Argent FS Q2 2013 V12 FINAL
Interim Consolidated Financial Statements As at and for the Three and Six month Periods Ended June 30, 2013 (Unaudited)
C o nt e n t s Interim Consolidated Financial Statements Interim Consolidated Balance Sheet I n t e r i m C o n s o l i d a t e d S t a t e me n t s o f I n c o m e ( L o s s ) a n d Comprehensive Income (Loss) I n t e r i m C o n s o l i d a t e d S t a t e me n t o f C h a n g e s i n E q u i t y I n t e r i m C o n s o l i d a t e d S t a t e me n t o f C a s h F l o w s N o t e s t o t h e I n t e r i m C o n s o l i d a t e d F i n a n c i a l S t a t e me n t s
2 3 4 5 6-20
C ONSOLIDATED B ALANCE S HEETS (in thousands of Canadian dollars) (unaudited)
As at,
Note
June 30, 2013
Decem ber 31, 2012
Assets Current assets Cash
$
Trade and other receivables Risk Management
$
1,766 12,394
4
1,637
56
595
439
9
641
-
28,466
14,655
Prepaid expenses and deposits Deferred facility fees
11,224 14,369
Risk management
4
894
-
Oil and gas properties
6
533,404
466,658
Exploration and evaluation assets
7
58,281
66,762
Property and equipment
400
804
Total assets
$
621,849
$
548,475
$
38,027
$
27,834
Liabilities Current Liabilities Trade and other payables Distributions payable
8
Current portion of deferred land payment Risk management
4
Current portion of unit based compensation Forw ard purchase contract
4,356
4,232
6,311
4,976
161
375
4,169
1,241
27,381
25,900
80,405
64,558
Credit facility
9
-
34,282
Risk management
4
-
750
6,760
12,093
Deferred land payment Unit based compensation Convertible debentures
10
Decommissioning liability
3,475
1,034
86,548
-
14,164
13,948
191,352
126,665
455,161
442,075
(40,329)
(14,566)
6,306
(5,703)
Unitholders' equity Trust capital
12
Accumulated distributions Accumulated income (deficit) Other comprehensive income
Total liabilities & unitholders' equity The notes are an integral part of the interim consolidated financial statements.
$
9,359
4
430,497
421,810
621,849
$
548,475
Commitments - see note 16 Subsequent events - see note 18
2
ARGENT ENERGY TRUST AS TO N H ILL F INANCIAL
C ONSOLIDATED S TATEMENTS OF C OMPREHENSIVE I NCOME (L OSS ) (in thousands of Canadian dollars, except per unit amounts) (unaudited)
For the six For the period of month period January 31, 2012 ended to
For the three month periods ended Note Oil and gas sales
June 30, 2012
June 30, 2013 $
33,022
$
-
June 30, 2012
June 30, 2013 $
68,059
$
-
less: Royalties
(7,818)
-
(16,515)
-
Net oil and gas revenue
25,204
-
51,544
-
8,838
-
16,004
-
3,556
367
6,583
1,491
2,730
-
5,257
-
9,881
1
20,261
1
4,734
-
4,734
-
4
-
28
-
Operating expenses
29,743
368
52,867
1,492
Operating loss
(4,539)
(368)
(1,323)
(1,492)
Operating expenses General and administrative expenses Unit based compensation
11
Depreciation, depletion and amortization Exploration and evaluation
7
Other property costs
Foreign exchange gain
9,256
-
14,519
-
4
5,264
-
2,970
-
Change in fair value of convertible debenture
10
1,572
-
1,572
-
Finance expense
13
(4,848)
Risk management gain
(368)
6,705
Income (loss) before taxation Income tax expense
-
23 $
Income (loss) for the period
6,682
$
-
(5,679)
(1,492)
12,059
-
50
(368) $
12,009
-
(1,572)
-
10,927
$
(1,492)
Other comprehensive income (loss), net of tax items Change in fair value of convertible debenture
10
(1,572)
-
Item that may be reclassified subsequently to income Foreign currency translation gain
7,416 12,526
Total comprehensive income (loss) for the period
(368)
21,364
(1,492)
Income (loss) per unit Basic
14
$
0.136
$
(0.613) $
0.246
$
(2.778)
Diluted
14
$
0.104
$
(0.613) $
0.211
$
(2.778)
The notes are an integral part of the interim consolidated financial statements.
3
ARGENT ENERGY TRUST
I NTERIM C ONSOLIDATED S TATEMENTS OF C HANGES IN E QUITY (in thousands of Canadian dollars, except per unit amounts) (unaudited)
Note
Other Accumulated Accumulated Total Comprehensive Income Cash Unitholders' Distributions Trust Capital Income (Deficit) Equity
Number of Trust Units
Issued on initial establishment, 1
January 31, 2012
$
-
$
-
Loss for period
-
-
-
Other comprehensive income
-
-
-
Total comprehensive loss
-
-
-
600
3,000
Issue of Trust Capital Trust unit issuance costs
-
Repurchase of initial trust units
(24)
(1) 600
Balance at June 30, 2012 Balance at December 31, 2012 Income for the period
$
$
-
$
(1,492)
-
-
(1,492)
(1,492) 3,000
-
-
-
-
-
-
-
-
-
(24)
-
2,976
$
-
$
(1,492) $
48,438
$ 442,075
$
4
$
(5,703) $
-
-
-
-
-
(1,492)
-
$
12,009
-
$
1,484
(14,566) $ 421,810 -
12,009
Other comprehensive income
-
-
9,355
-
-
9,355
Total comprehensive income
-
-
9,359
6,306
-
21,364
Reinvested distributions
12
1,340
13,078
-
-
-
13,078
Trust unit issuance costs
12
-
8
-
-
-
8
-
-
-
-
49,778
$ 455,161
Unitholder distributions Balance at June 30, 2013
$
9,359
$
(25,763)
6,306
$
(25,763)
(40,329) $ 430,497
The notes are an integral part of the interim consolidated financial statements.
4
ARGENT ENERGY TRUST
I NTERIM C ONSOLIDATED S TATEMENTS OF C ASH F LOWS (in thousands of Canadian dollars, except per unit amounts) (unaudited)
For the six For the period of month period January 31, 2012 ended to
For the three month periods ended Note
June 30, 2012
June 30, 2013
June 30, 2012
June 30, 2013
Operating Activities Income (loss) for the period
$
6,682
$
(368) $
12,009
$
(1,492)
Adjustments for non-cash items: Finance expense
13
4,848
-
5,679
-
9,881
1
20,261
1
4,734
-
4,734
-
11
2,730
-
5,257
-
4
(5,242)
-
(3,391)
-
(1,572)
-
(1,572)
-
-
(14,517)
Depreciation, depletion and amortization Exploration expense Unit based compensation Unrealized risk management gain
7
Unrealized gain on convertible debentures Unrealized foreign exchange gain
(9,081)
(367)
12,980 Change in non-cash w orking capital
15
Net cash provided by operating activities
(1,491)
28,460
1,901
(1,049)
2,862
(660)
14,881
(1,416)
31,322
(2,151)
Investing Activities Purchase of property and equipment
(185)
-
(302)
(8)
Additions to oil and gas properties
6
(32,279)
-
(52,073)
-
Additions to exploration and evaluation assets
7
(429)
-
(429)
-
-
-
(5,042)
-
10,500
-
5,263
-
(22,393)
-
(52,583)
(8)
Deferred land payment Change in non-cash w orking capital
15
Net cash used in investing activities Financing Activities Proceeds from issuance of trust units Trust unit issue costs Facility fees Proceeds from convertible debentures
12 9
-
-
-
-
-
8
-
(47)
3,000 (24) -
(132)
10
86,250
-
86,250
-
Proceeds from credit facilities
9
19,054
-
53,136
-
Repayment of credit facilities
9
(80,052)
-
(90,639)
-
Finance expense paid
(4,497)
-
(4,686)
-
Distributions paid
(3,266)
-
(12,561)
-
-
(727)
-
Change in non-cash w orking capital
15
250
Net cash provided by financing activities
17,692
Change in cash
10,180
Effect of exchange rates on cash
-
45
Cash, beginning of period Cash, end of period
(1,416) 2,233
999 $
11,224
$
817
30,649
2,976
9,388
817
70
-
1,766 $
11,224
$
817
The notes are an integral part of the interim consolidated financial statements.
