Adira Energy Ltd.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the three and six month periods ended June 30, 2013
The following is a discussion and analysis of the activities, consolidated results of operations and financial condition of Adira Energy Ltd. (“Adira”, “we”, “our”, “us”,or the “Company”)for the three and six month periods ended June 30, 2013, which has been prepared on the basis of information available up until August 21, 2013.Management’s Discussion and Analysis should be read in conjunction with the Company’sannual consolidated financial statements and related notes for the year ended December 31, 2012 and in conjunction withthe Company’s financial statements and Management’s Discussion and Analysis for thethree and six month period ended June 30, 2012, together with the notes thereto. These documents areavailableunder the Company’s profile on the System for Electronic Document Analysis and Retrieval (SEDAR) website atwww.sedar.com.
All monetary amounts are reported in United States dollars and in accordance with IFRS unless otherwise noted.
Forward-Looking Statements
This Management’s Discussion and Analysis of Financial Conditions and Results of Operations contains certainforward-looking statements. All statements other than statements of historical fact that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “contemplate”,“target”, “believe”, “plan”, “estimate”, “expect” and “intend” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similarexpressions. These statements are based upon certain assumptions and analyses made by management in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. However, whether actual results anddevelopments will conform with management’s expectations is subject to a number of risks and uncertainties,including the considerations discussed herein and in other documents filed from time to time by the Company with Canadian security regulatory authorities, general economic, market or business conditions, the opportunities (or lack thereof) that may be presented to and pursued by management, competitive actions by other companies, changes in laws or regulations and other factors, many ofwhich are beyond the Company’s control. These factorsmay cause the actual results of the Company to differ materially from those discussed in the forward-looking statements and there can be no assurance that the actual results or developments anticipated by management will be realized or, even if substantially realized, that they will have the expected results on Adira Energy Ltd. All of the forward-looking statements made herein are qualified by the foregoing cautionary statements. The Company expressly disclaims any obligation to update or revise any such forward-looking statements.
Date
This report is dated August 21, 2013.
Overall Performance
Information on the Company
Adira is an oil and gas early-stage exploration company.
Through its subsidiaries, the Company currently holds three petroleum licenses in the State of Israel, being the license No. 378 (the “Gabriella License”), the license No. 380 (the “Yitzhak License”) and the license No. 388 (the “Samuel License” and together with the Gabriella License and the Yitzhak License, the “Licenses”).
The Company’s current trading symbol on the TSX Venture Exchange (the “Exchange”) is “ADL”. The Company also trades on the OTC Bulletin Board with the trading symbol “ADEND” and on the Frankfurt Stock Exchange with the trading symbol “OAM”.
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Significant Developments
On February 11, 2013, the Company announced that Adira Israel (as defined below) suspended operations on the Gabriella License due to lack of funding and lack of reasonable expectation of funding to meet certain work program obligations on that license. On July 1, 2013, the Company announced that Adira Israel (as defined below) has entered into a settlement and release agreement with the other Gabriella License participants to resolve their previously disclosed disputes over their respective funding obligations and the related suspension of operations on the Gabriella License. See ”Business Overview – Gabriella License” below for more details.
In July 2013, the Company announced that it has agreed to a non-brokered private placement (the “Private Placement”) of 61,728,395 post-Consolidation (as defined below) Common Shares with Pelagic Investments Limited (“PI”) at a price of US$0.081 per Common Share, for gross proceeds of US$5,000,000. The Private Placement is expected to close on or about August 30, 2013. In connection with the Private Placement, PI will acquire approximately 50.4% of the issued and outstanding Common Shares, thus becoming a Control Person (as such term is defined under the Policies of the Exchange).
On August 9, 2013, the Company completed a consolidation of its common shares (the “Common Shares”) on the basis of one post-consolidation Common Share for every three pre-consolidation Common Shares (the “Consolidation”). The Consolidation was effective for trading purposes on August 13, 2013.
Business Overview
Gabriella License
The Gabriella License covers 97,000 acres (392 square kilometers) and is approximately 10 kilometers offshore Israel between Netanya and Ashdod. The Gabriella License was issued to the Company on July 15, 2009 for an initial three year exploration period, subject to renewal for an additional period of four years and a second additional period of two years in the case of a discovery. Thereafter, a 30-50 year lease maybe granted if a “discovery” (as defined in the Israeli Petroleum Law 5712 & 1952 and the regulations promulgated thereunder (“Israeli Petroleum Law”)) is made. The Company has received an extension of the expiration of the Gabriella License from the Petroleum Commissioner of Israel (the “Commissioner”) until September 1, 2013, with a corresponding extension of certain milestones. As of the date hereof, the Company has missed a milestone on the Gabriella License; namely the requirement to spud the first well by June 30, 2013. The Company has since applied for an extension of the Gabriella License and awaits a response from the Commissioner.
The following table sets out the current work program that must be completed in order to maintain the Gabriella License:
| Gabriella Work Program | Milestone Dates |
| 1. Spud the first well | June 30, 2013(1) |
| 2. Prepare a summary report of the first well and transfer of all of the findings, including tests, samples, logs (if taken), electrical logs and results of tests (if performed). | Within three months from completion of the drilling in 2013 |
| 3. Submit a work plan for continuation of the work in the license. | Within four months from completion of the drilling in 2013 |
Notes:
| | (1) | On June 30, 2013, Adira Israel (as defined below) applied for an extension of the milestone date for the execution of a drilling contract to February 28, 2014, and for the spudding of the first well to December 31, 2014. |
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In January 2010, the Company, through its subsidiary Adira Energy Israel Ltd. (“Adira Israel”), entered into an agreement with Modi’in Energy Limited Partnership (“MELP”) and Modi’in Energy Management (1992) Ltd. (“MEGP”) to transfer 70% of its participating interests in the Gabriella License to MELP (the “Gabriella 2010 Agreement”). In January 2010, a subsidiary of Brownstone Energy Inc. (“Brownstone”) exercised its option to purchase 15% of the participating interests in the Gabriella License. To date, Brownstone’s interest in the Gabriella License has not been registered with the Ministry of Energy and Water Resources (formerly the Ministry of National Infrastructures) of the State of Israel (the “Ministry”); however Adira Israel holds Brownstone’s 15% interest in trust on behalf of Brownstone pursuant to an agreement dated July 7, 2011. As of the date hereof, Adira Israel holds a 15% participating interest in the Gabriella License, MELP holds a 70% interest and Brownstone holds a 15% interest.
