Chelsea Oil and Gas Ltd.
Condensed Consolidated Interim Financial Statements
As at and for the three and nine month periods ended
September 30, 2016 and 2015
(Unaudited)
NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4.3 (3) (a), if an auditor has not performed a review of the financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying condensed interim financial statements of Chelsea Oil and Gas Ltd. have been prepared by and are the responsibility of the Company’s management and approved by the Board of Directors of the Company. The Company’s independent auditor has not performed a review of these condensed financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor.
| Chelsea Oil and Gas Ltd. |
| Notes to the Condensed Consolidated Financial Statements |
| As at and for the three and nine month periods ended September 30, 2016 and 2015 (Unaudited) |
| (US Dollars) |
Chelsea Oil and Gas Ltd.
Condensed Consolidated Interim Statements of Financial Position (Unaudited)
(US Dollars)
| | | | September 30 | | | December 31 | |
| As at | Notes | | 2016 | | | 2015 | |
| | | | | | | | |
| Current assets | | | | | | | |
| Cash | 4 | $ | 26,896 | | $ | 121,620 | |
| Accounts receivable | | | 7,992 | | | 9,048 | |
| Current assets | | | 34,888 | | | 130,668 | |
| | | | | | | | |
| Restricted cash | 4 | | 176,979 | | | 174,859 | |
| Plant, property and equipment | 6 | | 815,398 | | | 899,760 | |
| Exploration and evaluation assets | 7 | | 9,758,536 | | | 9,581,070 | |
| Non-current assets | | | 10,750,913 | | | 10,655,689 | |
| | | | | | | | |
| Assets | | $ | 10,785,801 | | $ | 10,786,357 | |
| | | | | | | | |
| Liabilities | | | | | | | |
| Current liabilities | | | | | | | |
| Shareholder loans | 5 | $ | 4,121,136 | | $ | 3,881,185 | |
| Trade and other payables | | | 534,368 | | | 576,537 | |
| Current liabilities | | | 4,655,504 | | | 4,457,722 | |
| | | | | | | | |
| Decommissioning liabilities | 10 | | 385,284 | | | 360,283 | |
| | | | | | | | |
| Shareholders' equity | 8 | | | | | | |
| Common stock | | | 14,056,459 | | | 14,056,459 | |
| Warrants | | | 254,938 | | | 254,938 | |
| Contributed surplus | | | 176,752 | | | 176,752 | |
| Accumulated deficit | | | (5,993,690 | ) | | (5,601,344 | ) |
| Accumulated other comprehensive loss | | | (2,749,446 | ) | | (2,918,453 | ) |
| Shareholders' equity | | | 5,745,013 | | | 5,968,352 | |
| | | | | | | | |
| Shareholders' equity and liabilities | | $ | 10,785,801 | | $ | 10,786,357 | |
| | | | | | | | |
| Going concern | 2 | | | | | | |
The notes are an integral part of these condensed consolidated interim financial statements.
3
Chelsea Oil and Gas Ltd.
Condensed Consolidated Interim Statements of Comprehensive Loss (Unaudited)
(US Dollars)
| | | | 3 Months Ended | | | 3 Months Ended | | | 9 Months Ended | | | 9 Months Ended | |
| | Notes | | Sept 30, 2016 | | | Sept 30, 2015 | | | Sept 30, 2016 | | | Sept 30, 2015 | |
| | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | |
| Royalty income | | $ | 3,799 | | $ | 5,739 | | $ | 11,567 | | $ | 60,287 | |
| | | | 3,799 | | | 5,739 | | | 11,567 | | | 60,287 | |
| Expenses | | | | | | | | | | | | | |
| General and administrative | | | 15,722 | | | 43,144 | | | 56,423 | | | 66,700 | |
| Depletion | 6 | | 28,121 | | | 31,180 | | | 84,362 | | | 93,540 | |
| Finance expense | 9 | | 86,300 | | | 76,092 | | | 251,614 | | | 229,523 | |
| Foreign exchange loss (gain) | | | (8,741 | ) | | (15,133 | ) | | 10,918 | | | (14,119 | ) |
| | | | 121,402 | | | 135,283 | | | 403,317 | | | 375,644 | |
| | | | | | | | | | | | | | |
| Net loss before tax | | | 117,603 | | | 129,544 | | | 391,750 | | | 315,357 | |
| Current income tax | | | 196 | | | - | | | 597 | | | 2,488 | |
| Net loss | | | 117,799 | | | 129,544 | | | 392,347 | | | 317,845 | |
| | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | 12,107 | | | 44,662 | | | (169,007 | ) | | 96,663 | |
| Comprehensive loss | | $ | 129,906 | | $ | 174,206 | | $ | 223,340 | | $ | 414,508 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Net loss per share
(basic and diluted) | 8 | $ | 0.00 | | $ | 0.00 | | $ | 0.00 | | $ | 0.00 | |
The notes are an integral part of these condensed consolidated interim financial statements.