5
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1. R e p or t i n g E n ti t y Argent Energy Trust (the "Trust" or “Argent”) is an unincorporated open-ended limited purpose trust established under the laws of the Province of Alberta on January 31, 2012. The strategy of the Trust is to acquire non-Canadian oil and gas assets in order to generate returns for its unitholders. The Trust intends to make monthly distributions of a portion of its available cash to unitholders and will reinvest remaining cash into its subsidiaries for the purposes of acquiring non-Canadian oil and gas assets, and investing in capital expenditures. Cash flow is generated by the Trust through the oil and gas assets owned and operated by the subsidiaries of the Trust. The Trust has no history of earnings or operations prior to January 31, 2012; though on January 31, 2012 it assumed general and administrative expenses amounting to $966,336 that were incurred prior to establishment by a predecessor trust. Operations officially commenced on August 10, 2012, concurrent with the closing of the acquisition of the net assets of Denali Oil & Gas Partners II LP and Denali Oil & Gas Partners III LLC (collectively referred to as “Denali”). The head office, principal address and registered and records office of the Trust are located at Suite 500, 321 - 6th Avenue SW, Calgary, Alberta, T2P 3H3. Pursuant to the terms of an Administrative Services Agreement, Argent Energy Ltd. (the "Administrator"), a corporation formed under the laws of the Province of Alberta on June 9, 2011, is the Administrator of the Trust and performs all general and administrative services that are or may be required or advisable, from time to time, for the Trust. 2. B a si s of P r e p ar a t i o n Statement of compliance
The consolidated financial statements were authorized for issue in accordance with a resolution of the Board of Directors on August 13, 2013. These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting and have been prepared following the same accounting policies as the annual audited IFRS Consolidated Financial Statements for the year ended December 31, 2012, except for income tax expense for an interim period which is based on an estimated average annual effective income tax rate. The consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended December 31, 2012, which have been prepared in accordance with IFRSs as issued by the IASB. These interim consolidated financial statements are presented in Canadian dollars (“CDN”), which is the Trust’s functional currency. All financial information is rounded to the nearest thousands, except per unit amounts and where otherwise indicated. The preparation of interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The key sources of estimation uncertainty were the same as those that applied to the consolidated financials for the year ended December 31, 2012.
6
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
3. S i g ni f i c a n t a c c o u n ti n g p ol i c i e s New IFRS policies
The accounting policies are consistent with those of the previous financial year except for the following standards and amendments which have been adopted as of January 1, 2013. No restatement of financial statement line items was required as a result of the adoption of the following policies. IFRS 10 – Consolidation IFRS 10, Consolidated Financial Statements (“IFRS 10”), requires an entity to consolidate an investee when it has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12, Consolidation - Special Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial Statements. IFRS 11 - Joint Arrangements IFRS 11, Joint Arrangements (“IFRS 11”), requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under the previous IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities—Non-monetary Contributions by Venturers. IFRS 13 - Fair Value Measurement IFRS 13, Fair Value Measurement, is a comprehensive standard for fair value measurement and disclosure for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and does not always reflect a clear measurement basis or consistent disclosures. Financial liabilities
During the three months ended June 30, 2013, the Trust designated its convertible debentures (note 10) as fair value through profit or loss (“FVTPL”) in accordance with IFRS 9, Financial Instruments. As such, the convertible debentures are recorded at their fair value, and are marked to market at each financial reporting date. Changes in the fair value due to changes in market risks are recorded through income and loss, and changes in fair value due to changes in the Trust’s internal credit risk is recognized through other comprehensive income. Amounts recorded in other comprehensive income related to credit risk are not subject to recycling to the income statement. The fair value of the convertible debentures is determined based on their closing price on the Toronto Stock Exchange. The convertible debentures are classified entirely as a liability because in accordance with IAS 32, Financial Instrument Presentation, the redemption features in the Trust’s units preclude the conversion from qualifying as an equity instrument. All transaction costs related to financial instruments designated as FVTPL are expensed as incurred.
7
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
3. S i g ni f i c a n t a c c o u n ti n g p ol i c i e s ( c o n t i n u e d ) Changes in fair value due to changes in the Trust’s internal credit risk is estimated using a pricing model based on a discounted cash flow utilizing risk free rate, the trading price, and volatility of the Trust’s units and convertible debentures. 4. F i n a n ci a l R i s k M a n a g e m e n t Overview: The Trust’s activities expose it to a variety of financial risks that arise as a result of its operating, investing, and financing activities such as: •
Credit risk;
•
Liquidity risk;
•
Price risk; and
•
Foreign exchange risk
This note presents information about significant changes in the Trust’s exposure to each of the above risks since the year ended December 31, 2012. Liquidity risk: risk :
The following are the contractual maturities of financial liabilities including estimated interest payments at June 30, 2013:
8
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
4. F i n a n ci a l R i s k M a n a g e m e n t ( c o n t i n u e d)
As at June 30, 2013
Carrying
Contractual
Less than
One - tw o
Tw o - five
More than
am ount
cash flow s
one year
years
years
five years
Financial liabilities: Trade and other payables
$
Risk management liability
38,027
$
38,027
$
38,027
$
-
$
-
$
-
161
161
161
-
-
-
Forw ard purchase contract
27,381
30,468
30,468
-
-
-
Convertible debentures - principal
86,250
86,250
-
-
86,250
-
298
26,173
5,473
10,350
10,350
-
-
-
-
-
-
-
- interest Credit Facility Deferred land payment
13,071 $
As at Decem ber 31, 2012
165,188
13,203 $
194,282
6,094 $
80,223
7,109 $
17,459
$
96,600
$
-
Carrying
Contractual
Less than
One - tw o
Tw o - five
More than
am ount
cash flow s
one year
years
years
five years
Financial liabilities: Trade and other payables
$
Risk management liability Forw ard purchase contract Convertible debentures
27,834
$
27,834
$
27,834
$
-
$
750
-
$
-
-
1,125
1,125
375
-
25,900
29,847
29,847
-
-
-
-
-
-
-
-
-
Credit Facility
34,282
35,020
-
35,020
-
-
Deferred land payment
17,069
17,909
4,976
12,933
-
-
$
106,210
$
111,735
$
63,032
$
48,703
$
-
$
-
Market risk:
Market risk is the potential for loss to the Trust from changes in the values of its financial instruments due to changes in commodity prices, securities prices, credit risk, interest rates or foreign exchange rates. The Trust may use both financial derivatives and physical delivery sales contracts to manage market risks. All such transactions are conducted within risk management tolerances that are reviewed by the Board of Directors. Commodity Price Risk Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for oil and natural gas are impacted by not only the relationship between the Canadian and United States dollar, but also world economic events that dictate the levels of supply and demand. The Trust may enter into certain financial derivative instruments periodically to economically hedge some oil and natural gas sales through the use of various financial derivative forward sales contracts and physical sales contracts. The Trust does not apply hedge accounting for these contracts. The Trust’s production is usually sold using “spot” or near term contracts, with prices fixed at the time of transfer of custody or on the basis of a monthly average market price. The Trust, however, may give consideration in certain circumstances to the appropriateness of entering into long term, fixed price marketing contracts.
9
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
4. F i n a n ci a l R i s k M a n a g e m e n t ( c o n t i n u e d ) As at June 30, 2013, the Trust has entered into the following financial contracts to mitigate the effects of fluctuating prices on a portion of its production as follows: Commodity Costless collars
Volume
Measure Beginning
Term
Floor US$
Ceiling US$ 96.40/bbl
(i)
WTI
Oil
100
bbl/d
Sep-12
Aug-14
90.00/bbl
WTI
Oil
200
bbl/d
Oct-12
Aug-13
90.00/bbl
96.50/bbl
WTI
Oil
300
bbl/d
Jan-13
Dec-13
90.00/bbl
96.05/bbl
WTI
Oil
300
bbl/d
Jan-13
Dec-14
90.00/bbl
91.70/bbl
WTI
Oil
200
bbl/d
Feb-13
Dec-14
90.00/bbl
94.65/bbl
WTI
Oil
200
bbl/d
Jan-14
Jun-14
90.00/bbl
98.50/bbl
BRENT
Oil
200
bbl/d
Jan-14
Jun-14
100.00/bbl
107.50/bbl
Term
Fixed US$ 90.55/bbl
Commodity
Volume
Measure Beginning
Fixed contract sw aps WTI (ii)
Oil
400
bbl/d
Jan-13
Dec-14
WTI (ii)
Oil
400
bbl/d
Jan-13
Dec-13
91.50/bbl
BRENT (ii)
Oil
100
bbl/d
Jan-13
Dec-14
104.50/bbl
LLS (ii)
Oil
200
bbl/d
Jan-14
Dec-14
98.75/bbl
NYMEX (iii)
Natural gas
2000
MMBtu/d
Jan-13
Dec-13
4.04/MMBtu
NYMEX (iii)
Natural gas
1000
MMBtu/d
Jan-13
Dec-14 4.1325/MMBtu
NYMEX (iii)
Natural gas
2000
MMBtu/d
Jul-13
Dec-13
4.095/MMBtu
NYMEX (iii)
Natural gas
4000
MMBtu/d
Jan-14
Dec-14
4.10/MMBtu
BRENT/WTI (iv)
Oil
500
bbl/d
Jan-13
Dec-13
14.10/bbl
BRENT/WTI (iv)
Oil
200
bbl/d
Feb-13
Dec-13
12.75/bbl
BRENT/WTI (iv)
Oil
200
bbl/d
Jan-14
Jun-14
11.50/bbl
LLS (ii) NYMEX (iii)
Oil
200
bbl/d
Jan-15
Dec-15
93.3/bbl
Natural gas
2000
MMBtu/d
Jan-15
Dec-15
4.14/MMBTU
Commodity
Volume
Measure Beginning
Term
Fixed US$
Sold (w rote) call options WTI Call
(v )
Oil
100
bbl/d
Jan-14
Dec-14
96.00/bbl
NYMEX Call
Natural gas
1000
MMBtu/d
Jan-14
Dec-14
3.91/MMBtu
NYMEX Call
Natural gas
1000
MMBtu/d
Jan-14
Dec-14
4.17/MMBtu December 31, 2012
June 30, 2013 Total liability for unrealized gain (loss) on risk m anagem ent
(i) (ii) (iii) (iv) (v)
10
$
2,370
$
(1,069)
Represents costless collar transactions created by buying puts and selling calls (WTI or BRENT reference prices). Represents fixed price financial swap transactions with a set forward sale oil reference prices that are based on West Texas Intermediary (“WTI”), Brent or Louisiana Light Sweet (“LLS”) oil. Represents fixed price financial swap transactions based on the NYMEX natural gas forward sale reference price. Represents a fixed price financials swap transaction with a set forward sale price based on spreads between BRENT and WTI reference prices. Represents the selling of call options, giving the counter party the right (but not obligation) on December 31, 2013 to enter into fixed price financial swap transactions with a set forward sales reference prices.