The exploration and extraction activity on the Gabriella License, and the relationship of the participating interest holders, is governed by a joint operating agreement (the “Gabriella JOA”). Pursuant to the Gabriella JOA, Adira Israel is the operator of the Gabriella License. As of January 27, 2012, the Gabriella License participants pay an operator fee of $25,000 per month, plus an additional sliding-scale percentage of exploration expenses incurred, ranging from 4.8% of annual exploration expenses (if less than $2 million) to 1.2% of annual exploration expenses (if over $6 million) (the “Operator Fees”). The continued payment of the Operator fees is subject to Adira meeting certain obligations under the Settlement Agreement (as defined below).
Between July 2012 and January 2013, various agreements have been entered into on the Gabriella License for the purpose of drilling the first exploration well, including a drilling contract (the “Drilling Contract”) between MELP and Noble International Ltd (“Noble Drilling”) to secure access to a drilling unit rig (the “Rig”), a Memorandum of Understanding (“MOU”) between Adira Israel and MELP, pursuant to which the Adira Israel agreed to provide its working interest share of the collateral due to Noble Drilling, and an agreement between Adira Israel, MELP and Brownstone (the “Gabriella 2012 Agreement” and together with the Drilling Contract and the MOU, the “Gabriella Drilling Agreements”), wherein certain terms regarding the parties’ use of the Rig were revised. The attempted drilling of the first exploration well, however, was not accomplished. Adira Israel and MELP had similarly alleged that the other was in default of various obligations under the Gabriella JOA and certain Gabriella Drilling Agreement. Accordingly, on February 11, 2013, Adira Israel, in its capacity as operator under the Gabriella JOA, suspended operations on the Gabriella License due to lack of funding and lack of reasonable expectation of funding to meet certain work program obligations.
On June 30, 2013, Adira Israel entered into a settlement and release agreement (the “Settlement Agreement”) with MELP and Brownstone to resolve the abovementioned disputes and the related suspension of operations on the Gabriella License. The Settlement Agreement was approved by MELP’s unit holders on July 8, 2013 (the “Settlement Agreement Effective Date”). Pursuant to the Settlement Agreement, the Gabriella License participants have agreed to waive and release each other from any claims and demands that they may have against each other with respect to the Gabriella License. The Agreement further provides that the Gabriella License participants will fund their proportionate share of costs associated with the Gabriella License incurred in connection with the attempted drilling of the first exploration well. Adira Israel’s net share of the costs as of June 30, 2013 totals approximately US$3.3 million (the “Settlement Costs”) and is payable in stages over a 60-90 day period from the Settlement Agreement Effective Date. The Settlement Agreement also provides the Gabriella License participants with tag-along rights for a period of one year from the Settlement Agreement Effective Date to participate in any farm out of their participating interests in the Gabriella License consummated by the other participants. In addition, Adira Israel agreed to relinquish several entitlements under the Gabriella 2010 Agreement and certain Gabriella Drilling Agreements, including, but not limited to, its option to reacquire from MELP a 15% participating interest in the Gabriella License and management fee, and agreed to reduce its overriding royalty interest (“ORRI”) from 5.25% to 2.625% . The Settlement Agreement preserves the MELP Yitzhak Option (as defined below) and Adira Israel’s option to acquire a 15% participating interest in the Yam Hadera License (as defined below) from MELP pursuant to the Gabriella 2012 Agreement. See “Business Overview –Yitzhak License” and “Business Overview –Yam Hadera Option” below for more information of the MELP Yitzhak Option and the Yam Hadera License respectively.
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The Settlement Agreement also provides that the parties will work together to secure a new operator, under certain terms and conditions, and that Adira Israel will only be entitled to operator fees under the JOA for the period following December 31, 2012, to the extent that Adira Israel pays the Settlement Costs in full. In addition, upon payment of the Settlement Costs, Adira Israel will no longer be entitled for management fees from MEGP, pursuant to the Gabriella 2010 Agreement and will be entitled to $286 thousand of the management fees payable for the period through December 31, 2012.
Pursuant to the Settlement Agreement, in the event that Adira Israel does not pay the Settlement Costs, at MELP’s request, Adira Israel may withdraw from the Gabriella JOA, assign its participating interest in the Gabriella License to the remaining Gabriella License participants and relinquish its remaining ORRI.
Yitzhak License
The Yitzhak License covers 31,555 acres (127.7 sq. km) and is located approximately 9 km offshore and is contiguous to the Gabriella License. The Yitzhak License was issued in October 2009 to Adira Israel (85% working interest) and Brownstone (15% working interest) for an initial three year exploration period and may be renewed upon fulfillment of certain conditions for an additional four year period plus an additional 2 year renewal option in the case of a reserve discovery. Thereafter, a 30-50 year lease may be pursued if a “discovery” (as defined in the Israeli Petroleum Law) is made. The Company has received an extension of the expiration of the Yitzhak License from the Commissioner until December 1, 2013, with a corresponding extension of certain milestones. As of the date hereof, the Company has missed a milestone on the Yitzhak License; namely the requirement to execute a drilling contract by June 30, 2013. The Company has since applied for an extension of the Yitzhak License and awaits a response from the Ministry.
The following table sets out the current work program that must be completed to maintain the Yitzhak License:
| Yitzhak Work Program | Milestone Dates |
| 1. Execute a contract with a drilling contractor. | June 30, 2013(1) |
| 2. Spud the first well. | October 30, 2013(2) |
| 3. Prepare a summary report of the first well and transfer of all of the findings, including tests, samples, logs (if taken), electrical logs and results of tests (if performed). | Within three months from completion of the drilling |
| 4. Submit a work plan for continuation of the work in the license. | Within four months from completion of the drilling |
Notes:
| | (1) | On June 30, 2013, Adira Israel applied for an extension of the milestone date for the execution of a drilling contract to September 30, 2014. |
| | (2) | On June 30, 2013, Adira Israel applied for an extension of the milestone date for the spudding of the first well to August 30, 2015. |
On January 9, 2012, Adira Israel received approval from the Commissioner to farm-out a 5% carried working interest to AGR Group ASA (“AGR”) and a 20% working interest (subject to dilution explained below) to Ellomay Oil and Gas 2011 LP, a limited partnership (“Ellomay”) whose general partner is a wholly-owned subsidiary of Ellomay Capital Ltd. (“Ellomay Capital”). Following those transfers, Adira Israel held a 60% working interest in the Yitzhak License, Brownstone a 15% working interest, AGR a 5% working interest and Ellomay a 20% working interest. Adira Israel and AGR Petroleum Services Holdings AS are the co-operators of the Yitzhak License, and AGR is the statutory operator of record.
