Argent FS Q3 2013 FINAL
Interim Consolidated Financial Statements As at and for the Three and Nine Month Periods Ended September 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 L o s s a n d Comprehensive 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 6-21
I NTERIM C ONSOLIDATED B ALANCE S HEETS (in thousands of Canadian dollars) (unaudited)
As at,
Note
December 31, 2012
Septem ber 30, 2013
Assets Current assets Cash
$
Trade and other receivables Risk Management
4
Prepaid expenses and deposits
4,601
$
1,766
16,911
12,394
25
56
1,348
439
22,885
14,655
Risk management
4
294
-
Oil and gas properties
7
593,783
466,658
Exploration and evaluation assets
8
50,697
66,762
1,009
400
Property and equipment Total assets
$
668,668
$
548,475
$
39,845
$
27,834
Liabilities Current Liabilities Trade and other payables Distributions payable
9
5,161
4,232
6,171
4,976
4
1,949
375
12
3,542
1,241
-
25,900
56,668
64,558
18,421
34,282
Current portion of deferred land payment Risk management Current portion of unit based compensation Forw ard purchase contract
Credit facility Risk management
10 4
Deferred land payment Unit based compensation
12
Convertible debentures
11
102
750
6,752
12,093
2,598
1,034
88,332
-
16,437
13,948
189,310
126,665
543,936
442,075
Accumulated distributions
(55,001)
(14,566)
Deficit
(10,240)
(5,703)
Decommissioning liability
Unitholders' equity Trust capital
13
Other comprehensive income
4
663
421,810
479,358 Total liabilities & unitholders' equity The notes are an integral part of the interim consolidated financial statements.
$
668,668
$
548,475
Commitments - see note 17 Subsequent events - see note 19
2
ARGENT ENERGY TRUST AS TO N H ILL F INANCIAL
I NTERIM C ONSOLIDATED S TATEMENTS OF L OSS AND C OMPREHENSIVE L OSS (in thousands of Canadian dollars, except per unit amounts) (unaudited)
For the nine For the period of month period January 31, ended 2012 to
For the three month periods ended
Note Oil and gas sales
September 30, 2012
September 30, 2013 $
42,151
$
3,843
September 30, 2012
September 30, 2013 $
$
3,843
less: Royalties
(9,904)
Net oil and gas revenue
32,247
3,006
83,791
3,006
Operating expenses
8,543
601
24,547
601
General and administrative expenses
4,436
1,157
11,019
2,647
2,272
821
7,529
821
12,930
1,709
33,191
1,709
8,997
-
13,731
Unit based compensation
12
Depreciation, depletion and amortization Exploration and evaluation
8
Other property costs
(837)
110,210
(837)
(26,419)
339
300
367
300
Operating expenses
37,517
4,588
90,384
6,078
Operating loss
(5,270)
(1,582)
(6,593)
(3,072)
Foreign exchange gain (loss)
(6,062)
(2,483)
8,457
(2,484)
(5,160)
(167)
Risk management loss
4
Change in fair value of convertible debenture
11
1,940
Finance expense
14
(1,971)
(250)
(7,650)
(250)
(16,523)
(4,482)
(4,464)
(5,973)
Loss before taxation Income tax expense
23 $
Loss for the period
(16,546) $
-
(167)
(2,190)
(4,482) $
-
3,512
-
73 (4,537) $
(5,973)
Other comprehensive income (loss), net of tax items Change in fair value of convertible debenture
11
(2,371)
-
-
(3,943)
Item that may be reclassified subsequently to income Foreign currency translation gain (loss) Total comprehensive loss for the period
(6,325)
(1,425)
4,602
(1,425)
(25,242)
(5,907)
(3,878)
(7,398)
Loss per unit Basic
15
$
(0.30) $
(0.33) $
(0.09) $
(1.22)
Diluted
15
$
(0.30) $
(0.33) $
(0.12) $
(1.22)
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
Total Other Accumulated Accumulated Cash Comprehensive Income Unitholders' Distributions Trust Capital Equity Income (Deficit)
Number of Trust Units
Issued on initial establishment, 1
January 31, 2012
$
-
$
-
$
$
$
-
-
-
Other comprehensive income
-
-
(1,425)
Total comprehensive loss
-
-
(1,425)
25,015
247,145
-
-
-
247,145
(18,707)
-
-
-
(18,707)
-
-
-
Trust unit issuance costs
-
Repurchase of initial trust units
(1)
Unitholder distributions
-
(5,973)
-
Loss for period
Issue of Trust Capital
-
-
(5,973)
-
-
(5,973)
-
(1,425)
-
(7,398)
-
-
Balance at September 30, 2012
25,015
$ 228,438
$
(1,425) $
(5,973) $
(3,742) $ 217,298
Balance at December 31, 2012
48,438
$ 442,075
$
4
(5,703) $
(14,566) $ 421,810
-
Loss for the period
-
-
-
Other comprehensive income
-
-
659
Total comprehensive income
-
-
663
$
(3,742)
-
(4,537) -
-
(10,240)
(3,742)
(4,537) 659
-
(3,878)
Reinvested distributions
13
2,386
23,223
-
-
-
23,223
Issue of Trust Capital
13
8,160
83,232
-
-
-
83,232
Trust unit issuance costs
13
(4,594)
-
-
-
-
Unitholder distributions Balance at September 30, 2013
-
-
58,984
$ 543,936
$
663
$
(40,435)
(10,240) $
(4,594) (40,435)
(55,001) $ 479,358
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 nine For the period of month period January 31, 2012 ended to
For the three month periods ended Note
September 30, September 30, 2012 2013
Septem ber 30, 2013
September 30, 2012
Operating Activities Loss for the period
$
(16,546) $
(4,482) $
(4,537) $
(5,973)
Adjustments for non-cash items: Finance expense
14
1,971
128
7,650
128
12,930
1,709
33,191
1,709
8
8,997
-
13,731
-
12
2,272
821
7,529
821
4
4,014
167
623
167
Depreciation, depletion and amortization Exploration expense Unit based compensation Unrealized risk management loss Unrealized gain on convertible debentures Unrealized foreign exchange (gain) loss Change in non-cash w orking capital
-
(1,940)
16
Net cash provided by operating activities
(3,512)
-
(8,411)
2,484
6,106
2,483
17,804
826
46,264
(664)
(4,128)
(293)
(1,266)
(179)
13,676
533
44,998
(843)
Investing Activities Purchase of property and equipment
(287)
(266)
(589)
(273)
(12,701)
(87,747)
(12,701)
Additions to oil and gas properties
7
(35,674)
Additions to exploration and evaluation assets
8
(324)
Proceeds on sale of property and equipment Proceeds on sale of oil and gas properties Deferred land payment
(30,758) 16
(194,739)
(45,707)
-
(5,042)
-
-
(30,758)
-
9,662
(532)
Net cash used in investing activities
6,789
-
(194,739)
-
Forw ard purchase contract
17
-
6,789
(45,707)
-
(753)
17
-
Acquisitions, net of cash acquired
Change in non-cash w orking capital
-
9,479
4,731
(113,282)
(191,238)
(165,865)
(191,428)
83,232
244,145
83,232
247,145
(18,683)
(4,594)
(18,707)
Financing Activities Proceeds from issuance of trust units Trust unit issue costs
13
(4,602)
Facility fees
10
(145)
Proceeds from convertible debentures
11
-
(277) -
-
-
86,250
Proceeds from credit facilities
10
86,886
7,576
140,022
7,576
Repayment of credit facilities
10
(68,179)
(7,576)
(158,818)
(7,576)
Finance expense paid Change in non-cash w orking capital
-
(256)
Distributions paid 16
(1,553)
(16,283)
1,346
(202)
-
(4,942)
(1,553)
(3,722)
753
(929)
Net cash provided by financing activities
93,012
225,255
123,661
227,638
Change in cash
(6,594)
34,550
2,794
35,367
(29)
-
41
-
Effect of exchange rates on cash Cash, beginning of period Cash, end of period
817
11,224 $
4,601
$
35,367
-
1,766 $
4,601
$
35,367
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 nine month periods ended September 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 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 November 11, 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. 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.