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
4. F i n a n ci a l R i s k M a n a g e m e n t ( c o n t i n u e d ) The following table summarizes the Trust’s net risk management position: As at, Current asset Long term asset
1,637
$
56 -
894
Current liability
(375)
(161)
Long term liability Net risk management asset (liability)
December 31, 2012
June 30, 2013 $
(750)
$
2,370
$
(1,069)
The total fair value of the Trust’s unrealized risk management positions at June 30, 2013, was a net asset of $2,370,000 (December 31, 2012 – net liability of $1,069,000) and has been calculated using both quoted prices in active markets and observable market-corroborated data. During the three and six month periods ended June 30, 2013, the Trust recorded a gain of $5,264,000 (June 30, 2012 - $nil) and $2,970,000 (June 30, 2012 - $nil), respectively, on its risk management positions of which $5,242,000 (June 30, 2012 - $nil) and $3,391,000 (June 30, 2012 - $nil) respectively was unrealized. Securities price risk The Trust’s convertible debentures are subject to securities price risk as they are traded on a public exchange. As at June 30, 2013, had the securities price of the convertible debentures increased or decreased by 1%, net income would have decreased or increased by approximately $863,000. Foreign exchange risk The Trust has entered into a number of CDN/US$ forward swap contracts on US$1.0 million per month from July to December 2013 at an average rate of US $1.00 = CDN $1.0113. The average exchange rate for the three and six months ended June 30, 2013 was US $1 equal to $1.0233 and $1.016, respectively. A $0.01 increase (decrease) in the value of Cdn versus US$ on June 30, 2013 would have decreased (increased) profit or loss by approximately $2.5 million due to the unrealized foreign exchange loss (gain) from the Trust’s inter-company loan to its US subsidiary of approximately US$250 million. Under IFRS, this intercompany loan is not part of the net investment in the subsidiary and any period end foreign exchange translation adjustment is required to be recorded in income or loss. This analysis assumes that all other variables, in particular interest rates, remain constant.
11
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
5. F a i r v a l u e d e t e r m i n a t i o n The following table summarizes the fair value measurement information for financial assets and liabilities recorded:
June 30, 2013
Carrying
Fair
Amount
Value
Fair value m easurem ents using Level 1
Level 2
Level 3
Financial assets: Risk Management (net position)
$
Unit based compensation Convertible debentures $
December 31, 2012 Risk Management (net position)
2,370
$
(7,644)
$
Unit based compensation $
2,370
$
(7,644)
-
$
(86,548)
(86,548)
(91,822) $
(91,822) $
(86,548) $
Fair
Amount
Value
$
-
(7,644)
(86,548)
Carrying
2,370
-
-
-
-
(5,274) $
-
Fair value m easurem ents using Level 1
(1,069) $
(1,069) $
-
(2,275)
(2,275)
-
(3,344) $
(3,344) $
-
Level 2 $ $
Level 3
(1,069) $
-
(2,275)
-
(3,344) $
-
Level 1 Fair Value Measurements Level 1 fair value measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Fair Value Measurements Level 2 fair value measurements are based on inputs other than quoted prices within level 1 that are observable for the asset or liability either directly or indirectly. Level 2 financial instruments have been valued indirectly through calculations based on market information. The Trust’s derivative contracts were measured based on quotes from the Trust's counterparties. Such quotes have been derived using valuation models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates. Level 3 Fair Value Measurements Level 3 fair value measurements are based on models using significant unobservable inputs.
12
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
6. O i l a n d g a s pr o p e r t i e s Cost: Balance at December 31, 2012
$
Revision to decommissioning assets
475,148 (800)
Additions
52,073
Transferred from exploration and evaluation
7,576
Foreign exchange adjustment
29,249
Balance at June 30, 2013
$
563,246
Depreciation: Balance at December 31, 2012
$
Depreciation for the period
8,490 20,157
Foreign exchange adjustment
1,195
Balance at June 30, 2012
$
29,842
Carrying amounts: December 31, 2012
$
466,658
June 30, 2013
$
533,404
7. E x pl o r a t i o n a n d e v al u a t i o n a s s et s Balance at December 31, 2012
$
Additions
66,762 429
Transferred to oil and gas properties
(7,576)
Expensed
(4,734)
Foreign exchange adjustment Balance at June 30, 2013
3,400 $
58,281
Exploration and evaluation assets relate to lease rights for undeveloped land in the Eagle Ford Shale formation. During the three and six months ended June 30, 2013, the Trust expensed $4,734,000 of exploration and evaluation assets related to leases that expired or are near expiry with no intention to renew. 8. D i s t r i b ut i o n s p a y a b l e Balance at December 31, 2012
$
Distributions declared
4,232 25,763
Distributions paid
(12,561)
Distributions reinvested
(13,078)
Outstanding distributions declared and payable at June 30, 2013
$
4,356
Distributions are declared and paid monthly. The outstanding balance at June 30, 2013 represents the amount of cash distributions to be paid July 23, 2013.
13
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
9. C r e d i t f a c i l i t y Balance at December 31, 2012
$
34,282
Draw dow ns
53,136
Repayments
(90,639)
Facility fees paid
(132)
Accretion of facility fees
251
Interest accrued
928
Interest paid
(928)
Reclass facility fees to deferred expenses
641
Period end foreign exchange adjustment
2,461
Balance at June 30, 2013
$
-
As at June 30, 2013, the Trust had no balance outstanding under its credit facility and had an undrawn credit limit of US $115,000,000. Subsequent to June 30, 2013, the Trust extended the maturity date of its credit facility to August 12, 2015. 1 0. C o n v er t i bl e d e b e n t ur e s On June 4, 2013, the Trust issued $75,000,000 aggregate principal amount of 6.00% convertible unsecured subordinated debentures (the “Debentures”) due June 30, 2018 at a price of $1,000 per debenture. On June 12, 2013, the trust issued an additional $11,250,000 principal amount of Debentures upon exercise of the underwriters’ over-allotment option. The Debentures pay interest at a rate of 6.00% per annum, payable on a semi-annual basis on June 30 and December 31 of each year, maturing on June 30, 2018. Interest payments will commence on December 31, 2013. The debentures are convertible at the option of the holder into trust units at a fixed conversion price of $13.90 per unit, on or after June 30, 2016 until their maturity date. The Debentures are convertible at the Trust’s option on or after June 30, 2016 until their maturity date at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the Trust’s units on the Toronto Stock Exchange for the 20 consecutive trading days ending on the fifth trading day preceding the date on which notice of redemption is given is not less than 125% of the conversion price. The following table outlines the changes in the convertible debentures since their issuance date: Principal amount
For the six month period ended June 30, 2013 Balance on issue date
$
86,250
Amount $
86,250
Change in fair value due to change in credit risk
-
1,572
Change in fair value due to change in market risk
-
(1,572)
Interest accrued Balance at June 30, 2013
$
86,250
298 $
86,548
The fair value of the convertible debentures on June 30, 2013, was $86,250,000 based on the June 30, 2013 closing price of the convertible debentures on the Toronto Stock Exchange.
14
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 1. U ni t b a s e d c o m p e n s a t i o n A summary of the Trust’s current period share based compensation is as follows: For the six month period ended,
For the three month periods ended June 30, 2012
June 30, 2013 Restricted trust units
$
Phantom unit rights
$
$
2,730
-
$
-
June 30, 2012
June 30, 2013 $
-
1,223
Total unit based compensation
a)
1,507
For the period of January 31, 2012 to
2,977
$
-
2,280 $
5,257
$
-
Restricted t rust u nits Units
For the six month period ended June 30, 2013
(in thousands)
Outstanding, beginning of period
635
Granted
267
Accumulated distributions
(1)
43 945
(1) Grants based on accumulated distributions on unvested unit grants. As at June 30, 2013, no RTUs were vested. All units had a fair value of $10.22 per unit as at June 30, 2013. b)
Phantom unit rights Units
For the six month period ended June 30, 2013
(in thousands)
Outstanding, beginning of period
438
Granted
318
Forfeited Accumulated distributions
(4) (1)
34 786
(1) Grants based on accumulated distributions on unvested unit grants. As at June 30, 2013, no PURs were vested. All units had a fair value of $10.22 per unit as at June 30, 2013. 1 2. T r u s t c a p i t al Trust units outstanding For the six month period ended June 30, 2013
Number of units
Amount
(in thousands) Balance at December 31, 2012
48,438
442,075
Distribution reinvestment plan (1)
1,340
13,078
Trust unit issue costs Balance at June 30, 2013
49,778 $
8 455,161
(1) During the period, the Trust issued 1,340,000 units at a weighted average price of $9.76 per unit for total gross proceeds of $13,078,000 under the Trust’s premium distribution and distribution reinvestment plan.
