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Aerospace & Defence - - - - 8.90

Touchstone Exploration Inc. Interim Results

11/08/2017 7:00am

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Touchstone Exploration Inc.

11 August 2017

TOUCHSTONE EXPLORATION INC.

ANNOUNCES SECOND QUARTER 2017 RESULTS AND SIX MONTHS TO 30 JUNE 2017 INTERIM RESULTS

Calgary, Alberta - August 11, 2017 - Touchstone Exploration Inc. ("Touchstone" or the "Company") (TSX / LSE: TXP) announces its financial and operating results for the three months ended June 30, 2017 (the "second quarter"). Selected financial and operational information is outlined below and should be read in conjunction with Touchstone's June 30, 2017 unaudited interim consolidated financial statements and related management's discussion and analysis, both of which will be available under the Company's profile on SEDAR (www.sedar.com) and the Company's website (www.touchstoneexploration.com). Unless otherwise stated, tabular amounts herein are in thousands of Canadian dollars, and amounts in text are rounded to thousands of Canadian dollars.

Highlights

-- Completed an admission and listing on the AIM market of the London Stock Exchange ("AIM") on June 26, 2017. In conjunction with the admission, the Company successfully placed 20,000,000 new common shares with United Kingdom investors for gross proceeds of $2,446,000.

   --      Successfully drilled three wells and recompleted five wells in the second quarter of 2017. 

-- Achieved second quarter average crude oil sales of 1,334 barrels per day ("bbls/d"), representing an increase of 4% from the first quarter of 2017.

-- Realized operating netback before realized derivatives of $21.72 per barrel during the six months ended June 30, 2017, representing an increase of 134% from $9.27 per barrel recorded in the equivalent period of 2016.

-- Generated second quarter funds flow from operations of $438,000 ($0.01 per basic share) compared to $393,000 ($0.01 per basic share) recorded in the first quarter of 2017.

2017 Second Quarter and Year to Date Financial and Operating Results Summary

 
                                                          Three months ended                                              Six months ended 
                                                                    June 30,                                                      June 30, 
                                         2017                           2016                           2017                           2016 
--------------  -----------------------------  -----------------------------  -----------------------------  ----------------------------- 
 
 Operating 
 Average daily 
  oil 
  production 
  (bbls/d)                              1,334                          1,322                          1,307                          1,342 
 
 Operating 
 netback(1) 
 ($/bbl) 
  Brent 
   benchmark 
   price                                66.66                          58.72                          68.79                          52.61 
  Discount                             (5.40)                         (8.89)                         (6.12)                         (8.45) 
--------------  -----------------------------  -----------------------------  -----------------------------  ----------------------------- 
  Realized 
   sales price                          61.26                          49.83                          62.67                          44.16 
  Royalties                           (17.84)                        (13.52)                        (20.34)                        (12.54) 
  Operating 
   expenses                           (23.53)                        (20.10)                        (20.61)                        (22.35) 
--------------  -----------------------------  -----------------------------  -----------------------------  ----------------------------- 
 Operating 
  netback 
  prior 
  to 
  derivatives                           19.89                          16.21                          21.72                           9.27 
  Realized 
   gain on 
   derivatives                              -                          27.56                              -                          26.47 
--------------  -----------------------------  -----------------------------  -----------------------------  ----------------------------- 
 Operating 
  netback 
  after 
  derivatives                           19.89                          43.77                          21.72                          35.74 
--------------  -----------------------------  -----------------------------  -----------------------------  ----------------------------- 
 
 Financial ($000's except share and 
  per share amounts) 
 
 Funds flow 
  from 
  operations                              438                          3,278                            831                          4,197 
  Per share - 
   basic and 
   diluted(1)                            0.01                           0.04                           0.01                           0.05 
 
 Net loss                             (1,848)                        (2,553)                        (3,397)                        (4,997) 
  Per share - 
   basic and 
   diluted                             (0.02)                         (0.03)                         (0.04)                         (0.06) 
--------------  -----------------------------  -----------------------------  -----------------------------  ----------------------------- 
 (1) Refer to 
 advisory 
 regarding 
 non-GAAP 
 measures. 
 
 Capital 
 expenditures 
  Exploration                             520                            476                            708                            629 
  Property and 
   equipment                            4,940                          (340)                          5,486                            706 
--------------  -----------------------------  -----------------------------  -----------------------------  ----------------------------- 
 Company total                          5,460                            136                          6,194                          1,335 
--------------  -----------------------------  -----------------------------  -----------------------------  ----------------------------- 
 
 Total assets 
  - end of 
  period                                                                                             86,570                         73,330 
 Net debt(1) - 
  end of 
  period                                                                                             13,814                          4,188 
 
 Weighted 
 average 
 shares 
 outstanding 
  Basic and 
   diluted                         84,236,044                     83,125,605                     83,689,629                     83,106,374 
 Outstanding 
  shares - end 
  of period                                                                                     103,137,143                     83,137,143 
 
 

(1) Refer to advisory regarding non-GAAP measures.