4
Chelsea Oil and Gas Ltd.
Condensed Consolidated Interim Statements of Changes in Equity (Unaudited)
(US Dollars)
| | | | 9 Months Ended | | | 9 Months Ended | |
| As at | Notes | | Sept 30, 2016 | | | Sept 30, 2015 | |
| | | | | | | | |
| Share capital | 8 | | | | | | |
| Balance, beginning and end of period | | $ | 14,056,459 | | $ | 14,056,459 | |
| | | | | | | | |
| Warrants | 8 | | | | | | |
| Balance, beginning and end of period | | | 254,938 | | | 254,938 | |
| | | | | | | | |
| Contributed surplus | 8 | | | | | | |
| Balance, beginning and end of period | | | 176,752 | | | 176,752 | |
| | | | | | | | |
| Accumulated other comprehensive loss | 8 | | | | | | |
| Balance, beginning of period | | | (2,918,453 | ) | | (1,751,133 | ) |
| Foreign currency translation adjustment | | | 169,007 | | | (96,663 | ) |
| Balance, end of period | | | (2,749,446 | ) | | (1,847,796 | ) |
| | | | | | | | |
| Accumulated deficit | | | | | | | |
| Balance, beginning of period | | | (5,601,344 | ) | | (5,133,651 | ) |
| Loss for the period | | | (392,347 | ) | | (317,845 | ) |
| Balance, end of period | | | (5,993,691 | ) | | (5,451,496 | ) |
| | | | | | | | |
| Total equity | | $ | 5,745,013 | | $ | 7,188,857 | |
The notes are an integral part of these condensed consolidated interim financial statements.
5
Chelsea Oil and Gas Ltd.
Condensed Consolidated Interim Statements of Cash Flows (Unaudited)
(US Dollars)
| | | 3 Months Ended | | | 3 Months Ended | | | 9 Months Ended | | | 9 Months Ended | |
| | | Sept 30, 2016 | | | Sept 30, 2015 | | | Sept 30, 2016 | | | Sept 30, 2015 | |
| | | | | | | | | | | | | |
| Operating activities | | | | | | | | | | | | |
| Net loss | $ | (117,799 | ) | $ | (129,544 | ) | $ | (392,347 | ) | $ | (317,845 | ) |
| | | | | | | | | | | | | |
| Items not affecting cash | | | | | | | | | | | | |
| Depletion | | 28,121 | | | 31,180 | | | 84,362 | | | 93,540 | |
| Foreign exchange loss (gain) | | (8,741 | ) | | (15,133 | ) | | 10,918 | | | (14,119 | ) |
| Interest on shareholder loans | | 79,984 | | | 73,892 | | | 239,951 | | | 221,677 | |
| Accretion on decommissioning | | 1,169 | | | 2,199 | | | 11,663 | | | 7,859 | |
| Operating cashflow before working capital movements | | (17,266 | ) | | (37,405 | ) | | (45,453 | ) | | (8,887 | ) |
| Change in non-cash working capital | | 737 | | | (40,000 | ) | | (41,113 | ) | | (118,088 | ) |
| | | (16,529 | ) | | (77,405 | ) | | (86,566 | ) | | (126,975 | ) |
| | | | | | | | | | | | | |
| Financing activities | | | | | | | | | | | | |
| Change in restricted cash | | (265 | ) | | 351,526 | | | (2,120 | ) | | 22,901 | |
| | | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | | |
| Net exploration and evaluation expenditure | | - | | | (114,490 | ) | | (8,459 | ) | | (121,162 | ) |
| | | | | | | | | | | | | |
| Increase in cash | | (16,794 | ) | | 159,631 | | | (97,146 | ) | | (225,237 | ) |
| Foreign exchange loss on cash denominated in a foreign currency | | 4,386 | | | (14,925 | ) | | 2,422 | | | (27,262 | ) |
| Cash, beginning of period | | 39,304 | | | 66,341 | | | 121,620 | | | 463,546 | |
| Cash, end of period | $ | 26,896 | | $ | 211,047 | | $ | 26,896 | | $ | 211,047 | |
The notes are an integral part of these condensed consolidated interim financial statements.