15
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 3. Fi n a n c e e x p e n s e
For the six month For the three month periods ended period ended, June 30, 2012
June 30, 2013 Accretion on deferred land obligation
$
140
$
June 30, 2013 -
$
278
For the period of January 31, 2012 to June 30, 2012 $
-
Accretion on decommissioning obligations
84
-
166
Accretion of facility fees on revolving loan
134
-
251
-
Total accretion
358
-
695
-
Interest on term credit facility
434
-
928
-
298
-
298
-
3,758
-
3,758
-
Interest on convertible debentures Convertible debentures issuance costs Net finance expense
$
4,848
$
-
$
5,679
-
$
-
1 4. I n c o m e ( l os s) p e r u n i t Basic income (loss) per unit is calculated as follows: For the six month For the three month periods ended period ended, June 30, 2013 Income (loss) for the period
$
Issued trust units at beginning of the period Effect of unit issuances
16
$
$
June 30, 2013
(368) $
600
48,636
Weighted average number of units - Basic Basic incom e (loss) per unit
6,682
June 30, 2012
12,009
For the period of January 31, 2012 to June 30, 2012 $
(1,492)
-
48,438
395
-
395
537
49,031
600
48,833
537
(0.613) $
0.246
0.136
$
$
(2.778)
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 4. I n c o m e ( l os s) p e r u n i t ( c o n ti n u e d ) Diluted income (loss) per unit is calculated as follows:
For the six month For the three month periods ended period ended, June 30, 2012
June 30, 2013 Income (loss) for the period
$
6,682
Net income effect from convertible debentures Diluted income (loss) for the period
5,408
Weighted average outstanding units - Basic Effect of convertible debentures
June 30, 2012
June 30, 2013
$
(368) $ -
(1,274)
$
(368) $
10,735
(1,274) $
For the period of January 31, 2012 to
12,009
$
(1,492)
$
(1,492)
-
49,031
600
48,833
537
1,702
-
856
-
Effect of RTUs
856
-
931
-
Effect of reinvested distributions
324
-
324
-
600
50,944
(0.613) $
0.211
Weighted average number of units - Diluted Diluted income (loss) per unit
51,913 $
$
0.104
537 $
(2.778)
1 5. S u p pl e m e n t al c a s h f l ow i n f o r m a t i o n Changes in non-cash working capital from operating activities is comprised of: For the period of For the six month January 31, 2012 For the three month periods ended period ended, to June 30, 2012
June 30, 2013
June 30, 2012
June 30, 2013
Source/(use) of cash: Trade and other receivables
(350) $
$
Deferred costs
$
1,901
$
(28)
(132)
1,259
2,076
(157) (2,578)
-
(28)
175
Trade and other payables
(3,252) $
(2,207)
-
Prepaid expenses and deposits
(73) $
2,103
6,246
(1,049) $
2,862
$
(660)
Changes in non-cash working capital from investing activities is comprised of: For the period of For the six month January 31, 2012 For the three month periods ended period ended, to June 30, 2012
June 30, 2013
June 30, 2013
June 30, 2012
Source/(use) of cash: Accounts receivable
$
Trade and other payables $
17
68
$
10,432 10,500
$
-
$
1,962
$
-
-
3,301
-
-
5,263
-
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 5. S u p pl e m e n t al c a s h f l ow i n f o r m a t i o n ( c o n t i n u e d ) Changes in non-cash working capital from financing activities is comprised of: For the period of For the six month January 31, 2012 For the three month periods ended period ended, to June 30, 2012
June 30, 2013
June 30, 2013
June 30, 2012
Source/(use) of cash: Trade and other payables
$
250
$
-
(727) $
$
-
1 6. C om mi t m e n t s Operating lease rentals are payable as follows: June 30, 2013 Less than one year
$
Betw een one and five years
231
Decem ber 31, 2012 $
More than five years
-
$
636
293 584
405 $
877
1 7. R el a t e d p a r t y t r a n s a c t i o ns The Trust had the following related party transactions: (i)
As at June 30, 2013, the Trust had accounts payable of $910,000 (December 31, 2012 - $833,000) to Aston Hill Financial Inc. (“Aston Hill”), a company with a common director. The Trust has an Administrative Services Contract (the “Contract”) with Aston Hill in which, for the three and six month periods ended June 30, 2013, the Trust has recorded administration charges of $500,000 (June 30, 2012 - $nil) and $1,000,000 (June 30, 2012 $nil), respectively. For the three and six month periods ended June 30, 2013, the Trust has also recorded $399,000 (June 30, 2013 - $128,000) and $668,000 (June 30, 2012 - $691,000), respectively, in overhead expenses for costs that have been reimbursed to Aston Hill by the Trust. For the three and six months ended June 30, 2013, the Trust has also recorded $360,000 (June 30, 2012 - $nil) and $788,000 (June 30, 2012 $nil), respectively, in unit based compensation related to RTUs which were issued as a part of the Trust’s RTU plan for services rendered by Aston Hill under the Contract.
(ii) During the six months ended June 30, 2013, the Trust paid US$5,000,000 to satisfy part of their obligation under a deferred land payment related to the acquisition of Denali Oil and Gas (“Denali”) which was completed on August 10, 2012. Denali shares a common director and member of key management with the Trust. For the three and six months ended June 30, 2013, The Trust also incurred $75,000 (June 30, 2012 - $nil) and $193,000 (June 30, 2012 - $nil), respectively, in relation to overriding royalty payments related to the Eagle Ford Shale Deep Rights. As at June 30, 2013, $104,000 (December 31, 2012 - $122,000) of trade and other payables was related to overriding royalty payments to Denali. All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties.
18
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 8. S u b s e q u e n t e v e n t s Risk Management Subsequent to June 30, 2013, the Trust entered into the following risks management contracts:
Commodity
Volume
Measure
Beginning
Term
Floor $US
Fixed contract sw ap LLS (i)
Oil
300
bbl/d
Jan-14
Dec-14
LLS (i)
Oil
600
bbl/d
Jan-15
Dec-15
91.87/bbl
Natural gas
4,000
MMBtu/d
Jan-15
Dec-15
4.12/MMBtu
NYMEX (ii)
97.03/bbl
(i)
Represents fixed price financial swap transactions based on the Louisiana Light Sweet (“LLS”) oil forward sale
(ii)
reference price. Represents fixed price financial swap transactions based on the NYMEX natural gas forward sale reference price.
Distributions
Subsequent to June 30, 2013, the Trust declared a distribution of $0.0875 per Trust unit for July, 2013 and issued 324,085 units pursuant to the Trust’s DRIP at a weighted average price of $9.88 per unit. Credit F acility
Subsequent to June 30, 2013, the Trust extended the maturity date of its credit facility to August 12, 2015. Business combination
The Trust entered into a binding agreement with an effective date of June 1, 2013, (the "Purchase and Sale Agreement") to acquire producing petroleum properties in Kansas and Colorado (the "Acquired Assets") from a private company. The purchase price is approximately US$45 million, (net of closing adjustments) and is expected to close in August 2013. The Acquired Assets are estimated to cover approximately 35,000 net acres of land. The Trust is currently in the process of assessing the financial effects of this transaction. It is impracticable to determine the additional revenue, net of royalties, and net income in the current reporting period had this transaction closed on January 1, 2013. The effect of retrospective application of IFRS policies is not determinable and requires significant estimates of amounts and information that are not currently available. The above amounts are estimates, which were made by management at the time of preparation of these financial statements based on information then available. Amendments may be made to these amounts as values subject to estimate and post-closing adjustments are finalized. Acquisition of Deep Rights
The Trust exercised a call option to purchase the Eagle Ford Shale "Deep Rights" for US$30 million, which was settled on August 13, 2013. The call option was granted to the Trust in connection with the acquisition of certain oil and gas assets from Denali Oil & Gas in connection with the Trust's initial public offering in August 2012.
19
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 8. S u b s e q u e n t e v e n t s ( c o n t i n u e d ) Bought deal financing
The Trust has entered into an agreement with a syndicate of underwriters, pursuant to which it will issue 7,360,000 trust units ("Trust Units") at a price of C$10.20 per Trust Unit on a bought deal basis for gross proceeds of approximately C$75 million (the "Offering"), expected to close on August 15, 2013. The underwriters have also been granted an over-allotment option, exercisable for a period of 30 days from closing of the Offering, to purchase up to 1,104,000 additional Trust Units at a price of C$10.20 per Trust Unit. If the over-allotment option is fully exercised, gross proceeds from the Offering will be approximately C$86 million. Net proceeds from the Offering will be used to reduce outstanding indebtedness under the Trust's existing credit facility which indebtedness was incurred to purchase the Acquired Assets and the Eagle Ford Deep Rights, described above. Commitments
On July 31, 2013, the Trust entered into a lease for new office space in Houston. The new lease will commence upon occupancy but no later than March 2014, and will expire approximately ten years from commencement. The total rental commitments to be incurred in the future approximate $13,900,000.