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The farm-out agreement between Adira Israel and AGR dated November 29, 2011 (the “AGR Farm-Out Agreement”) provides, among other things, that: (a) AGR’s 5% working interest is carried by the remaining holders of the Yitzhak License through the exploration period; (b) AGR issued to Adira Israel a 3% ORRI on AGR’s share of production, until repayment of AGR's expenditures in the work program and a 4.5% ORRI from that point forward; (c) AGR will be designated lead operator in accordance with Israeli regulations defining “Operator”, with the continued involvement of Adira Israel as “co-operator” which is a construction of private contract; and (d) AGR will be appointed as engineering services contractor on the Yitzhak License with continued involvement of Adira Israel as part of the core professional team led by AGR.
The farm-out agreement between Adira Israel and Ellomay dated November 29, 2011 (the “Ellomay Farm-Out Agreement”) provides, among other things, that: (a) Ellomay will reimburse Adira Israel for its proportionate share of the costs incurred by Adira Israel on the Yitzhak License, plus interest at LIBOR plus 1%; and (b) Ellomay will issue to Adira Israel a 3% ORRI on Ellomay’s share of production, until repayment of Ellomay's expenditures in the work program and a 4.5% ORRI from that date forward.
Adira Israel, Brownstone, AGR and Ellomay signed a joint operating agreement (the “Yitzhak JOA”) on September 11, 2012, to regulate their commercial relationship in respect of the Yitzhak License. The Yitzhak JOA incorporated the terms of the AGR Farm-Out Agreement and the Ellomay Farm-Out Agreement.
According to the Ellomay Farm-Out Agreement and the Yitzhak JOA, Ellomay could elect not to fund activities on the Yitzhak License and be subject to dilution for no consideration (i.e. the diluted interest would be transferred to Adira Israel without cost), or it could transfer one-half of its 20% interest to a third party on negotiated terms. On October 29, 2012, Ellomay advised Adira Israel of its intention to decrease its interest in the Yitzhak License from 20% to 10% by paying reduced operating costs. Ellomay failed to transfer its interest to a third party, and therefore, in 2013, 10% of its interest was transferred back to Adira Israel without cost. Following this transfer, Adira Israel has a 70% interest in the Yitzhak License, Brownstone has a 15% interest, AGR has a 5% interest and Ellomay a 10% interest. The new holdings have not yet been approved by the Commissioner.
On June 13, 2012, pursuant to the MOU, Adira Israel granted to MELP an option (“MELP Yitzhak Option”) to purchase from Adira Israel a 15% participating interest in the Yitzhak License (the “MELP Yitzhak Option Interest”). Pursuant to the Gabriella 2012 Agreement, the MELP Yitzhak Option may be exercised until 14 days before signing of the rig contract for the Yitzhak License. If MELP exercises the MELP Yitzhak Option, then it must reimburse Adira Israel for expenditures in respect of the MELP Yitzhak Option Interest incurred up to the date of transfer of the MELP Yitzhak Option Interest. MELP must also issue to Adira Israel an ORRI of 3% with respect to all oil and gas (including any distillate and condensate) produced, saved and marketed from the area covered by Yitzhak License that is attributable to the MELP Yitzhak Option Interest, before payout, and 4.5% after payout. The transfer of the MELP Yitzhak Option Interest is subject to the approval of the Commissioner.
Samuel License
The Samuel License covers 88,708 acres (361 sq. km) and is located approximately 17 km offshore Israel. The Samuel License was issued on August 1, 2010 to Adira Geo Global Ltd. (“Adira GeoGlobal”) (30% interest), Geo Global Resources (India) Inc. (“GGRI”) (30% interest), Adira Oil Technologies Ltd. (“Adira Oil”) (23.25% interest), Pinetree Capital Ltd. (“Pinetree”) (10% interest) and Brownstone (6.75% interest) for an initial three year exploration period. The Samuel License may be renewed for an additional four years and a second additional period of two years in the case of a discovery. Thereafter, a 30-50 year lease may be granted if a “discovery” (as defined in the Israeli Petroleum Law) is made. The Company has received an extension of the expiration date of the Samuel License from the Commissioner until July 31, 2013, with a corresponding extension of certain milestones (on March 27, 2013 Adira GeoGlobal applied for an extension of the Samuel License). As of the date hereof, the Company has missed two milestones on the Samuel License; namely the requirement to execute a drilling contract by March 31, 2013, and spud of the first well by April 30, 2013. The Company has since applied for an extension of the Samuel License and awaits a response from the Ministry
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The following table sets out the current work program that must be completed to maintain the Samuel License:
| Samuel Work Program | Milestone Dates |
| 1. Execute a contract with a drilling contractor. | March 31, 2013(1) |
| 2. Spud the first well. | April 30 , 2013(2) |
| 3. Prepare a summary report of the first well and transfer of all of the findings, including tests, samples, logs (if taken), electrical logs and results of tests (if performed). | Within three months from completion of the drilling |
| 4. Submit a work plan for continuation of the work in the license. | Within four months from completion of the drilling |
Notes:
| | (1) | On March 27, 2013, Adira GeoGlobal applied for an extension of the milestone date for the execution of a drilling contract to March 31, 2014. |
| | (2) | On March 27, 2013, Adira GeoGlobal applied for an extension of the milestone date for the spud of the first well to September 30, 2014. |
The exploration and extraction activity in the Samuel License is to be performed within the framework of a joint operating agreement (the “Samuel JOA”) between GGRI, Adira Geo Global, Adira Oil, Brownstone and Pinetree, whereby Adira GeoGlobal is the designated operator of the Samuel License. Adira Geo Global is owned 60% by the Company and 40% by GGRI. In accordance with the Samuel JOA, Adira Geo Global is entitled to receive 7.5% of the cumulative direct costs to operate the Samuel License and one-half of a 3% ORRI. According to a cooperation agreement signed between Adira and GGRI on August 20, 2010, GGRI is entitled to 50% of the operator fee received by Adira Geo Global. Adira Geo Global may be removed as the operator if it is declared bankrupt, insolvent, dissolved or liquidated or if two or more of the total number of non-operators holding a combined interest of at least 51% agree to the removal.