6
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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 ) 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 the previous 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 had 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 the previous 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. Amendment standards issued but not yet effective
In May 2013, the IASB issued amendments to IAS 36 Impairment of Assets. The overall effect of the amendments is to reduce the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and to introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where the recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. The amendments are applicable to annual periods beginning on or after 1 January 2014. Financial liabilities
The Trust has designated its convertible debentures (note 11) 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.
7
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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 ) 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. 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.
8
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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) Liquidity risk: risk :
The following are the contractual maturities of financial liabilities including estimated interest payments at September 30, 2013: As at Septem ber 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 Convertible debentures - principal - interest
39,845
$
39,845
$
39,845
$
-
$
-
$
-
2,051
2,051
1,949
102
-
-
86,681
86,250
-
-
86,250
-
1,651
23,855
5,743
5,175
12,937
-
Credit Facility
18,421
18,421
-
18,421
-
-
Deferred land payment
12,923
13,371
6,171
7,200
-
-
$ As at Decem ber 31, 2012
161,572
$
183,793
$
53,708
$
30,898
$
99,187
$
-
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
27,834
$
27,834
$
27,834
$
-
$
-
$
-
1,125
1,125
375
750
-
-
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
$
-
$
-
As at September 30, 2013, there is a working capital deficiency of $33,783,000 due to current assets being less than current liabilities. This deficit will be financed with the Company’s revolving credit facility which has a remaining credit limit of US$96,500,000. 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.
9
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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 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. As at September 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$
(i)
WTI
Oil
100
bbl/d
Oct-13
Aug-14
90.00/bbl
96.40/bbl
WTI
Oil
300
bbl/d
Oct-13
Dec-13
90.00/bbl
96.05/bbl
WTI
Oil
300
bbl/d
Oct-13
Dec-14
90.00/bbl
91.70/bbl
WTI
Oil
200
bbl/d
Oct-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
Oct-13
Dec-14
WTI (ii)
Oil
400
bbl/d
Oct-13
Dec-13
91.50/bbl
BRENT (ii)
Oil
100
bbl/d
Oct-13
Dec-14
104.50/bbl 99.65/bbl
LLS (ii)
Oil
1,000
bbl/d
Jan-14
Dec-14
NYMEX (iii)
Natural gas
1,000
MMBtu/d
Oct-13
Dec-14 4.1325/MMBtu
NYMEX (iii)
Natural gas
4,000
MMBtu/d
Oct-13
Dec-13
4.068/MMBtu
NYMEX (iii)
Natural gas
4,000
MMBtu/d
Jan-14
Dec-14
4.10/MMBtu
BRENT/WTI (iv)
Oil
700
bbl/d
Oct-13
Dec-13
13.71/bbl
BRENT/WTI (iv)
Oil
200
bbl/d
Jan-14
Jun-14
11.50/bbl
LLS (ii) NYMEX (iii)
Oil
1,200
bbl/d
Jan-15
Dec-15
92.63/bbl
Natural gas
6,000
MMBtu/d
Jan-15
Dec-15
4.12/MMBTU
Commodity
Volume
Term
Fixed US$
Sold (w rote) call options WTI Call
Measure Beginning
(v )
Oil
100
bbl/d
Jan-14
Dec-14
96.00/bbl
NYMEX Call
Natural gas
1,000
MMBtu/d
Jan-14
Dec-14
3.91/MMBtu
NYMEX Call
Natural gas
1,000
MMBtu/d
Jan-14
Dec-14
4.17/MMBtu December 31, 2012
Septem ber 30, 2013 Total liability for unrealized loss on risk m anagem ent
(i) (ii) (iii) (iv)
$
(1,732)
$
(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.
10
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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 ) (v)
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.
