| Credit Facility Disclosure | 10. Credit Facility
Three months ended
30-Sep-17
30-Sep-16
Credit facility at beginning of period
$ 23,419,749
$ 30,500,000
Cash advanced under facility
450,000
-
Cash committed to be advanced under facility
-
-
Repayments
-
-
Credit facility at end of period (1)
$ 23,869,749
$ 30,500,000
Less amount of credit facility currently due for repayment within a year, recorded seperately in Current Liabilities for prior year
$ (23,869,749)
(11,500,000)
Total non current credit facility at end of period
-
19,000,000
Funds available for drawdown under the facility
130,251
-
(1)
The credit facility is recognized as a current liability due the Company’s continued breach of the covenants in the facility. The loan is due October 2018.
In January 2014, we entered into a $25.0 million credit facility with our primary lender, Mutual of Omaha Bank, with an initial borrowing base of $8.0 million, which was increased to $15.5 million in June 2014. In November 2014, the borrowing base was increased to $19.0 million, which was fully drawn prior to the closing of the Foreman Butte Acquisition (as defined below). In March 2016, our credit facility was amended to increase the borrowing base to $30.5 million to partially fund the Foreman Butte Acquisition. An additional $4 million in financing was also provided by the seller. This promissory note was paid off in May 2017. We were required under the amended credit agreement to repay Mutual of Omaha $10 million by June 30, 2016. This was ultimately increased to $11.5 million and extended to October 31, 2016. The pay down was achieved through the sale of our North Stockyard property for $14.95 million on October 28, 2016 and was made on October 31, 2016.
In May 2017, Mutual of Omaha agreed to repay our outstanding promissory note to the seller of the Foreman Butte Acquisition through a term note in addition to our current facility. This closed on May 5, 2017. Samson paid $0.45 million in interest from existing cash reserves, while Mutual of Omaha paid $4.0 million in principal.
As a result of this amendment to the credit facility the interest changed from being based on LIBOR to the Wall Street Journal published Prime Rate (“Prime”). The interest rate on the term loan is Prime plus 2.5% or approximately 6.5% and the credit facility is Prime plus 1.0% or 5%.
In June 2017, Samson and Mutual of Omaha Bank agreed to extend both the $4 million term loan and our $19.45 million reserve base facility until October 2018. The previous maturity date was October 31, 2017.
The current borrowing base is $24.0 million and was fully drawn as at September 30, 2017. The additional borrowing base capacity has no additional restrictions on it.
The borrowing base under our credit facility may be increased (up to the credit facility maximum of $50.0 million, which would require syndication of the loan) or decreased in the future depending on the value of our reserves. Borrowing base redeterminations are performed by the lender every six months based on our June and December reserve reports. We also have the ability to request a borrowing base redetermination at another time, once a year.
In March 2016, the facility was extended to $30.5 million to partly fund the Foreman Butte Acquisition. As a result of this amendment to the facility agreement, the following changes were made to the original facility agreement:
·
The addition of more restrictive financial covenants (including the debt to EBITDA ratio and the minimum liquidity requirement);
·
Increases in the interest rate and unused facility fee;
·
The addition of a minimum hedging requirement of 75% of forecasted production;
·
A requirement to reduce our general and administrative costs from $6 million per year to $3 million per year;
·
A requirement to raise $5 million in equity on or before September 30, 2016 (this was extended to November 15, 2016 and then effective November 10, 2016 Mutual of Omaha agreed that this requirement had been met following the $1.4 million capital raise completed in April 2016 and by the application of retained funds from the North Stockyard sale);
·
A requirement to pay down at least $10 million of the loan by June 30, 2016 (which was increased to $11.5 million and extended to October 31, 2016 in line with the closing of the North Stockyard sale) and we repaid $11.5 million on October 31, 2016; and
·
The addition of a monthly cash flow sweep whereby 50% of cash operating income will be used to repay outstanding borrowings under the Credit Agreement. To date, $0.1 million in repayments have been repaid under this covenant.
The credit facility includes the following covenants, tested on a quarterly basis:
·
Current ratio greater than 1
·
Debt to EBITDAX (annualized) ratio no greater than 5.75 for the quarter ended March 30, 2016 through to September 30, 2016 reducing to 4.00 by September 30, 2017
·
Senior leverage ratio of no greater than 4.25 to 1 for the quarter ended June 30, 2016 reducing to 3.75 for the quarter ending December 31, 2016 and thereafter
·
Interest coverage ratio minimum of between 2.5 and 1.0
As at September 2017 we were in breach of all four covenants. We have requested a waiver of these covenants.
If the current pricing environment for oil and gas does not improve, it will be difficult for the Company to re-attain compliance with these covenants based our current debt levels. If we are not in compliance with these covenants in the credit facility, we do not receive a waiver from the lender, and we fail to cure any such noncompliance during the applicable cure period, then the due date of our debt could be accelerated by the lender. In addition, any failure to comply with these covenants adversely affects our ability to fund ongoing operations. We also must continue to improve our operations to address our working capital deficit.
We incurred $0.6 million in borrowing costs (including legal fees and bank fees) in connection with the establishment of this facility. These costs have been deferred and are being amortized over the life of the facility. |