On October 26, 2012, Emanuelle Energy Limited (“Emanuelle”) exercised an option to acquire a 7.13% interest in the Samuel License from GGRI and became a signatory to the Samuel JOA thereby reducing GGRI’s direct interest in the Samuel License to 22.88% .
Adira GeoGlobal is owed an aggregate of $2.8 million of operating costs on the Samuel License from GGRI and Emmanuelle under the Samuel JOA, as a result of their direct interest in the license, and the Company is owed an additional $0.2 million from GGRI through its 40% interest in Adira GeoGlobal. During 2013, Adira issued a default letter to GGRI and Emanuelle in accordance with the Samuel JOA. The parties are currently discussing a plan to ensure the reimbursement of such amounts. Additionally, the non-defaulting parties agreed to sell the tangible assets in respect of this license in order to reduce the default amount. If GGRI and Emanuelle do not repay Adira GeoGlobal for the amounts owed, then in accordance with the Samuel JOA, GGRI and Emmanuelle may be removed from the Samuel JOA, Adira GeoGlobal may seek reimbursement of these costs from the other Samuel License participants in proportion to their respective interests in the Samuel License, and all of the participants, including Adira GeoGlobal, will each receive a proportionate increase in their working interests in the Samuel License. In addition, if GGRI does not repay the Company for the costs owed through GGRI’s 40% ownership interest in Adira GeoGlobal, the Company may have to seek reimbursement through continued negotiation or litigation.
Myra and Sara Option
Adira Israel has an option (the “Myra and Sara Option”) to acquire up to a 5% participating interest in each of two deep water licenses offshore Israel, namely the Myra License and the Sara License (collectively, the “Myra and Sara Licenses”). The Myra and Sara Licenses are located offshore Israel approximately 40 km west of the City of Hadera. These license areas total 800 sq. km. Adira Israel currently ascribes no value to the Myra and Sara Licenses and as such the Company does not consider the Myra and Sara Options to be material to its operations.
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Yam Hadera Option
Pursuant to the Gabriella 2012 Agreement, Adira Israel has an option (the “Yam Hadera Option”) to acquire up to a 15% participating interest in the Yam Hadera License, located 30 kilometers offshore Israel, between Hadera and Haifa and North West of Adira Israel’s Yitzhak license. The Yam Hadera Option is exercisable until 14 days prior to the signing of a rig contract for the Yam Hadera License.
Capital Expenditures and Divestitures
During the six month period ended June 30, 2013, the Company incurred net capital expenditures of approximately $323 thousand which relates primarily to costs incurred in the planning and development of the wells. During the same period, the Company disposed of property and equipment in the net amount of approximately $184 thousand which relates primarily to the drilling equipment from the Eitan license and office furniture and fittings.
The Company's planned capital expenditures for the next twelve months include the Company’s drilling program in connection with the Licenses.
Additional disclosure for venture issuers without significant revenues:
| | | Six months ended | | | Three months ended | | | Year ended | |
| | | June 30, | | | June 30, | | | December 31, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | | | 2012 | |
| | | | | | Unaudited | | | | | | | | | Audited | |
| | | U.S. dollars in thousands | |
| Expenses: | | | | | | | | | | | | | | | |
| Capitalized and expensed exploration costs | | 2,052 | | | 6,128 | | | (316 | ) | | 4,967 | | | 6,875 | |
| General and administrative expenses (including share based compensation) | | 1,878 | | | 2,261 | | | 406 | | | 1,056 | | | 5,304 | |
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Discussion of Operations
The following is a discussion of the results of operations which have been derived from the interim consolidated financial statements of the Company for the three and six month periods ended June 30, 2013:
| | | Six months ended | | | Three months ended | |
| | | June 30, | | | June 30, | |
| | | 2013 | | | 2012 | | | 2013 | | | 2012 | |
| | | Unaudited | |
| | | | | | | | | | | | | |
| Revenues and other income | $ | 17 | | $ | 1,149 | | $ | 4 | | $ | 489 | |
| | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | |
| Exploration expenses | | 1,729 | | | 538 | | | (164 | ) | | 156 | |
| General and administrative expenses *) | | 1,878 | | | 2,261 | | | 406 | | | 1,056 | |
| Impairment charge | | 2,486 | | | 65 | | | 243 | | | - | |
| | | | | | | | | | | | | |
| Total expenses | | 6,093 | | | 2,864 | | | 485 | | | 1,212 | |
| | | | | | | | | | | | | |
| Operating loss | | (6,076 | ) | | (1,715 | ) | | (481 | ) | | (723 | ) |
| | | | | | | | | | | | | |
| Finance income | | 3,021 | | | 8 | | | 541 | | | - | |
| Finance expense | | (41 | ) | | (78 | ) | | (28 | ) | | (94 | ) |
| | | | | | | | | | | | | |
| Profit (loss) before income tax expense | | (3,096 | ) | | (1,785 | ) | | 32 | | | (817 | ) |
| Income tax expense | | - | | | (48 | ) | | - | | | (48 | ) |
| | | | | | | | | | | | | |
| Net comprehensive profit (loss) | $ | (3,096 | ) | $ | (1,833 | ) | $ | 32 | | $ | (865 | ) |
| | | | | | | | | | | | | |
| Net comprehensive profit (loss) attributed to: | | | | | | | | | | | | |
| Equity holders of the parent | $ | (3,096 | ) | $ | (1,949 | ) | $ | 32 | | $ | (993 | ) |
| Non-controlling interests | | - | | | 116 | | | - | | | 128 | |
| | | | | | | | | | | | | |
| | $ | (3,096 | ) | $ | (1,833 | ) | $ | 32 | | $ | (865 | ) |
| | | | | | | | | | | | | |
| Basic and diluted net earnings (loss) per share (**) attributable to equity holders of the parent | $ | (0.05 | ) | $ | (0.05 | ) | $ | 0.01 | | $ | (0.03 | ) |
| | | | | | | | | | | | | |
| Weighted average number of Ordinary shares (**) used in computing basic and diluted net earnings (loss) per share | | 60,260,318 | | | 33,922,772 | | | 60,260,318 | | | 33,922,772 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
| *) Includes share-based compensation | $ | 181 | | $ | 422 | | $ | 106 | | $ | 165 | |
| | | | | | | | | | | | | |
| **) Post Consolidation | | | | | | | | | | | | |
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Three month period ended June 30, 2013 compared to the three month period ended June 30, 2012
Revenues and Other Income
For the three month period ended June 30, 2013, the Company recorded revenues of $4 thousand as compared to $489 thousand for the three month period ended June 30, 2012. The decrease during the period is primarily due to the cessation of operations on the Gabriella License in February 2013 and the significant decrease in activities on the Yitzhak License and Samuel License, as compared to 2012.