6
| Chelsea Oil and Gas Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| As at and for the three and nine month periods ended September 30, 2016 and 2015 (Unaudited) |
| (US Dollars) |
| |
| 1. | Reporting entity: |
| | |
| Australian-Canadian Oil Royalties Ltd. was incorporated April 28, 1997 in British Columbia, Canada. On October 1, 2013, Australian-Canadian Oil Royalties Ltd. amalgamated with International TME Resources Inc. and was renamed Chelsea Oil and Gas Ltd. (“Chelsea” or the “Company”). The address of the Company’s head office is 127, 10thAve NW, Calgary, AB Canada. |
| | |
| The Company’s business plan is the exploration and development of the Company’s working interest properties in Australia. The Company also holds and acquires and sells overriding royalty interests in Australia. Currently, revenue relates to royalties earned on overriding royalty interests held by the Company. |
| | |
| 2. | Going concern: |
| | |
| The accompanying consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company’s properties are principally in the exploration and development stage and, as a result, the Company has minimal sources of operating cash flow. The continued exploration and development of the Company’s properties depends on the ability of the Company to obtain financing. At September 30, 2016, the Company has minimal sources of operating cash flow and an accumulated deficit of $5.8 million. At September 30, 2016 the Company has a working capital deficit of $4.6 million. These conditions cast doubt on the Company’s ability to continue as a going concern. |
| | |
| Additional funds will be required to explore and develop the Company’s properties and to place them into commercial production. The only source of future funds presently available to the Company is through the issuance of share capital, or by the sale of an interest in any of its working and royalty interests in whole or in part. The ability of the Company to arrange such financing or sale of an interest in the future will depend in part upon the prevailing market conditions as well as the business performance of the Company. There can be no assurance that the Company will be successful in its efforts to arrange additional financing, if needed, on terms satisfactory to the Company or at all. If additional financing is raised through the issuance of shares, control of the Company may change and shareholders may suffer dilution. If adequate financing is not available, the Company may be required to delay, reduce the scope of, or eliminate one or more exploration activities or relinquish rights to certain of its interests. |
| | |
| The amounts shown as plant, property and equipment and exploration and evaluation assets represent acquisition costs net of recoveries to date, less amounts written off, and do not necessarily represent present or future values. Recoverability of the amounts shown for plant, property and equipment and exploration and evaluation assets is dependent upon the discovery of economically recoverable plant, property and equipment and exploration and evaluation assets reserves, securing and maintaining title and beneficial interest in the properties, the ability of the Company to obtain financing necessary to complete the exploration and development of its plant, property and equipment and exploration and evaluation assets, and on future profitable production or proceeds from the disposition of the plant, property and equipment and exploration and evaluation interests. The consolidated financial statements do not reflect adjustments that would be necessary if the going concern basis was not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, then significant adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. The appropriateness of the going concern basis is dependent upon the events and circumstance outlined above. |
7
| Chelsea Oil and Gas Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| As at and for the three and nine month periods ended September 30, 2016 and 2015 (Unaudited) |
| (US Dollars) |
| |
| 3. | Basis of preparation: |
| | | |
| a) | Statement of compliance: |
| | | |