The following table summarizes the Trust’s net risk management position: As at, Current asset Long term asset
25
$
56 -
294
Current liability
(1,949)
Long term liability Net risk management asset (liability)
December 31, 2012
Septem ber 30, 2013 $
(102) $
(1,732) $
(375) (750) (1,069)
The total fair value of the Trust’s unrealized risk management positions at September 30, 2013, was a net liability of $1,732,000 (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 nine month periods ended September 30, 2013, the Trust recorded a loss of $5,160,000 (September 30, 2012 –$293,000) and $2,190,000 (September 30, 2012 – $293,000), respectively, on its risk management positions of which $4,014,000 (September 30, 2012 $293,000) and $623,000 (September 30, 2012 - $293,000), 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 September 30, 2013, had the securities price of the convertible debentures increased or decreased by 1%, net income would have decreased or increased by approximately $867,000. Foreign exchange risk The Trust has entered into a number of CDN/US$ forward swap contracts on US$1.0 million per month from July to June 2014 at an average rate of US $1.00 = CDN $1.0369. The average exchange rate for the three and nine months ended September 30, 2013 was US $1 equal to $1.0386 and $1.0236, respectively. A $0.01 increase (decrease) in the value of Cdn versus US$ on September 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 inter-company 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 nine month periods ended September 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:
September 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)
$
Unit based compensation $
(1,732) $
(1,732) $
-
(6,140)
(6,140)
-
$
(88,332)
(88,332)
(88,332)
(96,204) $
(96,204) $
(88,332) $
Carrying
Fair
Amount
Value
(1,732) $
-
(6,140)
-
-
-
(7,872) $
-
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 nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
6. A c q ui s i t i o n a n d B u s i n e ss C o m bi n a t i o n s Pursuant to an asset purchase agreement dated July 12, 2013, the Trust purchased producing petroleum properties in Kansas and Colorado (the “Kansas Assets”) from a private company for total cash consideration (including closing adjustments) of $45,797,000. The acquisition had an effective date of June 1, 2013, and was closed on September 5, 2013. The fair value of assets acquired and liabilities assumed is as follows: Oil and gas assets
$
Other assets
316
Accounts payable
(227)
Decommissioning liability Total net assets acquired
47,373
(1,665) $
45,797
The amounts of revenue, net of royalties, since the Kansas Assets’ acquisition date included in the consolidated statement of comprehensive income for the three and nine months ended September 30, 2013 were $1.8 million. Had this transaction closed on January 1, 2013 the additional revenue, net of royalties, for the three and nine months ended September 30, 2013, would have been approximately $1.3 million and $7.9 million, respectively. It is impracticable to determine the 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 were not readily 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.
13
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
7. 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 estimates on decommissioning assets
475,148 (200)
Additions to decommissioning assets
210
Acquired in business combination
47,373
Additions
87,747
Transferred from exploration and evaluation
9,314
Foreign exchange adjustment
16,135
Balance at Septem ber 30, 2013
$
635,727
Depreciation: Balance at December 31, 2012
$
Depreciation for the period
8,490 33,008
Foreign exchange adjustment
446
Balance at Septem ber 30, 2012
$
41,944
December 31, 2012
$
466,658
Septem ber 30, 2013
$
593,783
Carrying amounts:
8. 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
753
Additions related to forw ard purchase contract Transferred to oil and gas properties
4,061 (9,314)
Expensed
(13,731)
Foreign exchange adjustment Balance at Septem ber 30, 2013
66,762
2,166 $
50,697
Exploration and evaluation assets relate to lease rights for undeveloped land in the lease rights below the Austin Chalk, primarily the Eagle Ford Shale and Buda formations. During the three and nine months ended September 30, 2013, the Trust expensed $8,997,000 and $13,731,000 of exploration and evaluation assets related to leases that expired or are near expiry with no intention to renew. 9. 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 40,435
Distributions paid
(16,283)
Distributions reinvested
(23,223)
Outstanding distributions declared and payable at Septem ber 30, 2013
$
5,161
Distributions are declared and paid monthly. The outstanding balance at September 30, 2013 represents the amount of cash distributions to be paid October 23, 2013.
14
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 0. C r e di t f a ci l i t y Balance at December 31, 2012
$
34,282
Draw dow ns
140,022
Repayments
(158,818)
Facility fees paid
(277)
Accretion of facility fees
339
Interest accrued
1,199
Interest paid
(1,289)
Foreign exchange adjustment
2,963
Balance at September 30, 2013
$
18,421
As at September 30, 2013, the Trust had US$18,500,000 outstanding under its credit facility and had an undrawn credit limit of US$96,500,000. The credit facility has a maturity date of August 12, 2015. Subsequent to September 30, 2013, the Trust increased the credit limit on its credit facility from US$115 million to US$160 million. 1 1. 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 nine month period ended September 30, 2013 Balance on issue date
$
86,250
Amount $
86,250
Change in fair value due to change in credit risk
-
3,943
Change in fair value due to change in market risk
-
(3,512)
Interest accrued Balance at Septem ber 30, 2013
$
86,250
1,651 $
88,332
The fair value of the convertible debentures on September 30, 2013, was $86,681,000 based on the September 30, 2013 closing price of the convertible debentures on the Toronto Stock Exchange.
15
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 2. 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 three month periods ended September 30, 2012
Septem ber 30, 2013 Restricted trust units
$
Phantom unit rights
$
$
2,272
556
$
821
For the period of January 31, 2012 to September 30, 2012
Septem ber 30, 2013 $
265
1,940
Total unit based compensation
a)
332
For the nine month period ended, 3,309
$
$
7,529
556 265
4,220 $
821
Restricted t rust u nits (“RTUs”) Units
For the nine month period ended September 30, 2013 Outstanding, beginning of period Granted
635 267
Exercised Accumulated distributions
(in thousands)
(227) (1)
65 740
(1) Grants based on accumulated distributions on unvested unit grants. As at September 30, 2013, no RTUs were vested. All units had a fair value of $10.13 per unit as at September 30, 2013. b)
Phantom unit rights (“PURs”) Units
For the nine month period ended September 30, 2013
(in thousands)
Outstanding, beginning of period
438
Granted
342
Forfeited
(13)
Exercised
(141)
Accumulated distributions
(1)
53 679
(1) Grants based on accumulated distributions on unvested unit grants. As at September 30, 2013, no PURs were vested. All units had a fair value of $10.13 per unit as at September 30, 2013.