Expenses
Exploration Expenses
For the three month period ended June 30, 2013, exploration expenses amounted to negative $164 thousand as compared to $156 thousand for three month period ended June 30, 2012. The negative amount in 2013 relates to an adjustment of an accrual for exploration expenses in connection with the suspension of operations on the Gabriella License made during the first quarter of 2013.
General and Administrative Expenses
For the three month period ended June 30, 2013, general and administrative expenses amounted to $406 thousand as compared to $1,056 thousand for three month period ended June 30, 2012. The decrease in general and administrative expenses resulted primarily from the decreased activities in the Company since the suspension of operations on the Gabriella License.
Impairment Charge
For the three month period ended June 30, 2013, the impairment charge amounted to $243 as compared to Nil for the three month period ended June 30, 2012. The impairment in 2013 relates primarily to costs that had been capitalized to exploration and evaluation assets, prior to the decision to suspend operations on the Gabriella License, and which have subsequently been written–off.
Financing Income/Expense
For the three month period ended June 30, 2013, financing income amounted to $541 thousand as compared to Nil for the three month period ended June 30, 2012. Financing expenses amounted of $28 thousand for the three month period ended June 30, 2013, as compared to $94 thousand for the three month period ended June 30, 2012.
The warrants issued in the August 2012 financing are denominated in Canadian dollars, while the functional currency of the Company is US dollars; therefore the fair value of the warrants are classified as a financial liability which is re-measured to fair value at the end of each period. The changes in fair value are included in financing income.
In addition, the Company is exposed to financial risk related to the fluctuation of foreign exchange rates. The Company operates in Israel while most of the Company's monetary assets are held in U.S. dollars and most of the Company's expenditures are made in U.S. dollars. The Company also has expenditures in NIS and Canadian dollars. The Company has not hedged its exposure to currency fluctuations.
Net Profit/Loss
The Company reported a net profit and comprehensive profit for the three month period ended June 30, 2013, of $32 thousand as compared to a net loss and comprehensive loss of $865 thousand for three month period ended June 30, 2012. The primary reason for the decrease in the loss during the second quarter of 2013 is a result of a decrease in general and administrative expenses, and an increase in financing income.
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Six month period ended June 30, 2013 compared to the Six month period ended June 30, 2012
Revenues and Other Income
For the six month period ended June 30, 2013, the Company recorded revenues of $17, as compared to $1,149 thousand for the six month period ended June 30, 2012. The decrease during the period is primarily due to the suspension of operations on the Gabriella License in February 2013 and the significant decrease in activities on the Yitzhak License and Samuel License, as compared to 2012.
Expenses
Exploration Expenses
For the six months ended June 30, 2013, exploration expenses amounted to $1,729 thousand as compared to $538 thousand for six month period ended June 30, 2012. The increase in exploration expenses in 2013 is due to costs that were incurred during the period which are no longer being capitalized to exploration and evaluation assets following the decision to suspend operations on the Gabriella License.
General and Administrative Expenses
For the six month period ended June 30, 2013, general and administrative expenses amounted to $1,878 thousand as compared to $2,261 thousand for six month period ended June 30, 2012. The decrease in general and administrative expenses resulted primarily from the decreased activities in the Company since the suspension of operations on the Gabriella License.
Impairment Charge
For the six month period ended June 30, 2013, the impairment charge amounted to $2,486 thousand as compared to $65 thousand for the six month period ended June 30, 2012. The impairment in 2013 relates primarily to costs that had been capitalized to exploration and evaluation assets, prior to the decision to suspend operations on the Gabriella License, and which have subsequently been written–off.
Financing Income/Expense
For the six month period ended June 30, 2013, financing income amounted to $3,021 thousand as compared to $8 thousand for the six month period ended June 30, 2012. Financing expenses amounted of $41 thousand for the six month period ended June 30, 2013, as compared to $78 thousand for the six month period ended June 30, 2012.
The warrants issued in the August 2012 financing are denominated in Canadian dollars, while the functional currency of the Company is US dollars; therefore the fair value of the warrants are classified as a financial liability which is re-measured to fair value at the end of each period. The changes in fair value are included in financing income expenses.
In addition, the Company is exposed to financial risk related to the fluctuation of foreign exchange rates. The Company operates in Israel while most of the Company's monetary assets are held in U.S. dollars and most of the Company's expenditures are made in U.S. dollars. The Company also has expenditures in NIS and Canadian dollars. The Company has not hedged its exposure to currency fluctuations.
Net Loss
The Company reported a net loss and comprehensive loss for the six month period ended June 30, 2013, of $3.1 million as compared to a net loss and comprehensive loss of $1.8 million for six month period ended June 30, 2012. The primary reason for the increase in the loss during 2013 is a result of an increase in impairment charges and exploration expenses, primarily in respect of the Gabriella License, which has been offset by the decrease in general and administrative expenses and an increase in financial income.
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Inflation
During the three and six month periods ended June 30, 2013, and 2012, inflation has not had a material impact on our operations.
Government Regulation
The Licenses have been granted to us, through various subsidiaries, by the State of Israel under the Israeli Petroleum Law, and our evaluation and exploration activities in the areas covered by the Licenses must be undertaken in compliance with work plans approved by the Commissioner.