20
ARGENT ENERGY TRUST
C o nt e n t s Interim Consolidated Financial Statements Interim Consolidated Balance Sheet I n t e r i m C o n s o l i d a t e d S t a t e me n t s o f I n c o m e ( L o s s ) a n d Comprehensive Income (Loss) I n t e r i m C o n s o l i d a t e d S t a t e me n t o f C h a n g e s i n E q u i t y I n t e r i m C o n s o l i d a t e d S t a t e me n t o f C a s h F l o w s N o t e s t o t h e I n t e r i m C o n s o l i d a t e d F i n a n c i a l S t a t e me n t s
2 3 4 5 6-20
C ONSOLIDATED B ALANCE S HEETS (in thousands of Canadian dollars) (unaudited)
As at,
Note
June 30, 2013
Decem ber 31, 2012
Assets Current assets Cash
$
Trade and other receivables Risk Management
$
1,766 12,394
4
1,637
56
595
439
9
641
-
28,466
14,655
Prepaid expenses and deposits Deferred facility fees
11,224 14,369
Risk management
4
894
-
Oil and gas properties
6
533,404
466,658
Exploration and evaluation assets
7
58,281
66,762
Property and equipment
400
804
Total assets
$
621,849
$
548,475
$
38,027
$
27,834
Liabilities Current Liabilities Trade and other payables Distributions payable
8
Current portion of deferred land payment Risk management
4
Current portion of unit based compensation Forw ard purchase contract
4,356
4,232
6,311
4,976
161
375
4,169
1,241
27,381
25,900
80,405
64,558
Credit facility
9
-
34,282
Risk management
4
-
750
6,760
12,093
Deferred land payment Unit based compensation Convertible debentures
10
Decommissioning liability
3,475
1,034
86,548
-
14,164
13,948
191,352
126,665
455,161
442,075
(40,329)
(14,566)
6,306
(5,703)
Unitholders' equity Trust capital
12
Accumulated distributions Accumulated income (deficit) Other comprehensive income
Total liabilities & unitholders' equity The notes are an integral part of the interim consolidated financial statements.
$
9,359
4
430,497
421,810
621,849
$
548,475
Commitments - see note 16 Subsequent events - see note 18
2
ARGENT ENERGY TRUST AS TO N H ILL F INANCIAL
C ONSOLIDATED S TATEMENTS OF C OMPREHENSIVE I NCOME (L OSS ) (in thousands of Canadian dollars, except per unit amounts) (unaudited)
For the six For the period of month period January 31, 2012 ended to
For the three month periods ended Note Oil and gas sales
June 30, 2012
June 30, 2013 $
33,022
$
-
June 30, 2012
June 30, 2013 $
68,059
$
-
less: Royalties
(7,818)
-
(16,515)
-
Net oil and gas revenue
25,204
-
51,544
-
8,838
-
16,004
-
3,556
367
6,583
1,491
2,730
-
5,257
-
9,881
1
20,261
1
4,734
-
4,734
-
4
-
28
-
Operating expenses
29,743
368
52,867
1,492
Operating loss
(4,539)
(368)
(1,323)
(1,492)
Operating expenses General and administrative expenses Unit based compensation
11
Depreciation, depletion and amortization Exploration and evaluation
7
Other property costs
Foreign exchange gain
9,256
-
14,519
-
4
5,264
-
2,970
-
Change in fair value of convertible debenture
10
1,572
-
1,572
-
Finance expense
13
(4,848)
Risk management gain
(368)
6,705
Income (loss) before taxation Income tax expense
-
23 $
Income (loss) for the period
6,682
$
-
(5,679)
(1,492)
12,059
-
50
(368) $
12,009
-
(1,572)
-
10,927
$
(1,492)
Other comprehensive income (loss), net of tax items Change in fair value of convertible debenture
10
(1,572)
-
Item that may be reclassified subsequently to income Foreign currency translation gain
7,416 12,526
Total comprehensive income (loss) for the period
(368)
21,364
(1,492)
Income (loss) per unit Basic
14
$
0.136
$
(0.613) $
0.246
$
(2.778)
Diluted
14
$
0.104
$
(0.613) $
0.211
$
(2.778)
The notes are an integral part of the interim consolidated financial statements.
3
ARGENT ENERGY TRUST
I NTERIM C ONSOLIDATED S TATEMENTS OF C HANGES IN E QUITY (in thousands of Canadian dollars, except per unit amounts) (unaudited)
Note
Other Accumulated Accumulated Total Comprehensive Income Cash Unitholders' Distributions Trust Capital Income (Deficit) Equity
Number of Trust Units
Issued on initial establishment, 1
January 31, 2012
$
-
$
-
Loss for period
-
-
-
Other comprehensive income
-
-
-
Total comprehensive loss
-
-
-
600
3,000
Issue of Trust Capital Trust unit issuance costs
-
Repurchase of initial trust units
(24)
(1) 600
Balance at June 30, 2012 Balance at December 31, 2012 Income for the period
$
$
-
$
(1,492)
-
-
(1,492)
(1,492) 3,000
-
-
-
-
-
-
-
-
-
(24)
-
2,976
$
-
$
(1,492) $
48,438
$ 442,075
$
4
$
(5,703) $
-
-
-
-
-
(1,492)
-
$
12,009
-
$
1,484
(14,566) $ 421,810 -
12,009
Other comprehensive income
-
-
9,355
-
-
9,355
Total comprehensive income
-
-
9,359
6,306
-
21,364
Reinvested distributions
12
1,340
13,078
-
-
-
13,078
Trust unit issuance costs
12
-
8
-
-
-
8
-
-
-
-
49,778
$ 455,161
Unitholder distributions Balance at June 30, 2013
$
9,359
$
(25,763)
6,306
$
(25,763)
(40,329) $ 430,497
The notes are an integral part of the interim consolidated financial statements.
4
ARGENT ENERGY TRUST
I NTERIM C ONSOLIDATED S TATEMENTS OF C ASH F LOWS (in thousands of Canadian dollars, except per unit amounts) (unaudited)
For the six For the period of month period January 31, 2012 ended to
For the three month periods ended Note
June 30, 2012
June 30, 2013
June 30, 2012
June 30, 2013
Operating Activities Income (loss) for the period
$
6,682
$
(368) $
12,009
$
(1,492)
Adjustments for non-cash items: Finance expense
13
4,848
-
5,679
-
9,881
1
20,261
1
4,734
-
4,734
-
11
2,730
-
5,257
-
4
(5,242)
-
(3,391)
-
(1,572)
-
(1,572)
-
-
(14,517)
Depreciation, depletion and amortization Exploration expense Unit based compensation Unrealized risk management gain
7
Unrealized gain on convertible debentures Unrealized foreign exchange gain
(9,081)
(367)
12,980 Change in non-cash w orking capital
15
Net cash provided by operating activities
(1,491)
28,460
1,901
(1,049)
2,862
(660)
14,881
(1,416)
31,322
(2,151)
Investing Activities Purchase of property and equipment
(185)
-
(302)
(8)
Additions to oil and gas properties
6
(32,279)
-
(52,073)
-
Additions to exploration and evaluation assets
7
(429)
-
(429)
-
-
-
(5,042)
-
10,500
-
5,263
-
(22,393)
-
(52,583)
(8)
Deferred land payment Change in non-cash w orking capital
15
Net cash used in investing activities Financing Activities Proceeds from issuance of trust units Trust unit issue costs Facility fees Proceeds from convertible debentures
12 9
-
-
-
-
-
8
-
(47)
3,000 (24) -
(132)
10
86,250
-
86,250
-
Proceeds from credit facilities
9
19,054
-
53,136
-
Repayment of credit facilities
9
(80,052)
-
(90,639)
-
Finance expense paid
(4,497)
-
(4,686)
-
Distributions paid
(3,266)
-
(12,561)
-
-
(727)
-
Change in non-cash w orking capital
15
250
Net cash provided by financing activities
17,692
Change in cash
10,180
Effect of exchange rates on cash
-
45
Cash, beginning of period Cash, end of period
(1,416) 2,233
999 $
11,224
$
817
30,649
2,976
9,388
817
70
-
1,766 $
11,224
$
817
The notes are an integral part of the interim consolidated financial statements.