16
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 3. T r u s t c a p i t al Trust units outstanding Number of units
For the nine month period ended September 30, 2013
Amount
(in thousands) Balance at December 31, 2012
48,438 $
442,075
Issue of Trust Capital (1)
8,160
83,232
Distribution reinvestment plan (2)
2,386
23,223
Trust unit issue costs
(1)
-
Balance at Septem ber 30, 2013
(4,594)
58,984 $
543,936
(1) On August 15, 2013, the Trust closed a public offering in which it issued 8,160,000 trust units for a price of $10.20 per share for gross proceeds of $83,232,000. Trust issue costs for this issuance totaled $4,594,000. (2) During the period, the Trust issued 2,386,000 units at a weighted average price of $9.73 per unit for total gross proceeds of $23,223,000 under the Trust’s premium distribution and distribution reinvestment plan. 1 4. Fi n a n c e e x p e n s e
For the three month periods ended
For the nine month period ended,
For the period of January 31, 2012 to
September 30, 2012
Septem ber 30, 2013
September 30, 2012
Septem ber 30, 2013 Accretion on deferred land obligation
$
115
Accretion of facility fees on revolving loan
$
120
$
420
7
281
$
120 7
88
104
339
104
Total accretion
345
231
1,040
231
Interest on term credit facility
271
19
1,199
19
Interest on convertible debentures Convertible debentures issuance costs Net finance expense
17
142
Accretion on decommissioning obligations
$
1,353
-
1,651
-
2
-
3,760
-
1,971
$
250
$
7,650
$
250
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 5. L o s s p e r u n i t Basic loss per unit is calculated as follows:
For the three month periods ended
For the nine month period ended,
For the period of January 31, 2012 to
September 30, 2012
Septem ber 30, 2013
September 30, 2012
Septem ber 30, 2013 Loss for the period
$
Issued trust units at beginning of the period
49,778
Effect of unit issuances Weighted average number of units - Basic Basic loss per unit
(16,546) $
$
(4,482) $
600
(4,537) $
(5,973)
-
48,438
4,609
12,911
2,260
4,888
54,387
13,511
50,698
4,888
(0.304) $
(0.332) $
(0.089) $
(1.222)
Diluted loss per unit is calculated as follows:
For the three month periods ended
For the nine month period ended,
For the period of January 31, 2012 to
September 30, 2012
Septem ber 30, 2013
September 30, 2012
Septem ber 30, 2013 Loss for the period
$
Net income effect from convertible debentures Diluted loss for the period
$
Weighted average outstanding units - Basic Effect of convertible debentures Weighted average number of units - Diluted Diluted loss per unit
(16,546) $
$
(16,546) $
(4,482) $ -
(4,537) $
(5,973) -
(1,860)
(4,482) $
(6,397) $
(5,973)
54,387
13,511
50,698
4,888
-
-
2,324
-
54,387
13,511
53,022
(0.304) $
(0.332) $
(0.121) $
4,888 (1.222)
For the three months ended September 30, 2013 and September 30, 2012, the dilutive effect of convertible debentures and restricted trust units were not included in the calculation of diluted earnings per share as their effect was anti-dilutive. For the nine months ended September 30, 2013 and September 30, 3012, the dilutive effect of restricted trust units was not included in the calculation of diluted earnings per share as its effect was anti-dilutive.
18
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 6. 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 three month periods ended September 30, Septem ber 30, 2012 2013
For the nine For the period of month period January 31, 2012 ended, to September 30, Septem ber 30, 2012 2013
Source/(use) of cash: Trade and other receivables
$
Prepaid expenses and deposits Unit based compensation paid
(2,576) $
(2,683) $
(763)
(625)
Trade and other payables
2,897 $
-
(3,686)
3,015
(4,128) $
(2,841) (653)
(895)
-
(3,686)
(5,828) $
3,315
9,143
(293) $
(1,266) $
(179)
Changes in non-cash working capital from investing activities is comprised of:
For the three month periods ended September 30, Septem ber 30, 2012 2013
For the nine For the period of month period January 31, 2012 ended, to September 30, Septem ber 30, 2012 2013
Source/(use) of cash: Accounts receivable
$
Trade and other payables
(358) $
9,479
(532) $
1,604
183
3,127
9,662
4,731
(174) $
$
$
9,479
$
9,479
-
Changes in non-cash working capital from financing activities is comprised of:
For the three month periods ended September 30, Septem ber 30, 2012 2013
For the nine For the period of month period January 31, 2012 ended, to September 30, Septem ber 30, 2012 2013
Source/(use) of cash: Trade and other payables
$
(202) $ -
2,395
$
(202) $
1,346
Deferred costs
19
(1,049) $
(929) $
753
$
(929) $
753
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 7. C om mi t m e n t s Operating lease rentals are payable as follows: Septem ber 30, 2013 Less than one year
$
238
Betw een one and five years
6,289
More than five years
7,579 $
14,106
Decem ber 31, 2012 $
293 584 -
$
877
1 8. R el a t e d p a r t y t r a n s a c t i o n s The Trust had the following related party transactions: ( i) As at September 30, 2013, the Trust had accounts payable of $1,151,000 (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 nine month periods ended September 30, 2013, the Trust has recorded administration charges of $500,000 (September 30, 2012 $175,000) and $1,500,000 (September 30, 2012 - $175,000), respectively. For the three and nine month periods ended September 30, 2013, the Trust has also recorded $596,000 (September 30, 2013 - $440,000) and $1,274,000 (September 30, 2012 - $1,411,000), respectively, in overhead expenses for costs that have been reimbursed to Aston Hill by the Trust. For the three and nine months ended September 30, 2013, the Trust has also recorded $267,000 (September 30, 2012 - $186,000) and $1,055,000 (September 30, 2012 $186,000), 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. On August 10, 2013, $784,000 was paid to Aston Hill to settle vested RTUs. (ii) During the nine months ended September 30, 2013, the Trust paid US$5,000,000 to satisfy their deferred land payment and US$30,000,000 in conjunction with the exercise of the forward purchase contract which were obligations 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 nine months ended September 30, 2013, The Trust also incurred $313,000 (September 30, 2012 - $nil) and $508,000 (September 30, 2012 - $nil), respectively, in relation to overriding royalty payments related to the Eagle Ford Shale Deep Rights. As at September 30, 2013, $25,000 (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. 1 9. S u b s e q u e n t e v e n t s Distributions
Subsequent to September 30, 2013, the Trust issued 426,000 units pursuant to the Trust’s distribution reinvestment plan at a price of $9.05 per unit. The Trust has also declared a distribution of $0.0875 per Trust unit for October, 2013.
20
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 9. 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 ) Business combination
On October 25, 2013, the Trust closed a purchase and sale agreement to acquire producing petroleum properties in Wyoming (the "Wyoming Assets") from a private company. The purchase price was approximately US$102 million, (net of closing adjustments). 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. Bought deal financing
On October 31, 2013, the Trust issued $60 million principal 6.50% convertible unsecured convertible debentures (the “Debentures”) on a bought deal basis (the "Offering"). 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 $9 million additional principle 6.50% Debentures. If the over-allotment option is fully exercised, gross proceeds from the Offering will be approximately $69 million. Net proceeds from the Offering were used to reduce outstanding indebtedness under the Trust's existing credit facility which indebtedness was incurred to purchase the Wyoming Assets, described above. Credit facility
Subsequent to September 30, 2013, the Trust increased the credit limit on its credit facility from US$115 million to US$160 million.
