costs in connection with the loans, for an
aggregated loan balance of $25.3-million at June 30, 2015. The financing
is to cover defaulted obligations of Baghlan, the
other shareholder of Bahar Energy. The default amount includes $3.7-million financed year to date through June, 2015.
Baghlan has failed to finance its share of the costs of Bahar Energy in
accordance with the BSA and its loan financing obligation to Bahar Energy
since January, 2014. The BSA provides that in the event of a default by a
shareholder in a financing obligation, the other shareholder is required,
by additional loan, to provide such funds to Bahar Energy. To the extent
that Baghlan defaults on its future financing obligations, Greenfields
anticipates that it may also finance such amounts by further loans to Bahar
Energy.
As a result of the loan by GPIC of the default amount to Bahar Energy,
the BSA stipulates that:
- All of Baghlan's loans to Bahar Energy have become last-in loans
and will not be repaid by Bahar Energy until all amounts outstanding
under all of GPIC's loans to Bahar Energy, including the payment of
the default amount, have been paid by Bahar Energy to GPIC in full,
regardless of when such loans were made by Baghlan.
- Baghlan is deemed to have assigned to GPIC a share of its dividends
equal to the sum of: (i) the default amount; (ii) Greenfields' cost
of financing (as defined in the BSA) of such default amount; and (iii)
a default rate of 4 per cent on such default amount computed from and
including the date on which the default amount has been financed by
GPIC to, but excluding, the date Baghlan remedies the default.
- The right of any directors, appointed by Baghlan to Bahar Energy to
vote at a meeting of the board of directors of Bahar Energy, is
suspended until the default amount has been paid in full, together
with the default interest.
The company continues to support the continuing efforts of the trustee and
receivers to effect the sale of Baghlan's interest in Bahar Energy to a
qualified third party. The company remains optimistic that the purchaser
will pay the default amount and related interest and costs as owed by
Baghlan. The potential transfer of interest will require the approval of
Socar. The company is looking forward to the future participation of a
well-financed partner to work with Greenfields and Socar to resume the
redevelopment of the Bahar gas fields and the Gum Deniz oil field and
realize the full exploitation potential of the remaining areas of the
offshore block.
TPR2 (2) was met on March 31, 2014, thus obligating Socar to begin
financing SOA's 20-per-cent share of BEOC cash calls beginning in
April, 2014. Socar, however, has not financed its share and has advised
that it is waiting to understand the future partnership relationship
within Bahar Energy before financing SOA's obligations. At Dec. 31,
2014, Bahar Energy had financed approximately $12.8-million of the cash
calls on behalf of SOA. Although the Bahar project created positive cash
flows for Bahar Energy during 2014, all surplus cash was used to finance
the unfinanced cash calls of SOA. At June 30, 2015, Bahar Energy has
financed its 80-per-cent share of BEOC cash calls from entitlement revenues for
2014, and SOA's 2015 cash calls in the amount of $5.8-million have
continued to go unfinanced and are past due to BEOC. The company is expecting the
repayment of SOA's unfinanced 2014 balance paid by Bahar Energy and the
financing of SOA's past due 2015 cash calls owed to BEOC to begin soon
after the sale of the Baghlan interest in Bahar Energy is completed.
Operating highlights and plans:
- Due to the Oct. 1, 2015, expiration of the agreement for sale and
purchase of natural gas from the Bahar field between BEOC and Socar, an
amendment has been submitted to Socar for approval.
- The Absheron Operating Company has advised BEOC that it will
not pay outstanding obligations of about $2.5-million ($700,000 for
the company's share) for services provided by BEOC under the facility-sharing agreement between the two entities. As a consequence of AOC's
failure to pay, BEOC has terminated the agreement and requested approval
of BEOC's management committee (formed by representatives of Bahar
Energy and Socar) to take legal action against AOC.
- Gum Deniz oil production in second quarter 2015 averaged 1,353 bbl per day, an
increase of 250 bbl per day from first quarter 2015. This production was below
budget by 400 bbl per day due to BEOC's limited access to suitable marine
vessels necessary to move rigs for workovers. During the quarter, a
total of 10 recompletions and service workovers were conducted in the Gum
Deniz oil field.
- Bahar gas production averaged 18,318,000 cubic feet per day in second quarter 2015,
approximately 1,242,000 cubic feet per day below first quarter 2015 and about 2,038,000 cubic feet per day
below the proposed budget. Production declines have been affected by
liquid loading. The Bahar workover program has been delayed due to the
limited access to heavy crane vessels to move workover rigs.
- BEOC continued progress on several construction projects. The
refurbishment of Bahar platform 48 (phase 1) was completed while work is
now under way on platforms 77 and 136. Also, a project to strengthen the
Gum Deniz causeway continues, as well as fire and safety upgrades on
platforms 9, 450 and 209. A project design has been completed for a new
gas lift line, an oil export line and other infrastructural support.
- Socar will begin the removal of its derricks and platforms that pose a
risk to BEOC safety and operations.