5
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1. R e p or t i n g E n ti t y Argent Energy Trust (the "Trust" or “Argent”) is an unincorporated open-ended limited purpose trust established under the laws of the Province of Alberta on January 31, 2012. The strategy of the Trust is to acquire non-Canadian oil and gas assets in order to generate returns for its unitholders. The Trust intends to make monthly distributions of a portion of its available cash to unitholders and will reinvest remaining cash into its subsidiaries for the purposes of acquiring non-Canadian oil and gas assets, and investing in capital expenditures. Cash flow is generated by the Trust through the oil and gas assets owned and operated by the subsidiaries of the Trust. The Trust has no history of earnings or operations prior to January 31, 2012; though on January 31, 2012 it assumed general and administrative expenses amounting to $966,336 that were incurred prior to establishment by a predecessor trust. Operations officially commenced on August 10, 2012, concurrent with the closing of the acquisition of the net assets of Denali Oil & Gas Partners II LP and Denali Oil & Gas Partners III LLC (collectively referred to as “Denali”). The head office, principal address and registered and records office of the Trust are located at Suite 500, 321 - 6th Avenue SW, Calgary, Alberta, T2P 3H3. Pursuant to the terms of an Administrative Services Agreement, Argent Energy Ltd. (the "Administrator"), a corporation formed under the laws of the Province of Alberta on June 9, 2011, is the Administrator of the Trust and performs all general and administrative services that are or may be required or advisable, from time to time, for the Trust. 2. B a si s of P r e p ar a t i o n Statement of compliance
The consolidated financial statements were authorized for issue in accordance with a resolution of the Board of Directors on August 13, 2013. These consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting and have been prepared following the same accounting policies as the annual audited IFRS Consolidated Financial Statements for the year ended December 31, 2012, except for income tax expense for an interim period which is based on an estimated average annual effective income tax rate. The consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended December 31, 2012, which have been prepared in accordance with IFRSs as issued by the IASB. These interim consolidated financial statements are presented in Canadian dollars (“CDN”), which is the Trust’s functional currency. All financial information is rounded to the nearest thousands, except per unit amounts and where otherwise indicated. The preparation of interim financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The key sources of estimation uncertainty were the same as those that applied to the consolidated financials for the year ended December 31, 2012.
6
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
3. S i g ni f i c a n t a c c o u n ti n g p ol i c i e s New IFRS policies
The accounting policies are consistent with those of the previous financial year except for the following standards and amendments which have been adopted as of January 1, 2013. No restatement of financial statement line items was required as a result of the adoption of the following policies. IFRS 10 – Consolidation IFRS 10, Consolidated Financial Statements (“IFRS 10”), requires an entity to consolidate an investee when it has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12, Consolidation - Special Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial Statements. IFRS 11 - Joint Arrangements IFRS 11, Joint Arrangements (“IFRS 11”), requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under the previous IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities—Non-monetary Contributions by Venturers. IFRS 13 - Fair Value Measurement IFRS 13, Fair Value Measurement, is a comprehensive standard for fair value measurement and disclosure for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and does not always reflect a clear measurement basis or consistent disclosures. Financial liabilities
During the three months ended June 30, 2013, the Trust designated its convertible debentures (note 10) as fair value through profit or loss (“FVTPL”) in accordance with IFRS 9, Financial Instruments. As such, the convertible debentures are recorded at their fair value, and are marked to market at each financial reporting date. Changes in the fair value due to changes in market risks are recorded through income and loss, and changes in fair value due to changes in the Trust’s internal credit risk is recognized through other comprehensive income. Amounts recorded in other comprehensive income related to credit risk are not subject to recycling to the income statement. The fair value of the convertible debentures is determined based on their closing price on the Toronto Stock Exchange. The convertible debentures are classified entirely as a liability because in accordance with IAS 32, Financial Instrument Presentation, the redemption features in the Trust’s units preclude the conversion from qualifying as an equity instrument. All transaction costs related to financial instruments designated as FVTPL are expensed as incurred.
7
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
3. S i g ni f i c a n t a c c o u n ti n g p ol i c i e s ( c o n t i n u e d ) Changes in fair value due to changes in the Trust’s internal credit risk is estimated using a pricing model based on a discounted cash flow utilizing risk free rate, the trading price, and volatility of the Trust’s units and convertible debentures. 4. F i n a n ci a l R i s k M a n a g e m e n t Overview: The Trust’s activities expose it to a variety of financial risks that arise as a result of its operating, investing, and financing activities such as: •
Credit risk;
•
Liquidity risk;
•
Price risk; and
•
Foreign exchange risk
This note presents information about significant changes in the Trust’s exposure to each of the above risks since the year ended December 31, 2012. Liquidity risk: risk :
The following are the contractual maturities of financial liabilities including estimated interest payments at June 30, 2013:
8
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
4. F i n a n ci a l R i s k M a n a g e m e n t ( c o n t i n u e d)
As at June 30, 2013
Carrying
Contractual
Less than
One - tw o
Tw o - five
More than
am ount
cash flow s
one year
years
years
five years
Financial liabilities: Trade and other payables
$
Risk management liability
38,027
$
38,027
$
38,027
$
-
$
-
$
-
161
161
161
-
-
-
Forw ard purchase contract
27,381
30,468
30,468
-
-
-
Convertible debentures - principal
86,250
86,250
-
-
86,250
-
298
26,173
5,473
10,350
10,350
-
-
-
-
-
-
-
- interest Credit Facility Deferred land payment
13,071 $
As at Decem ber 31, 2012
165,188
13,203 $
194,282
6,094 $
80,223
7,109 $
17,459
$
96,600
$
-
Carrying
Contractual
Less than
One - tw o
Tw o - five
More than
am ount
cash flow s
one year
years
years
five years
Financial liabilities: Trade and other payables
$
Risk management liability Forw ard purchase contract Convertible debentures
27,834
$
27,834
$
27,834
$
-
$
750
-
$
-
-
1,125
1,125
375
-
25,900
29,847
29,847
-
-
-
-
-
-
-
-
-
Credit Facility
34,282
35,020
-
35,020
-
-
Deferred land payment
17,069
17,909
4,976
12,933
-
-
$
106,210
$
111,735
$
63,032
$
48,703
$
-
$
-
Market risk:
Market risk is the potential for loss to the Trust from changes in the values of its financial instruments due to changes in commodity prices, securities prices, credit risk, interest rates or foreign exchange rates. The Trust may use both financial derivatives and physical delivery sales contracts to manage market risks. All such transactions are conducted within risk management tolerances that are reviewed by the Board of Directors. Commodity Price Risk Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for oil and natural gas are impacted by not only the relationship between the Canadian and United States dollar, but also world economic events that dictate the levels of supply and demand. The Trust may enter into certain financial derivative instruments periodically to economically hedge some oil and natural gas sales through the use of various financial derivative forward sales contracts and physical sales contracts. The Trust does not apply hedge accounting for these contracts. The Trust’s production is usually sold using “spot” or near term contracts, with prices fixed at the time of transfer of custody or on the basis of a monthly average market price. The Trust, however, may give consideration in certain circumstances to the appropriateness of entering into long term, fixed price marketing contracts.
9
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
4. F i n a n ci a l R i s k M a n a g e m e n t ( c o n t i n u e d ) As at June 30, 2013, the Trust has entered into the following financial contracts to mitigate the effects of fluctuating prices on a portion of its production as follows: Commodity Costless collars
Volume
Measure Beginning
Term
Floor US$
Ceiling US$ 96.40/bbl
(i)
WTI
Oil
100
bbl/d
Sep-12
Aug-14
90.00/bbl
WTI
Oil
200
bbl/d
Oct-12
Aug-13
90.00/bbl
96.50/bbl
WTI
Oil
300
bbl/d
Jan-13
Dec-13
90.00/bbl
96.05/bbl
WTI
Oil
300
bbl/d
Jan-13
Dec-14
90.00/bbl
91.70/bbl
WTI
Oil
200
bbl/d
Feb-13
Dec-14
90.00/bbl
94.65/bbl
WTI
Oil
200
bbl/d
Jan-14
Jun-14
90.00/bbl
98.50/bbl
BRENT
Oil
200
bbl/d
Jan-14
Jun-14
100.00/bbl
107.50/bbl
Term
Fixed US$ 90.55/bbl
Commodity
Volume
Measure Beginning
Fixed contract sw aps WTI (ii)
Oil
400
bbl/d
Jan-13
Dec-14
WTI (ii)
Oil
400
bbl/d
Jan-13
Dec-13
91.50/bbl
BRENT (ii)
Oil
100
bbl/d
Jan-13
Dec-14
104.50/bbl
LLS (ii)
Oil
200
bbl/d
Jan-14
Dec-14
98.75/bbl
NYMEX (iii)
Natural gas
2000
MMBtu/d
Jan-13
Dec-13
4.04/MMBtu
NYMEX (iii)
Natural gas
1000
MMBtu/d
Jan-13
Dec-14 4.1325/MMBtu
NYMEX (iii)
Natural gas
2000
MMBtu/d
Jul-13
Dec-13
4.095/MMBtu
NYMEX (iii)
Natural gas
4000
MMBtu/d
Jan-14
Dec-14
4.10/MMBtu
BRENT/WTI (iv)
Oil
500
bbl/d
Jan-13
Dec-13
14.10/bbl
BRENT/WTI (iv)
Oil
200
bbl/d
Feb-13
Dec-13
12.75/bbl
BRENT/WTI (iv)
Oil
200
bbl/d
Jan-14
Jun-14
11.50/bbl
LLS (ii) NYMEX (iii)
Oil
200
bbl/d
Jan-15
Dec-15
93.3/bbl
Natural gas
2000
MMBtu/d
Jan-15
Dec-15
4.14/MMBTU
Commodity
Volume
Measure Beginning
Term
Fixed US$
Sold (w rote) call options WTI Call
(v )
Oil
100
bbl/d
Jan-14
Dec-14
96.00/bbl
NYMEX Call
Natural gas
1000
MMBtu/d
Jan-14
Dec-14
3.91/MMBtu
NYMEX Call
Natural gas
1000
MMBtu/d
Jan-14
Dec-14
4.17/MMBtu December 31, 2012
June 30, 2013 Total liability for unrealized gain (loss) on risk m anagem ent
(i) (ii) (iii) (iv) (v)
10
$
2,370
$
(1,069)
Represents costless collar transactions created by buying puts and selling calls (WTI or BRENT reference prices). Represents fixed price financial swap transactions with a set forward sale oil reference prices that are based on West Texas Intermediary (“WTI”), Brent or Louisiana Light Sweet (“LLS”) oil. Represents fixed price financial swap transactions based on the NYMEX natural gas forward sale reference price. Represents a fixed price financials swap transaction with a set forward sale price based on spreads between BRENT and WTI reference prices. Represents the selling of call options, giving the counter party the right (but not obligation) on December 31, 2013 to enter into fixed price financial swap transactions with a set forward sales reference prices.