Summary of Quarterly results
| | | Quarter ended | |
| | | June 30, 2013 | | | March 31, 2013 | | | December 31, 2012 | | | September 30, 2012 | |
| | | U.S dollars in thousands, except per share data | |
| Revenues | $ | 4 | | | 13 | | | 318 | | | 422 | |
| Net Profit (loss) | $ | 32 | | | (3,128 | ) | | (7,264 | ) | | (1,460 | ) |
| Net Profit (loss) per share* | $ | 0.01 | | | (0.05 | ) | | (0.12 | ) | | (0.03 | ) |
| | | | | | | | |
| *Attributable to equity holders of the Company, post Consolidation | | | | | | | |
| | | Quarter ended | |
| | | June 30, 2012 | | | March 31, 2012 | | | December 31, 2011 | | | September 30, 2011 | |
| | | U.S dollars in thousands, except per share data | |
| Revenues | $ | 489 | | | 660 | | | 236 | | | 335 | |
| Net loss | $ | (865 | ) | | (968 | ) | | (2,170 | ) | | (3,999 | ) |
| Net loss per share* | $ | (0.03 | ) | | (0.03 | ) | | (0.06 | ) | | (0.12 | ) |
*Attributable to equity holders of the Company, post Consolidation
Net profit (loss) per quarter is a function of the exploration and operational activity during that quarter. There is no seasonal trend. Net losses during the first three quarters of 2012 were lower than in the preceding quarters as the Company commenced the capitalization of most of its exploration expenses to the Company's Statement of Financial Position as they relate directly to the execution of the drilling plan on the Licenses. Net losses in the fourth quarter of 2012 were significantly higher due to an impairment charge in respect of the Samuel license. The net loss for the first quarter of 2013 resulted primarily from an impairment charge in respect of the Gabriella license and the net profit for the second quarter of 2013 is due to reduced general and administrative expenses and finance income recorded in respect of the re-measurement of the warrants issued in August 2012.
Liquidity
Liquidity is a measure of a company’s ability to meet potential cash requirements. The Company has historically met its capital requirements through the issuance of common shares.
The Company has an accumulated deficit of $32.1 million as of June 30, 2013 ($28.9 as of December 31, 2012), and the Company had positive cash flows from operations of $314 thousand during the six month period ended June 30, 2013 (negative cash flows of $1.9 million during the six month period ended June 30, 2012). The ability of the Company to continue a going concern depends upon the discovery of economically recoverable reserves, the ability of the Company to obtain financing to complete development, and upon future profitable operations from the properties or proceeds from their disposition. The Company is an exploration stage company and has not earned any revenues from its oil and gas properties to date.
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There can be no assurance that the Company will be able to continue to raise funds, in which case the Company may be unable to meet its obligations. The Company is considering various alternatives with respect to raising additional capital to remedy any future shortfall in capital, but to date has made no specific plans or arrangements. Because of the early stage of the Company's operations and the Company's absence of any material oil and natural gas reserves, there can be no assurance this capital will be available and if it is not, the Company may be forced to substantially curtail or cease exploration, appraisal and development expenditures.
Three month period ended June 30, 2013 compared to the three month period ended June 30, 2012
During the three month period ended June 30, 2013, the Company's overall position of cash and cash equivalents increased by $983 thousand. This increase in cash can be attributed to the following activities:
The Company's net cash used in operating activities during the three month period ended June 30, 2013, was $925 thousand as compared to net cash used in an amount of $1.4 million for the three month period ended June 30, 2012. The decrease is as a result of a decrease in operating and general and administrative expenses during the period, as compared to the same period in 2012.
Cash provided by investing activities during the three month period ended June 30, 2013, was $1.9 million as compared to cash used in investing activities of $2.7 million during the three month period ended June 30, 2012. During 2013, the generation of cash is primarily as a result of the release of restricted deposits of $1 million and proceeds from sale of property and equipment of $1 million. During 2012, the utilization of cash relates to the capitalization of drilling costs in respect of the Licenses.
Cash provided by financing activities for the three month period ended June 30, 2013, was Nil as compared to $99 thousand during the three month period ended June 30, 2012.
Six month period ended June 30, 2013 compared to the Six month period ended June 30, 2012
During the six month period ended June 30, 2013, the Company's overall position of cash and cash equivalents decreased by $284 thousand. This decrease in cash can be attributed to the following activities:
The Company's net cash provided from operating activities during the six month period ended June 30, 2013, was $314 as compared to net cash used in an amount of $1.9 million for the six month period ended June 30, 2012. The decrease is due to a significant reduction in accounts receivables, other receivables and prepaid expenses, during 2013, as compared to the same period in 2012.
Cash used in investing activities during the six month period ended June 30, 2013, was $588 thousand as compared to $3.4 million during the six month period ended June 30, 2012. The investment in 2012 and 2013 relates to the capitalization of drilling costs in respect of the Licenses. There was greater exploration activity in 2012 as compared to the same period in 2013, resulting in a decrease in cash used during 2013 as compared to 2012, which was further reduced by the release of restricted deposits of $1 million and proceeds from the sale of property and equipment of $1 million.
Cash provided by financing activities for the six month period ended June 30, 2013, was Nil as compared to $162 thousand during the six month period ended June 30, 2012.
There are no legal restrictions on transferring funds between Canada and Israel.
Capital resources
As at June 30, 2013, the Company's cash and cash equivalents were $2.1 million as compared to $2.9 million as at June 30, 2012. The majority of these funds are held in US Dollars. As at June 30, 2013, the Company had a negative working capital of $3.3 million, as compared to positive working capital of $1.2 million as at June 30, 2012.
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Commitments
Certain Adira subsidiaries that hold the Company’s offshore licenses have Ministry mandated commitments to complete the work programs on all of the Licenses. Based on the current commitments, Adira Geo Global is required to spud at least one well on the Samuel License by April 30, 2013 and Adira Israel is required to spud at least one well on the Gabriella License by June 30, 2013 and on the Yitzhak License by October 30, 2013. The Company has applied for extensions for all of the Licenses.
Approved Expenditures Relating to the Gabriella, Yitzhak and Samuel Licenses
As of June 30, 2013, all budgeted and planned expenses for the advancement of the drilling programs on the Licenses have been suspended until the Company receives the extensions for its Licenses.