21
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 L o s s a n d Comprehensive 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 6-21
I NTERIM C ONSOLIDATED B ALANCE S HEETS (in thousands of Canadian dollars) (unaudited)
As at,
Note
December 31, 2012
Septem ber 30, 2013
Assets Current assets Cash
$
Trade and other receivables Risk Management
4
Prepaid expenses and deposits
4,601
$
1,766
16,911
12,394
25
56
1,348
439
22,885
14,655
Risk management
4
294
-
Oil and gas properties
7
593,783
466,658
Exploration and evaluation assets
8
50,697
66,762
1,009
400
Property and equipment Total assets
$
668,668
$
548,475
$
39,845
$
27,834
Liabilities Current Liabilities Trade and other payables Distributions payable
9
5,161
4,232
6,171
4,976
4
1,949
375
12
3,542
1,241
-
25,900
56,668
64,558
18,421
34,282
Current portion of deferred land payment Risk management Current portion of unit based compensation Forw ard purchase contract
Credit facility Risk management
10 4
Deferred land payment Unit based compensation
12
Convertible debentures
11
102
750
6,752
12,093
2,598
1,034
88,332
-
16,437
13,948
189,310
126,665
543,936
442,075
Accumulated distributions
(55,001)
(14,566)
Deficit
(10,240)
(5,703)
Decommissioning liability
Unitholders' equity Trust capital
13
Other comprehensive income
4
663
421,810
479,358 Total liabilities & unitholders' equity The notes are an integral part of the interim consolidated financial statements.
$
668,668
$
548,475
Commitments - see note 17 Subsequent events - see note 19
2
ARGENT ENERGY TRUST AS TO N H ILL F INANCIAL
I NTERIM C ONSOLIDATED S TATEMENTS OF L OSS AND C OMPREHENSIVE L OSS (in thousands of Canadian dollars, except per unit amounts) (unaudited)
For the nine For the period of month period January 31, ended 2012 to
For the three month periods ended
Note Oil and gas sales
September 30, 2012
September 30, 2013 $
42,151
$
3,843
September 30, 2012
September 30, 2013 $
$
3,843
less: Royalties
(9,904)
Net oil and gas revenue
32,247
3,006
83,791
3,006
Operating expenses
8,543
601
24,547
601
General and administrative expenses
4,436
1,157
11,019
2,647
2,272
821
7,529
821
12,930
1,709
33,191
1,709
8,997
-
13,731
Unit based compensation
12
Depreciation, depletion and amortization Exploration and evaluation
8
Other property costs
(837)
110,210
(837)
(26,419)
339
300
367
300
Operating expenses
37,517
4,588
90,384
6,078
Operating loss
(5,270)
(1,582)
(6,593)
(3,072)
Foreign exchange gain (loss)
(6,062)
(2,483)
8,457
(2,484)
(5,160)
(167)
Risk management loss
4
Change in fair value of convertible debenture
11
1,940
Finance expense
14
(1,971)
(250)
(7,650)
(250)
(16,523)
(4,482)
(4,464)
(5,973)
Loss before taxation Income tax expense
23 $
Loss for the period
(16,546) $
-
(167)
(2,190)
(4,482) $
-
3,512
-
73 (4,537) $
(5,973)
Other comprehensive income (loss), net of tax items Change in fair value of convertible debenture
11
(2,371)
-
-
(3,943)
Item that may be reclassified subsequently to income Foreign currency translation gain (loss) Total comprehensive loss for the period
(6,325)
(1,425)
4,602
(1,425)
(25,242)
(5,907)
(3,878)
(7,398)
Loss per unit Basic
15
$
(0.30) $
(0.33) $
(0.09) $
(1.22)
Diluted
15
$
(0.30) $
(0.33) $
(0.12) $
(1.22)
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
Total Other Accumulated Accumulated Cash Comprehensive Income Unitholders' Distributions Trust Capital Equity Income (Deficit)
Number of Trust Units
Issued on initial establishment, 1
January 31, 2012
$
-
$
-
$
$
$
-
-
-
Other comprehensive income
-
-
(1,425)
Total comprehensive loss
-
-
(1,425)
25,015
247,145
-
-
-
247,145
(18,707)
-
-
-
(18,707)
-
-
-
Trust unit issuance costs
-
Repurchase of initial trust units
(1)
Unitholder distributions
-
(5,973)
-
Loss for period
Issue of Trust Capital
-
-
(5,973)
-
-
(5,973)
-
(1,425)
-
(7,398)
-
-
Balance at September 30, 2012
25,015
$ 228,438
$
(1,425) $
(5,973) $
(3,742) $ 217,298
Balance at December 31, 2012
48,438
$ 442,075
$
4
(5,703) $
(14,566) $ 421,810
-
Loss for the period
-
-
-
Other comprehensive income
-
-
659
Total comprehensive income
-
-
663
$
(3,742)
-
(4,537) -
-
(10,240)
(3,742)
(4,537) 659
-
(3,878)
Reinvested distributions
13
2,386
23,223
-
-
-
23,223
Issue of Trust Capital
13
8,160
83,232
-
-
-
83,232
Trust unit issuance costs
13
(4,594)
-
-
-
-
Unitholder distributions Balance at September 30, 2013
-
-
58,984
$ 543,936
$
663
$
(40,435)
(10,240) $
(4,594) (40,435)
(55,001) $ 479,358
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 nine For the period of month period January 31, 2012 ended to
For the three month periods ended Note
September 30, September 30, 2012 2013
Septem ber 30, 2013
September 30, 2012
Operating Activities Loss for the period
$
(16,546) $
(4,482) $
(4,537) $
(5,973)
Adjustments for non-cash items: Finance expense
14
1,971
128
7,650
128
12,930
1,709
33,191
1,709
8
8,997
-
13,731
-
12
2,272
821
7,529
821
4
4,014
167
623
167
Depreciation, depletion and amortization Exploration expense Unit based compensation Unrealized risk management loss Unrealized gain on convertible debentures Unrealized foreign exchange (gain) loss Change in non-cash w orking capital
-
(1,940)
16
Net cash provided by operating activities
(3,512)
-
(8,411)
2,484
6,106
2,483
17,804
826
46,264
(664)
(4,128)
(293)
(1,266)
(179)
13,676
533
44,998
(843)
Investing Activities Purchase of property and equipment
(287)
(266)
(589)
(273)
(12,701)
(87,747)
(12,701)
Additions to oil and gas properties
7
(35,674)
Additions to exploration and evaluation assets
8
(324)
Proceeds on sale of property and equipment Proceeds on sale of oil and gas properties Deferred land payment
(30,758) 16
(194,739)
(45,707)
-
(5,042)
-
-
(30,758)
-
9,662
(532)
Net cash used in investing activities
6,789
-
(194,739)
-
Forw ard purchase contract
17
-
6,789
(45,707)
-
(753)
17
-
Acquisitions, net of cash acquired
Change in non-cash w orking capital
-
9,479
4,731
(113,282)
(191,238)
(165,865)
(191,428)
83,232
244,145
83,232
247,145
(18,683)
(4,594)
(18,707)
Financing Activities Proceeds from issuance of trust units Trust unit issue costs
13
(4,602)
Facility fees
10
(145)
Proceeds from convertible debentures
11
-
(277) -
-
-
86,250
Proceeds from credit facilities
10
86,886
7,576
140,022
7,576
Repayment of credit facilities
10
(68,179)
(7,576)
(158,818)
(7,576)
Finance expense paid Change in non-cash w orking capital
-
(256)
Distributions paid 16
(1,553)
(16,283)
1,346
(202)
-
(4,942)
(1,553)
(3,722)
753
(929)
Net cash provided by financing activities
93,012
225,255
123,661
227,638
Change in cash
(6,594)
34,550
2,794
35,367
(29)
-
41
-
Effect of exchange rates on cash Cash, beginning of period Cash, end of period
817
11,224 $
4,601
$
35,367
-
1,766 $
4,601
$
35,367
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 nine month periods ended September 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 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 November 11, 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. 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.