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
4. F i n a n ci a l R i s k M a n a g e m e n t ( c o n t i n u e d ) The following table summarizes the Trust’s net risk management position: As at, Current asset Long term asset
1,637
$
56 -
894
Current liability
(375)
(161)
Long term liability Net risk management asset (liability)
December 31, 2012
June 30, 2013 $
(750)
$
2,370
$
(1,069)
The total fair value of the Trust’s unrealized risk management positions at June 30, 2013, was a net asset of $2,370,000 (December 31, 2012 – net liability of $1,069,000) and has been calculated using both quoted prices in active markets and observable market-corroborated data. During the three and six month periods ended June 30, 2013, the Trust recorded a gain of $5,264,000 (June 30, 2012 - $nil) and $2,970,000 (June 30, 2012 - $nil), respectively, on its risk management positions of which $5,242,000 (June 30, 2012 - $nil) and $3,391,000 (June 30, 2012 - $nil) respectively was unrealized. Securities price risk The Trust’s convertible debentures are subject to securities price risk as they are traded on a public exchange. As at June 30, 2013, had the securities price of the convertible debentures increased or decreased by 1%, net income would have decreased or increased by approximately $863,000. Foreign exchange risk The Trust has entered into a number of CDN/US$ forward swap contracts on US$1.0 million per month from July to December 2013 at an average rate of US $1.00 = CDN $1.0113. The average exchange rate for the three and six months ended June 30, 2013 was US $1 equal to $1.0233 and $1.016, respectively. A $0.01 increase (decrease) in the value of Cdn versus US$ on June 30, 2013 would have decreased (increased) profit or loss by approximately $2.5 million due to the unrealized foreign exchange loss (gain) from the Trust’s inter-company loan to its US subsidiary of approximately US$250 million. Under IFRS, this intercompany loan is not part of the net investment in the subsidiary and any period end foreign exchange translation adjustment is required to be recorded in income or loss. This analysis assumes that all other variables, in particular interest rates, remain constant.
11
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
5. F a i r v a l u e d e t e r m i n a t i o n The following table summarizes the fair value measurement information for financial assets and liabilities recorded:
June 30, 2013
Carrying
Fair
Amount
Value
Fair value m easurem ents using Level 1
Level 2
Level 3
Financial assets: Risk Management (net position)
$
Unit based compensation Convertible debentures $
December 31, 2012 Risk Management (net position)
2,370
$
(7,644)
$
Unit based compensation $
2,370
$
(7,644)
-
$
(86,548)
(86,548)
(91,822) $
(91,822) $
(86,548) $
Fair
Amount
Value
$
-
(7,644)
(86,548)
Carrying
2,370
-
-
-
-
(5,274) $
-
Fair value m easurem ents using Level 1
(1,069) $
(1,069) $
-
(2,275)
(2,275)
-
(3,344) $
(3,344) $
-
Level 2 $ $
Level 3
(1,069) $
-
(2,275)
-
(3,344) $
-
Level 1 Fair Value Measurements Level 1 fair value measurements are based on unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Fair Value Measurements Level 2 fair value measurements are based on inputs other than quoted prices within level 1 that are observable for the asset or liability either directly or indirectly. Level 2 financial instruments have been valued indirectly through calculations based on market information. The Trust’s derivative contracts were measured based on quotes from the Trust's counterparties. Such quotes have been derived using valuation models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas and crude oil, volatility factors and interest rates. Level 3 Fair Value Measurements Level 3 fair value measurements are based on models using significant unobservable inputs.
12
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
6. O i l a n d g a s pr o p e r t i e s Cost: Balance at December 31, 2012
$
Revision to decommissioning assets
475,148 (800)
Additions
52,073
Transferred from exploration and evaluation
7,576
Foreign exchange adjustment
29,249
Balance at June 30, 2013
$
563,246
Depreciation: Balance at December 31, 2012
$
Depreciation for the period
8,490 20,157
Foreign exchange adjustment
1,195
Balance at June 30, 2012
$
29,842
Carrying amounts: December 31, 2012
$
466,658
June 30, 2013
$
533,404
7. E x pl o r a t i o n a n d e v al u a t i o n a s s et s Balance at December 31, 2012
$
Additions
66,762 429
Transferred to oil and gas properties
(7,576)
Expensed
(4,734)
Foreign exchange adjustment Balance at June 30, 2013
3,400 $
58,281
Exploration and evaluation assets relate to lease rights for undeveloped land in the Eagle Ford Shale formation. During the three and six months ended June 30, 2013, the Trust expensed $4,734,000 of exploration and evaluation assets related to leases that expired or are near expiry with no intention to renew. 8. D i s t r i b ut i o n s p a y a b l e Balance at December 31, 2012
$
Distributions declared
4,232 25,763
Distributions paid
(12,561)
Distributions reinvested
(13,078)
Outstanding distributions declared and payable at June 30, 2013
$
4,356
Distributions are declared and paid monthly. The outstanding balance at June 30, 2013 represents the amount of cash distributions to be paid July 23, 2013.
13
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
9. C r e d i t f a c i l i t y Balance at December 31, 2012
$
34,282
Draw dow ns
53,136
Repayments
(90,639)
Facility fees paid
(132)
Accretion of facility fees
251
Interest accrued
928
Interest paid
(928)
Reclass facility fees to deferred expenses
641
Period end foreign exchange adjustment
2,461
Balance at June 30, 2013
$
-
As at June 30, 2013, the Trust had no balance outstanding under its credit facility and had an undrawn credit limit of US $115,000,000. Subsequent to June 30, 2013, the Trust extended the maturity date of its credit facility to August 12, 2015. 1 0. C o n v er t i bl e d e b e n t ur e s On June 4, 2013, the Trust issued $75,000,000 aggregate principal amount of 6.00% convertible unsecured subordinated debentures (the “Debentures”) due June 30, 2018 at a price of $1,000 per debenture. On June 12, 2013, the trust issued an additional $11,250,000 principal amount of Debentures upon exercise of the underwriters’ over-allotment option. The Debentures pay interest at a rate of 6.00% per annum, payable on a semi-annual basis on June 30 and December 31 of each year, maturing on June 30, 2018. Interest payments will commence on December 31, 2013. The debentures are convertible at the option of the holder into trust units at a fixed conversion price of $13.90 per unit, on or after June 30, 2016 until their maturity date. The Debentures are convertible at the Trust’s option on or after June 30, 2016 until their maturity date at a price equal to their principal amount plus accrued and unpaid interest, provided that the volume weighted average trading price of the Trust’s units on the Toronto Stock Exchange for the 20 consecutive trading days ending on the fifth trading day preceding the date on which notice of redemption is given is not less than 125% of the conversion price. The following table outlines the changes in the convertible debentures since their issuance date: Principal amount
For the six month period ended June 30, 2013 Balance on issue date
$
86,250
Amount $
86,250
Change in fair value due to change in credit risk
-
1,572
Change in fair value due to change in market risk
-
(1,572)
Interest accrued Balance at June 30, 2013
$
86,250
298 $
86,548
The fair value of the convertible debentures on June 30, 2013, was $86,250,000 based on the June 30, 2013 closing price of the convertible debentures on the Toronto Stock Exchange.
14
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 1. U ni t b a s e d c o m p e n s a t i o n A summary of the Trust’s current period share based compensation is as follows: For the six month period ended,
For the three month periods ended June 30, 2012
June 30, 2013 Restricted trust units
$
Phantom unit rights
$
$
2,730
-
$
-
June 30, 2012
June 30, 2013 $
-
1,223
Total unit based compensation
a)
1,507
For the period of January 31, 2012 to
2,977
$
-
2,280 $
5,257
$
-
Restricted t rust u nits Units
For the six month period ended June 30, 2013
(in thousands)
Outstanding, beginning of period
635
Granted
267
Accumulated distributions
(1)
43 945
(1) Grants based on accumulated distributions on unvested unit grants. As at June 30, 2013, no RTUs were vested. All units had a fair value of $10.22 per unit as at June 30, 2013. b)
Phantom unit rights Units
For the six month period ended June 30, 2013
(in thousands)
Outstanding, beginning of period
438
Granted
318
Forfeited Accumulated distributions
(4) (1)
34 786
(1) Grants based on accumulated distributions on unvested unit grants. As at June 30, 2013, no PURs were vested. All units had a fair value of $10.22 per unit as at June 30, 2013. 1 2. T r u s t c a p i t al Trust units outstanding For the six month period ended June 30, 2013
Number of units
Amount
(in thousands) Balance at December 31, 2012
48,438
442,075
Distribution reinvestment plan (1)
1,340
13,078
Trust unit issue costs Balance at June 30, 2013
49,778 $
8 455,161
(1) During the period, the Trust issued 1,340,000 units at a weighted average price of $9.76 per unit for total gross proceeds of $13,078,000 under the Trust’s premium distribution and distribution reinvestment plan.