In order to maintain the Licenses the Company, through various subsidiaries, is required to expend additional amounts in respect of exploration expenditure. The Company intends to meet all of its drilling and related expenditures as they become due to maintain its interests in its oil and gas properties. As of the date hereof, we have missed two Ministry milestones on the Samuel License; namely the Company has not signed a drilling contract by March 31, 2013, and the Company has not spud a well by April 30, 2013. Similarly, the Company has missed a Ministry milestone on the Gabriella license; namely to spud a well by June 30, 2013 and the Company has missed a Ministry milestone on the Yitzhak license, namely to sign a rig contract by June 30, 2013. As described above, the Company requested an extension of all milestones and awaits a formal response from the Ministry. There is no assurance that the Ministry will grant our requests. These oil and gas expenditure obligations are not fixed and cannot be pre-determined with certainty. Failure to meet the obligations may result in the loss of the Company’s subsidiaries’ participating interests in the Licenses.
Disclosure of Outstanding Share Data
On August 9, 2013, the Company consolidated its common shares on a basis of one post-consolidation common share for every three pre-consolidation common shares. As a result of the Consolidation, the number of issued and outstanding common shares was reduced from 180,781,093 to 60,260,318.
As of the date hereof, the Company has 60,260,318 common shares outstanding, 32,474,338 warrants outstanding and 4,887,666 options granted to directors, officers and employees.
Management of Capital
| | | June 30, | | | December 31, | |
| | | 2013 | | | 2012 | | | 2012 | |
| | | U.S. dollars in thousands | |
| | | | | | | | | | |
| | | Unaudited | | | Audited | |
| | | | | | | | | | |
| EQUITY: | | | | | | | | | |
| Share capital | | - | | | - | | | - | |
| Additional paid-in capital | | 34,147 | | | 28,197 | | | 33,966 | |
| Accumulated deficit | | (32,052 | ) | | (21,118 | ) | | (28,956 | ) |
| | | | | | | | | | |
| Equity attributable to equity holders of the parent | | 2,095 | | | 7,079 | | | 5,010 | |
| Non-controlling interests | | - | | | 498 | | | - | |
| | | | | | | | | | |
| Total equity | | 2,095 | | | 7,577 | | | 5,010 | |
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The Company is an early-stage exploration company and currently does not generate significant cash flows from operations. The Company’s primary source of funds comes from the issuance of share capital. The Company does not use other sources of financing that require fixed payments of interest and principal and is not subject to any externally imposed capital requirements.
The Company defines its capital as share capital plus warrants. To effectively manage the Company’s capital requirements, the Company has a planning and budgeting process in place to ensure that adequate funds are available to meet its strategic goals. The Company monitors actual expenses to budget to manage its costs and commitments.
The Company’s capital management objective is to maximize investment returns to its equity-linked stakeholders within the context of relevant opportunities and risks associated with the Company’s operations. Achieving this objective requires management to consider the underlying nature of exploration activities, the availability of capital, the cost of various capital alternatives and other factors. Establishing and adjusting capital requirements is a continuous management process.
Although the Company has been successful at raising funds in the past through the issuance of share capital, there can be no assurance that future financings will be successful.
Off-Balance Sheet arrangements
See “Commitments” above.
Transactions with Related Parties
No director or senior officer of the Company, and no associate or affiliate of the foregoing persons, and no insider has or has had any material interest, direct or indirect, in any transactions, or in any proposed transactions, which in either such case has materially affected or will materially affect the Company or the Company's predecessors since the beginning of the Company's last completed fiscal year except as follows:
During the six month period ended June 30, 2013, the Company incurred $172 thousand in consulting fees and operating expenses to private companies which are controlled by directors or officers of the Company, as compared to $559 thousand during the six month period ended June 30, 2012 ($53 thousand for the three months ended June 30, 2013 and $355 thousand for the three months ended June 30, 2012).
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Proposed Transactions
There are currently no proposed transactions that are expected to affect the financial condition, results of operations and cash flows of the Company.
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Critical Accounting Policies and Estimates
Our results of operation and financial condition are based on our consolidated financial statements, which are presented in accordance with IFRS. Certain accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at that time. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The significant accounting policies and estimates that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
- Exploration and evaluation assets;
- Share-based payment transactions;
- Joint oil and gas ventures;
- Farm out arrangements in the exploration and evaluation phase;
- Impairment of financial assets; and
- Revenue recognition.
The key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the Group that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Exploration and evaluation assets
Pre-license costs
Pre-license costs are expensed in the period in which they are incurred.
Exploration and evaluation costs
Oil and natural gas exploration and development expenditure is accounted for using the successful efforts method of accounting.
During the geological and geophysical exploration phase, costs are charged against income as incurred. Costs directly associated with an exploration well in its drilling phase, for which it has not yet been determined whether there are proved reserves or it is not commercially viable, are capitalized as exploration and evaluation intangible assets until the drilling of the well is complete and the results have been evaluated. These costs include employee remuneration, materials and fuel used, rig costs and payments made to contractors. If no reserves are found, the exploration asset is tested for impairment. If extractable hydrocarbons are found and, subject to further appraisal activity (e.g., by drilling further wells), are likely to be developed commercially, the costs continue to be carried as an intangible assets while sufficient and continued progress is made in assessing the commerciality of the hydrocarbons. All such costs are subject to technical, commercial and management review as well as review for impairment at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off. When proved reserves of oil are determined and development sanctioned, the relevant expenditure is transferred to oil and gas properties after impairment is assessed and any resulting impairment loss is recognized.
Share-based payment transactions
The Company's employees and other service providers are entitled to remuneration in the form of equity-settled share-based payment transactions.
The cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using an appropriate pricing model. As for other service providers, the cost of the transactions is measured at the fair value of the goods or services received as consideration for equity instruments. In cases where the fair value of the goods or services received as consideration of equity instruments cannot be measured, they are measured by reference to the fair value of the equity instruments granted.
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The cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance and service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award (the “vesting period”). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Company's best estimate of the number of equity instruments that will ultimately vest. The expense or income recognized in profit or loss represents the movement in the cumulative expense recognized at the end of the reporting period.
If the Company modifies the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee/other service provider at the modification date. If a grant of an equity instrument is cancelled, it is accounted for as if it had vested on the cancellation date, and any expense not yet recognized for the grant is recognized immediately. However, if a new grant replaces the cancelled grant and is identified as a replacement grant on the grant date, the cancelled and new grants are accounted for as a modification of the original grant, as described above.