6
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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 ) 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 the previous 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 had 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 the previous 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. Amendment standards issued but not yet effective
In May 2013, the IASB issued amendments to IAS 36 Impairment of Assets. The overall effect of the amendments is to reduce the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and to introduce an explicit requirement to disclose the discount rate used in determining impairment (or reversals) where the recoverable amount (based on fair value less costs of disposal) is determined using a present value technique. The amendments are applicable to annual periods beginning on or after 1 January 2014. Financial liabilities
The Trust has designated its convertible debentures (note 11) 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.
7
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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 ) 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. 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.
8
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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) Liquidity risk: risk :
The following are the contractual maturities of financial liabilities including estimated interest payments at September 30, 2013: As at Septem ber 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 Convertible debentures - principal - interest
39,845
$
39,845
$
39,845
$
-
$
-
$
-
2,051
2,051
1,949
102
-
-
86,681
86,250
-
-
86,250
-
1,651
23,855
5,743
5,175
12,937
-
Credit Facility
18,421
18,421
-
18,421
-
-
Deferred land payment
12,923
13,371
6,171
7,200
-
-
$ As at Decem ber 31, 2012
161,572
$
183,793
$
53,708
$
30,898
$
99,187
$
-
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
27,834
$
27,834
$
27,834
$
-
$
-
$
-
1,125
1,125
375
750
-
-
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
$
-
$
-
As at September 30, 2013, there is a working capital deficiency of $33,783,000 due to current assets being less than current liabilities. This deficit will be financed with the Company’s revolving credit facility which has a remaining credit limit of US$96,500,000. 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.
9
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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 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. As at September 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$
(i)
WTI
Oil
100
bbl/d
Oct-13
Aug-14
90.00/bbl
96.40/bbl
WTI
Oil
300
bbl/d
Oct-13
Dec-13
90.00/bbl
96.05/bbl
WTI
Oil
300
bbl/d
Oct-13
Dec-14
90.00/bbl
91.70/bbl
WTI
Oil
200
bbl/d
Oct-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
Oct-13
Dec-14
WTI (ii)
Oil
400
bbl/d
Oct-13
Dec-13
91.50/bbl
BRENT (ii)
Oil
100
bbl/d
Oct-13
Dec-14
104.50/bbl 99.65/bbl
LLS (ii)
Oil
1,000
bbl/d
Jan-14
Dec-14
NYMEX (iii)
Natural gas
1,000
MMBtu/d
Oct-13
Dec-14 4.1325/MMBtu
NYMEX (iii)
Natural gas
4,000
MMBtu/d
Oct-13
Dec-13
4.068/MMBtu
NYMEX (iii)
Natural gas
4,000
MMBtu/d
Jan-14
Dec-14
4.10/MMBtu
BRENT/WTI (iv)
Oil
700
bbl/d
Oct-13
Dec-13
13.71/bbl
BRENT/WTI (iv)
Oil
200
bbl/d
Jan-14
Jun-14
11.50/bbl
LLS (ii) NYMEX (iii)
Oil
1,200
bbl/d
Jan-15
Dec-15
92.63/bbl
Natural gas
6,000
MMBtu/d
Jan-15
Dec-15
4.12/MMBTU
Commodity
Volume
Term
Fixed US$
Sold (w rote) call options WTI Call
Measure Beginning
(v )
Oil
100
bbl/d
Jan-14
Dec-14
96.00/bbl
NYMEX Call
Natural gas
1,000
MMBtu/d
Jan-14
Dec-14
3.91/MMBtu
NYMEX Call
Natural gas
1,000
MMBtu/d
Jan-14
Dec-14
4.17/MMBtu December 31, 2012
Septem ber 30, 2013 Total liability for unrealized loss on risk m anagem ent
(i) (ii) (iii) (iv)
$
(1,732)
$
(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.
10
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 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 ) (v)
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.