15
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 3. Fi n a n c e e x p e n s e
For the six month For the three month periods ended period ended, June 30, 2012
June 30, 2013 Accretion on deferred land obligation
$
140
$
June 30, 2013 -
$
278
For the period of January 31, 2012 to June 30, 2012 $
-
Accretion on decommissioning obligations
84
-
166
Accretion of facility fees on revolving loan
134
-
251
-
Total accretion
358
-
695
-
Interest on term credit facility
434
-
928
-
298
-
298
-
3,758
-
3,758
-
Interest on convertible debentures Convertible debentures issuance costs Net finance expense
$
4,848
$
-
$
5,679
-
$
-
1 4. I n c o m e ( l os s) p e r u n i t Basic income (loss) per unit is calculated as follows: For the six month For the three month periods ended period ended, June 30, 2013 Income (loss) for the period
$
Issued trust units at beginning of the period Effect of unit issuances
16
$
$
June 30, 2013
(368) $
600
48,636
Weighted average number of units - Basic Basic incom e (loss) per unit
6,682
June 30, 2012
12,009
For the period of January 31, 2012 to June 30, 2012 $
(1,492)
-
48,438
395
-
395
537
49,031
600
48,833
537
(0.613) $
0.246
0.136
$
$
(2.778)
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 4. I n c o m e ( l os s) p e r u n i t ( c o n ti n u e d ) Diluted income (loss) per unit is calculated as follows:
For the six month For the three month periods ended period ended, June 30, 2012
June 30, 2013 Income (loss) for the period
$
6,682
Net income effect from convertible debentures Diluted income (loss) for the period
5,408
Weighted average outstanding units - Basic Effect of convertible debentures
June 30, 2012
June 30, 2013
$
(368) $ -
(1,274)
$
(368) $
10,735
(1,274) $
For the period of January 31, 2012 to
12,009
$
(1,492)
$
(1,492)
-
49,031
600
48,833
537
1,702
-
856
-
Effect of RTUs
856
-
931
-
Effect of reinvested distributions
324
-
324
-
600
50,944
(0.613) $
0.211
Weighted average number of units - Diluted Diluted income (loss) per unit
51,913 $
$
0.104
537 $
(2.778)
1 5. S u p pl e m e n t al c a s h f l ow i n f o r m a t i o n Changes in non-cash working capital from operating activities is comprised of: For the period of For the six month January 31, 2012 For the three month periods ended period ended, to June 30, 2012
June 30, 2013
June 30, 2012
June 30, 2013
Source/(use) of cash: Trade and other receivables
(350) $
$
Deferred costs
$
1,901
$
(28)
(132)
1,259
2,076
(157) (2,578)
-
(28)
175
Trade and other payables
(3,252) $
(2,207)
-
Prepaid expenses and deposits
(73) $
2,103
6,246
(1,049) $
2,862
$
(660)
Changes in non-cash working capital from investing activities is comprised of: For the period of For the six month January 31, 2012 For the three month periods ended period ended, to June 30, 2012
June 30, 2013
June 30, 2013
June 30, 2012
Source/(use) of cash: Accounts receivable
$
Trade and other payables $
17
68
$
10,432 10,500
$
-
$
1,962
$
-
-
3,301
-
-
5,263
-
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 5. S u p pl e m e n t al c a s h f l ow i n f o r m a t i o n ( c o n t i n u e d ) Changes in non-cash working capital from financing activities is comprised of: For the period of For the six month January 31, 2012 For the three month periods ended period ended, to June 30, 2012
June 30, 2013
June 30, 2013
June 30, 2012
Source/(use) of cash: Trade and other payables
$
250
$
-
(727) $
$
-
1 6. C om mi t m e n t s Operating lease rentals are payable as follows: June 30, 2013 Less than one year
$
Betw een one and five years
231
Decem ber 31, 2012 $
More than five years
-
$
636
293 584
405 $
877
1 7. R el a t e d p a r t y t r a n s a c t i o ns The Trust had the following related party transactions: (i)
As at June 30, 2013, the Trust had accounts payable of $910,000 (December 31, 2012 - $833,000) to Aston Hill Financial Inc. (“Aston Hill”), a company with a common director. The Trust has an Administrative Services Contract (the “Contract”) with Aston Hill in which, for the three and six month periods ended June 30, 2013, the Trust has recorded administration charges of $500,000 (June 30, 2012 - $nil) and $1,000,000 (June 30, 2012 $nil), respectively. For the three and six month periods ended June 30, 2013, the Trust has also recorded $399,000 (June 30, 2013 - $128,000) and $668,000 (June 30, 2012 - $691,000), respectively, in overhead expenses for costs that have been reimbursed to Aston Hill by the Trust. For the three and six months ended June 30, 2013, the Trust has also recorded $360,000 (June 30, 2012 - $nil) and $788,000 (June 30, 2012 $nil), respectively, in unit based compensation related to RTUs which were issued as a part of the Trust’s RTU plan for services rendered by Aston Hill under the Contract.
(ii) During the six months ended June 30, 2013, the Trust paid US$5,000,000 to satisfy part of their obligation under a deferred land payment related to the acquisition of Denali Oil and Gas (“Denali”) which was completed on August 10, 2012. Denali shares a common director and member of key management with the Trust. For the three and six months ended June 30, 2013, The Trust also incurred $75,000 (June 30, 2012 - $nil) and $193,000 (June 30, 2012 - $nil), respectively, in relation to overriding royalty payments related to the Eagle Ford Shale Deep Rights. As at June 30, 2013, $104,000 (December 31, 2012 - $122,000) of trade and other payables was related to overriding royalty payments to Denali. All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties.
18
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 8. S u b s e q u e n t e v e n t s Risk Management Subsequent to June 30, 2013, the Trust entered into the following risks management contracts:
Commodity
Volume
Measure
Beginning
Term
Floor $US
Fixed contract sw ap LLS (i)
Oil
300
bbl/d
Jan-14
Dec-14
LLS (i)
Oil
600
bbl/d
Jan-15
Dec-15
91.87/bbl
Natural gas
4,000
MMBtu/d
Jan-15
Dec-15
4.12/MMBtu
NYMEX (ii)
97.03/bbl
(i)
Represents fixed price financial swap transactions based on the Louisiana Light Sweet (“LLS”) oil forward sale
(ii)
reference price. Represents fixed price financial swap transactions based on the NYMEX natural gas forward sale reference price.
Distributions
Subsequent to June 30, 2013, the Trust declared a distribution of $0.0875 per Trust unit for July, 2013 and issued 324,085 units pursuant to the Trust’s DRIP at a weighted average price of $9.88 per unit. Credit F acility
Subsequent to June 30, 2013, the Trust extended the maturity date of its credit facility to August 12, 2015. Business combination
The Trust entered into a binding agreement with an effective date of June 1, 2013, (the "Purchase and Sale Agreement") to acquire producing petroleum properties in Kansas and Colorado (the "Acquired Assets") from a private company. The purchase price is approximately US$45 million, (net of closing adjustments) and is expected to close in August 2013. The Acquired Assets are estimated to cover approximately 35,000 net acres of land. The Trust is currently in the process of assessing the financial effects of this transaction. It is impracticable to determine the additional revenue, net of royalties, and net income in the current reporting period had this transaction closed on January 1, 2013. The effect of retrospective application of IFRS policies is not determinable and requires significant estimates of amounts and information that are not currently available. The above amounts are estimates, which were made by management at the time of preparation of these financial statements based on information then available. Amendments may be made to these amounts as values subject to estimate and post-closing adjustments are finalized. Acquisition of Deep Rights
The Trust exercised a call option to purchase the Eagle Ford Shale "Deep Rights" for US$30 million, which was settled on August 13, 2013. The call option was granted to the Trust in connection with the acquisition of certain oil and gas assets from Denali Oil & Gas in connection with the Trust's initial public offering in August 2012.
19
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and six month periods ended June 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 8. S u b s e q u e n t e v e n t s ( c o n t i n u e d ) Bought deal financing
The Trust has entered into an agreement with a syndicate of underwriters, pursuant to which it will issue 7,360,000 trust units ("Trust Units") at a price of C$10.20 per Trust Unit on a bought deal basis for gross proceeds of approximately C$75 million (the "Offering"), expected to close on August 15, 2013. The underwriters have also been granted an over-allotment option, exercisable for a period of 30 days from closing of the Offering, to purchase up to 1,104,000 additional Trust Units at a price of C$10.20 per Trust Unit. If the over-allotment option is fully exercised, gross proceeds from the Offering will be approximately C$86 million. Net proceeds from the Offering will be used to reduce outstanding indebtedness under the Trust's existing credit facility which indebtedness was incurred to purchase the Acquired Assets and the Eagle Ford Deep Rights, described above. Commitments
On July 31, 2013, the Trust entered into a lease for new office space in Houston. The new lease will commence upon occupancy but no later than March 2014, and will expire approximately ten years from commencement. The total rental commitments to be incurred in the future approximate $13,900,000.
20
ARGENT ENERGY TRUST