- The prestack time migration (PSTM) processing of the 3-D data for Gum
Deniz commenced in late May, 2015, by PGS-Almaty in Kazakhstan after
export of the data to the processor was approved by the Azerbaijani
government authorities. The processing time is scheduled to take five
months. A joint contractor/client meeting was held in Almaty in June to
finalize the processing sequences and choices. The work is estimated to
be completed in early fourth quarter 2015.
- Initial processing of the Gum Deniz 3-D data was conducted on an
expedited basis (fast-track volume) and provided to BEOC in early May,
2015. Interpretation commenced and is in progress. This preliminary volume
will aid in providing support for initial 2016 drilling plans and 2015
workovers, while awaiting the completion of the PSTM processed data.
- The Bahar field reservoir study, awarded to ERA consultants in February,
2015, for the preparation of a detailed reservoir model to be used in
selecting redevelopment opportunities, both workovers and drilling in
the Bahar gas field, was completed in draft form with an initial report
provided for review in May, 2015. The integration of report data with the
recently acquired 50 line kilometres of 2-D seismic was completed in
June, 2015, and reviewed with BEOC and the company's technical teams. A
list of both workovers and new wells was proposed in the report as a
result of the revised reservoir model. The proposed workover and
drilling locations and targets are under review by BEOC for
incorporation into the work program for year-end 2015 and the work
programs for 2016 and beyond.
- The tender for the integrated geological, geophysical and reservoir
engineering interpretation and reservoir model for the Gum Deniz field
was awarded to ERA consulting by BEOC at the end of second quarter 2015.
The goal of the study is to determine the flow units in the field, their
extent and hydrocarbon volumes, both initial and present, and prepare a
revised development plan for the effective exploitation.
Selected information
The selected information herein is from Greenfields' management's discussion and analysis for the three and six months ended June 30, 2015. The company's complete financial statements as of and for the three and six months ended June 30, 2015, and 2014, with the notes thereto and the related management's discussion and analysis can be found on Greenfields' website and on SEDAR. All amounts herein are in thousands of U.S. dollars unless otherwise noted.
GREENFIELDS PETROLEUM FINANCIAL HIGHLIGHTS
($000s (U.S.), except as noted)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Financial
Revenues $ 470 $ 469 $ 807 $ 896
Net (loss) income (2,995) (4,900) (4,346) (3,799)
Per share, basic and diluted $ (0.14) $ (0.24) $ (0.21) $ (0.20)
BAHAR ENERGY (A JOINT VENTURE) FINANCIAL HIGHLIGHTS
($000s (U.S.), except as noted)
Total joint venture Company's share
Three months ended June 30,
2015 2014 2015 2014
Financial
Revenues $ 10,756 $ 17,453 $ 5,817 $ 5,817
Net (loss) income $ 1,440 $ (588) $ 481 $ (186)
Operating
Average entitlement sales volumes
Oil and condensate (bbl/d) 964 964 321 321
Natural gas (Mcf/d) 20,952 20,952 6,983 6,983
Barrel oil equivalent (boe/d) 4,456 4,456 1,485 1,485
Average oil price
Oil price ($/bbl) $ 101.83 $ 101.83 $ 101.83 $ 101.83
Net realization price ($/bbl) $ 99.47 $ 99.47 $ 99.47 $ 99.47
Brent oil price ($/bbl) $ 109.69 $ 109.69 $ 109.69 $ 109.69
Natural gas price ($/Mcf) $ 3.96 $ 3.96 $ 3.96 $ 3.96
Total joint venture Company's share
Six months ended June 30,
2015 2014 2015 2014
Financial
Revenues $ 20,186 $ 40,351 $ 6,728 $ 13,449
Net (loss) income $ 2,187 $ 9,099 $ 729 $ 3,032
Operating
Average entitlement sales
volumes
Oil and condensate (bbl/d) 933 1,133 311 378
Natural gas (Mcf/d) 14,391 23,941 4,796 7,980
Barrel oil equivalent (boe/d) 3,332 5,123 1,110 1,708
Average oil price
Oil price ($/bbl) $ 51.67 $ 102.13 $ 51.67 $ 102.13
Net realization price ($/bbl) $ 50.31 $ 100.04 $ 50.31 $ 100.04
Brent oil price ($/bbl) $ 58.08 $ 108.93 $ 58.08 $ 108.93
Natural gas price ($/Mcf) $ 3.96 $ 3.96 $ 3.96 $ 3.96
(1) TPR1 refers to target production rate 1 under the ERDPSA, whereby
BEOC must maintain a daily production rate for 90 consecutive days
equal to 1.5 times the average 2008 production rate, that rate
being 6,944 boe per day.
(2) TPR2 refers to target production rate 2 under the ERDPSA, whereby
BEOC must maintain a daily production rate for 30 consecutive days
equal to 2.0 times the average 2008 production rate, that rate
being 9,258 boe per day.
We seek Safe Harbor.
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