The following table summarizes the Trust’s net risk management position: As at, Current asset Long term asset
25
$
56 -
294
Current liability
(1,949)
Long term liability Net risk management asset (liability)
December 31, 2012
Septem ber 30, 2013 $
(102) $
(1,732) $
(375) (750) (1,069)
The total fair value of the Trust’s unrealized risk management positions at September 30, 2013, was a net liability of $1,732,000 (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 nine month periods ended September 30, 2013, the Trust recorded a loss of $5,160,000 (September 30, 2012 –$293,000) and $2,190,000 (September 30, 2012 – $293,000), respectively, on its risk management positions of which $4,014,000 (September 30, 2012 $293,000) and $623,000 (September 30, 2012 - $293,000), 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 September 30, 2013, had the securities price of the convertible debentures increased or decreased by 1%, net income would have decreased or increased by approximately $867,000. Foreign exchange risk The Trust has entered into a number of CDN/US$ forward swap contracts on US$1.0 million per month from July to June 2014 at an average rate of US $1.00 = CDN $1.0369. The average exchange rate for the three and nine months ended September 30, 2013 was US $1 equal to $1.0386 and $1.0236, respectively. A $0.01 increase (decrease) in the value of Cdn versus US$ on September 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 inter-company 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 nine month periods ended September 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:
September 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)
$
Unit based compensation $
(1,732) $
(1,732) $
-
(6,140)
(6,140)
-
$
(88,332)
(88,332)
(88,332)
(96,204) $
(96,204) $
(88,332) $
Carrying
Fair
Amount
Value
(1,732) $
-
(6,140)
-
-
-
(7,872) $
-
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 nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
6. A c q ui s i t i o n a n d B u s i n e ss C o m bi n a t i o n s Pursuant to an asset purchase agreement dated July 12, 2013, the Trust purchased producing petroleum properties in Kansas and Colorado (the “Kansas Assets”) from a private company for total cash consideration (including closing adjustments) of $45,797,000. The acquisition had an effective date of June 1, 2013, and was closed on September 5, 2013. The fair value of assets acquired and liabilities assumed is as follows: Oil and gas assets
$
Other assets
316
Accounts payable
(227)
Decommissioning liability Total net assets acquired
47,373
(1,665) $
45,797
The amounts of revenue, net of royalties, since the Kansas Assets’ acquisition date included in the consolidated statement of comprehensive income for the three and nine months ended September 30, 2013 were $1.8 million. Had this transaction closed on January 1, 2013 the additional revenue, net of royalties, for the three and nine months ended September 30, 2013, would have been approximately $1.3 million and $7.9 million, respectively. It is impracticable to determine the 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 were not readily 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.
13
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
7. 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 estimates on decommissioning assets
475,148 (200)
Additions to decommissioning assets
210
Acquired in business combination
47,373
Additions
87,747
Transferred from exploration and evaluation
9,314
Foreign exchange adjustment
16,135
Balance at Septem ber 30, 2013
$
635,727
Depreciation: Balance at December 31, 2012
$
Depreciation for the period
8,490 33,008
Foreign exchange adjustment
446
Balance at Septem ber 30, 2012
$
41,944
December 31, 2012
$
466,658
Septem ber 30, 2013
$
593,783
Carrying amounts:
8. 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
753
Additions related to forw ard purchase contract Transferred to oil and gas properties
4,061 (9,314)
Expensed
(13,731)
Foreign exchange adjustment Balance at Septem ber 30, 2013
66,762
2,166 $
50,697
Exploration and evaluation assets relate to lease rights for undeveloped land in the lease rights below the Austin Chalk, primarily the Eagle Ford Shale and Buda formations. During the three and nine months ended September 30, 2013, the Trust expensed $8,997,000 and $13,731,000 of exploration and evaluation assets related to leases that expired or are near expiry with no intention to renew. 9. 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 40,435
Distributions paid
(16,283)
Distributions reinvested
(23,223)
Outstanding distributions declared and payable at Septem ber 30, 2013
$
5,161
Distributions are declared and paid monthly. The outstanding balance at September 30, 2013 represents the amount of cash distributions to be paid October 23, 2013.
14
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 0. C r e di t f a ci l i t y Balance at December 31, 2012
$
34,282
Draw dow ns
140,022
Repayments
(158,818)
Facility fees paid
(277)
Accretion of facility fees
339
Interest accrued
1,199
Interest paid
(1,289)
Foreign exchange adjustment
2,963
Balance at September 30, 2013
$
18,421
As at September 30, 2013, the Trust had US$18,500,000 outstanding under its credit facility and had an undrawn credit limit of US$96,500,000. The credit facility has a maturity date of August 12, 2015. Subsequent to September 30, 2013, the Trust increased the credit limit on its credit facility from US$115 million to US$160 million. 1 1. 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 nine month period ended September 30, 2013 Balance on issue date
$
86,250
Amount $
86,250
Change in fair value due to change in credit risk
-
3,943
Change in fair value due to change in market risk
-
(3,512)
Interest accrued Balance at Septem ber 30, 2013
$
86,250
1,651 $
88,332
The fair value of the convertible debentures on September 30, 2013, was $86,681,000 based on the September 30, 2013 closing price of the convertible debentures on the Toronto Stock Exchange.
15
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 2. 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 three month periods ended September 30, 2012
Septem ber 30, 2013 Restricted trust units
$
Phantom unit rights
$
$
2,272
556
$
821
For the period of January 31, 2012 to September 30, 2012
Septem ber 30, 2013 $
265
1,940
Total unit based compensation
a)
332
For the nine month period ended, 3,309
$
$
7,529
556 265
4,220 $
821
Restricted t rust u nits (“RTUs”) Units
For the nine month period ended September 30, 2013 Outstanding, beginning of period Granted
635 267
Exercised Accumulated distributions
(in thousands)
(227) (1)
65 740
(1) Grants based on accumulated distributions on unvested unit grants. As at September 30, 2013, no RTUs were vested. All units had a fair value of $10.13 per unit as at September 30, 2013. b)
Phantom unit rights (“PURs”) Units
For the nine month period ended September 30, 2013
(in thousands)
Outstanding, beginning of period
438
Granted
342
Forfeited
(13)
Exercised
(141)
Accumulated distributions
(1)
53 679
(1) Grants based on accumulated distributions on unvested unit grants. As at September 30, 2013, no PURs were vested. All units had a fair value of $10.13 per unit as at September 30, 2013.