| | These financial statements were prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, on a going concern basis. They follow the same accounting policies as the annual financial statements. They do not contain all disclosures required by IFRS for annual financial statements and, accordingly, should be read in conjunction with the annual consolidated financial statements and notes thereto for the year ended December 31, 2015. The condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors on November 29, 2016. |
| | | |
| b) | Basis of measurement: |
| | | |
| | The consolidated financial statements have been prepared on the historical cost basis. The Company’s accounting policies have been applied consistently to all periods presented in these consolidated financial statements. The Company conducts the majority of its operations with others. These financial statements reflect the Company’s proportionate interest in joint operations. |
| | | |
| c) | Functional and presentation currency: |
| | | |
| | These consolidated financial statements are expressed in US dollars (“$” or “US$”), which is the Company’s functional currency. The Company’s wholly owned subsidiaries Cooper-Eromanga Oil Inc. and Chelsea Oil Australia Pty have a functional currency of Australian dollars (“A$” or “AUD”). |
| | | |
| d) | Use of estimates and judgments: |
| | | |
| | The preparation of the condensed consolidated financial statements in conformity with IFRS requires management to make estimates and use judgment regarding the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. By their nature, estimates are subject to measurement uncertainty and changes in such estimates in future periods could require a material change in the financial statements. Accordingly, actual results may differ from the estimated amounts as future confirming events occur. |
| | | |
| 4. | Cash and restricted cash: |
| | | |
| At September 30, 2016 the Company held cash of $26,896 (2015 – $121,620). Cash at banks earn interest at floating rates based on daily bank deposit rates. Short term deposits are made for varying periods of between one day and three months, depending on the cash requirements of the Company, and earn interest at the respective short term deposit rates. |
| | | |
| At September 30, 2016, the Company held restricted cash of $0.2 million (2015 – $0.2 million). Restricted cash is cash held on deposit with a chartered Australian bank which will be returned to the Company when it satisfies the capital commitments pertaining to the licenses. |
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| Chelsea Oil and Gas Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| As at and for the three and nine month periods ended September 30, 2016 and 2015 (Unaudited) |
| (US Dollars) |
| |
| | | | September 30 | | | December 31 | |
| | | | 2016 | | | 2015 | |
| | Loans on acquisition of Surat | $ | 3,000,000 | | $ | 3,000,000 | |
| | Accrued and unpaid interest thereon | | 1,121,136 | | | 881,184 | |
| | | $ | 4,121,136 | | $ | 3,881,184 | |
| On February 28, 2015, the Company and shareholder agreed to extend the loan to February 28, 2016. At the date of these financial statements the shareholder has the right to demand repayment. The debt continues to accrue interest on the same terms as previously agreed. The Company is in discussions with the debtholder to further extend maturity of the debt. |
| | |
| 6. | Plant, Property and Equipment: |
| | Cost or deemed cost | | | |
| | Balance at January 1, 2015 | $ | 1,203,999 | |
| | Dispositions | | (25,000 | ) |
| | Balance at December 31, 2015 and September 30, 2016 | $ | 1,178,999 | |
| | | | | |
| | Accumulated depletion and depreciation | | | |
| | Balance at January 1, 2015 | $ | 166,757 | |
| | Depletion and depreciation expense | | 112,482 | |
| | Balance at December 31, 2015 | $ | 279,239 | |
| | Depletion and depreciation expense | | 84,362 | |
| | Balance at September 30, 2016 | $ | 363,601 | |
| | | | | |
| | Net book value | | | |
| | As at December 31, 2015 | $ | 899,760 | |
| | As at September 30, 2016 | $ | 815,398 | |
At September 30, 2016, the Company’s plant, property and equipment is comprised primarily of its overriding royalty interests in Australia. These interests are currently the Company’s only revenue generating asset.