Joint oil and gas ventures
The Company, through certain subsidiaries, conducts petroleum and natural gas exploration activities jointly with other participants who each have direct interests in the assets and each are directly obligated for the liabilities of the ventures. Consequently, these financial statements reflect only the Company's proportionate interest in such activities.
The Company accounts for its share of the joint venture's assets, liabilities it has incurred, income from the sale or use of its share of the joint venture's output, together with its share of the expenses incurred by the joint venture and any expenses it incurs in relation to its interest in the joint venture.
Farm-out arrangements in the exploration and evaluation phase
A “farm-out” is the transfer of an oil and gas interest in consideration for an agreement by the transferee (the
“farmee”) to meet, absolutely, certain expenditures which would otherwise have to be undertaken by the original interest holder (the “farmor”). Farm-out transactions generally occur in the exploration or development phase and are characterized by the transferor (i.e. farmor) giving up future economic benefits, in the form of reserves, in exchange for a reduction in future funding obligations.
Accordingly, the farmee recognizes its expenditure under the arrangement in respect of its interest and that retained by the farmor, as and when the costs are incurred.
The Company, as the farmor, accounts for the farm-out arrangement as follows:
- the Company does not record any expenditure made by the farmee on its behalf;
- the Company does not recognize a gain or loss on the farm out arrangement, but rather designates any costs capitalized in relation to the whole interest as relating to the partial interest retained; and
- any cash consideration received is credited against costs previously capitalized in relation to the whole interest with any excess accounted for by the farmor as a gain on disposal.
Impairment of financial assets
At the end of each reporting period, the Company assesses whether there is objective evidence of impairment of a financial asset or group of financial assets carried at amortized cost.
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As of the date hereof, there is objective evidence of impairment of debt instruments and receivables as a result of one or more events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows. Evidence of impairment may include indications that the debtor is experiencing financial difficulties, including liquidity difficulty and default in interest or principal payments. The amount of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate (the effective interest rate computed at initial recognition). If the financial asset has a variable interest rate, the discount rate is the current effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account (see allowance for doubtful accounts above). In a subsequent period, the amount of the impairment loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss.
Revenue recognition
Revenues are recognized in the statement of comprehensive loss when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
The Company’s revenues are mainly derived from:
1. Operator fees - The Company acts as the operator or joint operator on the Licenses and is entitled to operator fees and revenues are recognized in accordance with the terms of the JOAs, as exploration expenses are incurred in the UJV’s.
2. Consulting fees – The Company provides consulting services in respect of the Licenses on a “time and materials” basis. Consulting fees are recognized as revenues as the services are rendered to the respective UJV’s.
Disclosure Controls and Procedures and Internal Controls over Financial Reporting
There were no changes to the Company’s internal controls over financial reporting in the six month period ended June 30, 2013, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
As of June 30, 2013, the Company evaluated its disclosure controls and procedures and internal control over financial reporting, as defined by the Canadian Securities Administrators. These evaluations were carried out under the supervision of and with the participation of management, including the Company’s president and chief executive officer and the chief financial officer. Based on these evaluations, the president and chief executive officer and the chief financial officer concluded that the design of these disclosure controls and procedures and internal control over financial reporting were effective.
Financial Instruments and Other Instruments
The Company’s financial instruments have been designated as follows:
| Cash and cash equivalents | - Held-for-trading; |
| Restricted Cash | - Held-for-trading; |
| Accounts receivable | - Receivables; |
| Accounts payable and accrued liabilities | - Other financial liabilities; |
The carrying values of cash and cash equivalents, restricted cash and accounts receivable and accounts payable approximate their fair values due to the short-term maturity of these financial instruments.
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Risks and Uncertainties
Credit risk
The Company manages credit risk, in respect of cash and cash equivalents, and restricted cash, by holding them at major Canadian and Israeli financial institutions in accordance with the Company’s investment policy. The
Company places its cash and cash equivalents with high credit quality Israeli and Canadian financial institutions.
Concentration of credit risk exists with respect to the Company’s cash and cash equivalents and accounts receivable. As of June 30, 2013, the Company’s exposure is for cash held in bank accounts, including restricted deposit, in the amount of $2.1 million and on accounts and other receivable of $2.1 million. Except for amounts owed by MEGP, none of the Company’s accounts receivable is overdue as at June 30, 2013. As of June 30, 2013, the restricted deposits amount to $60 thousand and relates primarily to a bank guarantee in respect of the Company’s Israeli office lease and credit cards.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in obtaining funds to meet current obligations and future commitments. The Company's approach to managing liquidity risk is to forecast cash requirements to provide reasonable assurance that it will have sufficient funds to meet its liabilities when due. As of June 30, 2013, the Company had cash and cash equivalents of $2.1 million, restricted deposits of $60 thousand and accounts and other receivables of $2.1 million against current trade and other payables in the amount of $7.6 million.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of two types of risk: interest rate risk, and foreign currency risk.
| | (i) | Interest rate risk |
| | | |
| | | The Company is not exposed to significant interest rate risk due to the short-term maturity of its cash equivalents. |
| | | |
| | (ii) | Foreign currency risk |
| | | |
| | | The Company is exposed to financial risk related to the fluctuation of foreign exchange rates. The |
| | | |
| | | Company operates in Israel. Most of the Company’s monetary assets are held in US dollars and most of the Company’s expenditures are made in US dollars. However, the Company also has expenditures in NIS and Canadian dollars. The Company has not hedged its exposure to currency fluctuations. An increase or decrease of 5% of the NIS or the Canadian Dollar relative to the U.S dollar would not have a significant effect on the Company. |
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Environmental Risk
Environmental regulations affect the cost of exploration and development, as well as future development operations; however, management does not believe that any provision against environmental regulations is currently required.
For a complete discussion on risk factors, please refer to the Company’s Form 20-F dated April 30, 2013, filed onwww.sedar.com.
Other Information
Additional information about the Company, the Company’s quarterly and annual consolidated financial statements, annual information form, technical reports and other disclosure documents, is accessible at the Company’s website www.adiraenergy.com or through the Company’s public filings atwww.sedar.com.
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