16
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 3. T r u s t c a p i t al Trust units outstanding Number of units
For the nine month period ended September 30, 2013
Amount
(in thousands) Balance at December 31, 2012
48,438 $
442,075
Issue of Trust Capital (1)
8,160
83,232
Distribution reinvestment plan (2)
2,386
23,223
Trust unit issue costs
(1)
-
Balance at Septem ber 30, 2013
(4,594)
58,984 $
543,936
(1) On August 15, 2013, the Trust closed a public offering in which it issued 8,160,000 trust units for a price of $10.20 per share for gross proceeds of $83,232,000. Trust issue costs for this issuance totaled $4,594,000. (2) During the period, the Trust issued 2,386,000 units at a weighted average price of $9.73 per unit for total gross proceeds of $23,223,000 under the Trust’s premium distribution and distribution reinvestment plan. 1 4. Fi n a n c e e x p e n s e
For the three month periods ended
For the nine month period ended,
For the period of January 31, 2012 to
September 30, 2012
Septem ber 30, 2013
September 30, 2012
Septem ber 30, 2013 Accretion on deferred land obligation
$
115
Accretion of facility fees on revolving loan
$
120
$
420
7
281
$
120 7
88
104
339
104
Total accretion
345
231
1,040
231
Interest on term credit facility
271
19
1,199
19
Interest on convertible debentures Convertible debentures issuance costs Net finance expense
17
142
Accretion on decommissioning obligations
$
1,353
-
1,651
-
2
-
3,760
-
1,971
$
250
$
7,650
$
250
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 5. L o s s p e r u n i t Basic loss per unit is calculated as follows:
For the three month periods ended
For the nine month period ended,
For the period of January 31, 2012 to
September 30, 2012
Septem ber 30, 2013
September 30, 2012
Septem ber 30, 2013 Loss for the period
$
Issued trust units at beginning of the period
49,778
Effect of unit issuances Weighted average number of units - Basic Basic loss per unit
(16,546) $
$
(4,482) $
600
(4,537) $
(5,973)
-
48,438
4,609
12,911
2,260
4,888
54,387
13,511
50,698
4,888
(0.304) $
(0.332) $
(0.089) $
(1.222)
Diluted loss per unit is calculated as follows:
For the three month periods ended
For the nine month period ended,
For the period of January 31, 2012 to
September 30, 2012
Septem ber 30, 2013
September 30, 2012
Septem ber 30, 2013 Loss for the period
$
Net income effect from convertible debentures Diluted loss for the period
$
Weighted average outstanding units - Basic Effect of convertible debentures Weighted average number of units - Diluted Diluted loss per unit
(16,546) $
$
(16,546) $
(4,482) $ -
(4,537) $
(5,973) -
(1,860)
(4,482) $
(6,397) $
(5,973)
54,387
13,511
50,698
4,888
-
-
2,324
-
54,387
13,511
53,022
(0.304) $
(0.332) $
(0.121) $
4,888 (1.222)
For the three months ended September 30, 2013 and September 30, 2012, the dilutive effect of convertible debentures and restricted trust units were not included in the calculation of diluted earnings per share as their effect was anti-dilutive. For the nine months ended September 30, 2013 and September 30, 3012, the dilutive effect of restricted trust units was not included in the calculation of diluted earnings per share as its effect was anti-dilutive.
18
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 6. 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 three month periods ended September 30, Septem ber 30, 2012 2013
For the nine For the period of month period January 31, 2012 ended, to September 30, Septem ber 30, 2012 2013
Source/(use) of cash: Trade and other receivables
$
Prepaid expenses and deposits Unit based compensation paid
(2,576) $
(2,683) $
(763)
(625)
Trade and other payables
2,897 $
-
(3,686)
3,015
(4,128) $
(2,841) (653)
(895)
-
(3,686)
(5,828) $
3,315
9,143
(293) $
(1,266) $
(179)
Changes in non-cash working capital from investing activities is comprised of:
For the three month periods ended September 30, Septem ber 30, 2012 2013
For the nine For the period of month period January 31, 2012 ended, to September 30, Septem ber 30, 2012 2013
Source/(use) of cash: Accounts receivable
$
Trade and other payables
(358) $
9,479
(532) $
1,604
183
3,127
9,662
4,731
(174) $
$
$
9,479
$
9,479
-
Changes in non-cash working capital from financing activities is comprised of:
For the three month periods ended September 30, Septem ber 30, 2012 2013
For the nine For the period of month period January 31, 2012 ended, to September 30, Septem ber 30, 2012 2013
Source/(use) of cash: Trade and other payables
$
(202) $ -
2,395
$
(202) $
1,346
Deferred costs
19
(1,049) $
(929) $
753
$
(929) $
753
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 7. C om mi t m e n t s Operating lease rentals are payable as follows: Septem ber 30, 2013 Less than one year
$
238
Betw een one and five years
6,289
More than five years
7,579 $
14,106
Decem ber 31, 2012 $
293 584 -
$
877
1 8. R el a t e d p a r t y t r a n s a c t i o n s The Trust had the following related party transactions: ( i) As at September 30, 2013, the Trust had accounts payable of $1,151,000 (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 nine month periods ended September 30, 2013, the Trust has recorded administration charges of $500,000 (September 30, 2012 $175,000) and $1,500,000 (September 30, 2012 - $175,000), respectively. For the three and nine month periods ended September 30, 2013, the Trust has also recorded $596,000 (September 30, 2013 - $440,000) and $1,274,000 (September 30, 2012 - $1,411,000), respectively, in overhead expenses for costs that have been reimbursed to Aston Hill by the Trust. For the three and nine months ended September 30, 2013, the Trust has also recorded $267,000 (September 30, 2012 - $186,000) and $1,055,000 (September 30, 2012 $186,000), 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. On August 10, 2013, $784,000 was paid to Aston Hill to settle vested RTUs. (ii) During the nine months ended September 30, 2013, the Trust paid US$5,000,000 to satisfy their deferred land payment and US$30,000,000 in conjunction with the exercise of the forward purchase contract which were obligations 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 nine months ended September 30, 2013, The Trust also incurred $313,000 (September 30, 2012 - $nil) and $508,000 (September 30, 2012 - $nil), respectively, in relation to overriding royalty payments related to the Eagle Ford Shale Deep Rights. As at September 30, 2013, $25,000 (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. 1 9. S u b s e q u e n t e v e n t s Distributions
Subsequent to September 30, 2013, the Trust issued 426,000 units pursuant to the Trust’s distribution reinvestment plan at a price of $9.05 per unit. The Trust has also declared a distribution of $0.0875 per Trust unit for October, 2013.
20
ARGENT ENERGY TRUST
N OTES TO THE I NTERIM C ONSOLIDATED F INANCIAL S TATEM ENTS For the three and nine month periods ended September 30, 2013 (tabular amounts are in thousands of Canadian dollars except unit and per unit information) (unaudited)
1 9. 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 ) Business combination
On October 25, 2013, the Trust closed a purchase and sale agreement to acquire producing petroleum properties in Wyoming (the "Wyoming Assets") from a private company. The purchase price was approximately US$102 million, (net of closing adjustments). 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. Bought deal financing
On October 31, 2013, the Trust issued $60 million principal 6.50% convertible unsecured convertible debentures (the “Debentures”) on a bought deal basis (the "Offering"). 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 $9 million additional principle 6.50% Debentures. If the over-allotment option is fully exercised, gross proceeds from the Offering will be approximately $69 million. Net proceeds from the Offering were used to reduce outstanding indebtedness under the Trust's existing credit facility which indebtedness was incurred to purchase the Wyoming Assets, described above. Credit facility
Subsequent to September 30, 2013, the Trust increased the credit limit on its credit facility from US$115 million to US$160 million.
21
ARGENT ENERGY TRUST