9
| Chelsea Oil and Gas Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| As at and for the three and nine month periods ended September 30, 2016 and 2015 (Unaudited) |
| (US Dollars) |
| |
| 7. | Exploration and evaluation assets: |
| | Balance at January 1, 2015 | $ | 10,597,995 | |
| | Additions | | 141,960 | |
| | Foreign exchange translation | | (1,158,884 | ) |
| | Balance at December 31, 2015 | $ | 9,581,070 | |
| | Additions | | 8,459 | |
| | Foreign exchange translation | | 169,007 | |
| | Balance at September 30, 2016 | $ | 9,758,536 | |
| Intangible exploration and evaluation assets consist of the Company’s exploration projects which are pending the determination of proven or probable reserves, or pending the decision by the Company to elect to proceed with the development of a project. |
| | | |
| 8. | Share capital: |
| | | |
| a) | Authorized: |
| | | |
| | Unlimited number of common shares with no par value. |
| | | |
| | Unlimited number of preferred shares, of which none have been issued. |
| | | |
| b) | Issued and outstanding: |
| | | | Number of | | | | |
| | | | shares | | | Amount | |
| | Balance at December 31, 2015 and 2014 and September 30, 2016 | | 64,056,876 | | $ | 14,056,459 | |
| | c) | Stock option plan: |
| | | |
| | | Pursuant to resolutions of the board of directors of the Company dated January 9, 2013, the Company established a stock option plan for its directors, officers, consultants and employees under which the Company may grant options to acquire a maximum number of common shares equal to 10% of the total issued and outstanding shares of the Company. At September 30, 2016 no options have been issued under this plan. |
10
| Chelsea Oil and Gas Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| As at and for the three and nine month periods ended September 30, 2016 and 2015 (Unaudited) |
| (US Dollars) |
| |
| | d) | Warrants: |
| | | |
| | | On January 9, 2013, the Company issued 5.0 million warrants to directors, officers and consultants. These performance warrants have an exercise price of $0.25 per warrant, but are only exercisable if the share price of the Company exceeds $1.00 per share for ten consecutive trading days, with a minimum of 100,000 shares traded over the same period. The fair value of these warrants was estimated to be $254,938 using the Black-Scholes pricing model based on a volatility of 98%, risk-free interest rate of 1.5%, expected life of 2 years and no dividend yield. On January 18, 2015, the Company extended the warrants for two years, expiring January 18, 2017. All other terms remained the same. |
| | | | Number of | | | | |
| | | | warrants | | | Amount | |
| | Balance, December 31, 2015 and 2014 and September 30, 2016 | | 5,000,000 | | $ | 254,938 | |
| | e) | Loss per share: |
| | | |
| | | Basic per share amounts are calculated using the weighted average number of shares outstanding of 64,056,876 for the three and nine month periods ended September 30, 2016 (three and nine month periods 2015 – 64,056,876). In computing diluted per share amounts, all of the Company’s outstanding warrants were excluded from the calculation of the weighted average number of common shares outstanding as they were anti-dilutive. |
| | | | Three months | | | Three months | | | Nine months | | | Nine months | |
| | | | ended Sept 30 | | | ended Sept 30 | | | ended Sept 30 | | | ended Sept 30 | |
| | | | 2016 | | | 2015 | | | 2016 | | | 2015 | |
| | Interest income on cash | $ | - | | $ | - | | $ | - | | $ | (14 | ) |
| | Interest expense | | 79,984 | | | 73,892 | | | 239,951 | | | 221,677 | |
| | Accretion on decommissioning liability | | 6,316 | | | 2,199 | | | 11,663 | | | 7,859 | |
| | Net finance expense | $ | 86,300 | | $ | 76,092 | | $ | 251,614 | | $ | 229,523 | |
11
| Chelsea Oil and Gas Ltd. |
| Notes to the Condensed Consolidated Interim Financial Statements |
| As at and for the three and nine month periods ended September 30, 2016 and 2015 (Unaudited) |
| (US Dollars) |
| |
| 10. | Decommissioning liability: |
| | |
| The Company’s decommissioning liability results from the ownership interest in oil and natural gas assets. The Company has estimated the net present value of the decommissioning liability to be $385,284 as at September 30, 2016 (2015 - $360,283) based on an undiscounted inflation-adjusted total future liability of A$671,718. These payments are expected to be made over the next 25 years with the majority of costs to be incurred between 2025 and 2030. At September 30, 2016, the liability has been calculated using an inflation rate of 3.0% (2015 – 3.0%) and discounted using a risk-free rate of 3.0% (2015 – 3.0%). |
| | Balance at January 1, 2015 | $ | 390,902 | |
| | Accretion expense | | 10,494 | |
| | Loss on foreign exchange | | (41,113 | ) |
| | Balance at December 31, 2015 | $ | 360,283 | |
| | Accretion expense | | 11,663 | |
| | Gain on foreign exchange | | 13,338 | |
| | Balance at September 30, 2016 | $ | 385,284 | |
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