In the second quarter of 2017, Touchstone commenced its four well 2017 drilling program. Three wells were drilled in the quarter, two of which were completed and on production by the end of June 2017. Touchstone's workover program continued in the quarter with five wells recompleted, totaling ten well recompletions in the calendar year of 2017. The Company invested $5,460,000 in the second quarter of 2017 on exploration and development expenditures, of which $4,726,000 related to drilling and well recompletions. As a result, second quarter 2017 production increased to 1,334 bbls/d, representing an increase of 4% from the first quarter of 2017 and 1% from the second quarter of 2016. The two new wells commenced production in mid-June 2017, contributing a field estimated 3,350 barrels of incremental production in the second quarter.

Realized second quarter 2017 pricing for crude oil was $61.26 (US$45.51) per barrel versus $49.83 (US$38.59) per barrel received in the equivalent quarter of 2016. Petroleum revenues increased 24% from the prior year comparative quarter primarily based on the significant year over year increase in realized crude oil prices. Second quarter 2017 royalty expenses represented 29.1% of petroleum revenues compared to 27.1% in the prior year comparative period. The increase reflected the sliding scale effect of increased commodity prices on royalty rates. Second quarter 2017 operating expenses increased 17% per barrel based on increased workover activity. General and administrative costs increased 5% from the prior year second quarter, as less costs were capitalized in the second quarter of 2017. Second quarter 2017 net finance expenses increased 16% from the prior year equivalent quarter, as increased term loan interest expenses were slightly offset by reduced interest on income taxes and bank loan finance fees.

Funds flow from operations for the three months ended June 30, 2017 was $438,000 ($0.01 per basic share) versus funds flow from operations of $3,278,000 ($0.04 per basic share) recognized in the second quarter of 2016. Funds flow from operations decreased in comparison to the prior year comparative quarter largely due to $3,316,000 in realized derivative gains that were recorded in 2016. The Company recorded a net loss of $1,848,000 ($0.02 per basic share) during the three months ended June 30, 2017, versus a net loss of $2,553,000 ($0.03 per basic share) recognized in the second quarter of 2016.

On June 26, 2017, the Company completed an admission and listing on the AIM market of the London Stock Exchange. In conjunction with the AIM admission, the Company placed an additional 20,000,000 new common shares at a price of $0.12, resulting in gross and net proceeds of $2,446,000 and $777,000, respectively.

Touchstone exited the quarter with a cash balance of $9,925,000, a working capital surplus of $1,186,000 and a $15,000,000 principal term loan balance. $4,925,000 of the Company's cash balance was considered available at June 30, 2017, as Touchstone must maintain a minimum cash reserves balance of $5,000,000 in accordance with its term loan. In addition, the Company classified $3,186,000 in cash used to collateralize letters of credit that secured future work obligations on production and development contracts as long-term restricted cash. Cash and working capital decreased from the first quarter of 2017 due to drilling activity in the second quarter; the Company expects to realize the benefits of increased production in the second half of 2017.

The fourth well of Touchstone's 2017 drilling program was drilled subsequent to the end of the second quarter, and all four wells were completed and on production. The Company will provide an operational update when all new wells have stabilized with at least 30 days of production data.

Paul Baay, President and Chief Executive Officer of Touchstone, commented:

"We have had a very positive second quarter, as we completed a successful admission and listing on AIM and achieved a 134% year-over-year rise in our year to date operating netback prior to derivatives. I would like to thank all of our staff for their continued hard work in ensuring we successfully and safely drilled three wells and performed five well recompletions during the second quarter." He went on to say, "The fourth well was successfully drilled post quarter end with all four wells currently on production. This drilling program had little effect on second quarter financial and operating results as incremental production came on late in June, however, we expect to see the full impact of these wells during the second half of the year."

For further information, please contact:

 
 Touchstone Exploration Inc.                  Tel: +1 (403) 750-4487 
 Paul Baay, President and Chief Executive 
  Officer 
 Scott Budau, Chief Financial Officer 
 James Shipka, Chief Operating Officer 
 www.touchstoneexploration.com 
 
 Shore Capital (Nominated Advisor and Joint   Tel: +44 (0) 20 7408 
  Broker)                                      4090 
 Nominated Adviser: Edward Mansfield / Mark 
  Percy / James Wolfe 
 Corporate Broking: Jerry Keen 
 
 GMP FirstEnergy (Joint Broker)               Tel: +44 (0) 207448 
                                               0200 
 Jonathan Wright / Hugh Sanderson 
 
 Camarco (Financial PR)                       Tel: +44 (0) 203 757 
                                               4980 
 Nick Hennis / Jane Glover / Billy Clegg 
 

About Touchstone

Touchstone Exploration Inc. is a Calgary based company engaged in the business of acquiring interests in petroleum and natural gas rights, and the exploration, development, production and sale of petroleum and natural gas. Touchstone is currently active in onshore properties located in the Republic of Trinidad and Tobago. The Company's common shares are traded on the Toronto Stock Exchange and the AIM market of the London Stock Exchange under the symbol "TXP".

Advisories

Non-GAAP Measures: This announcement contains terms commonly used in the oil and natural gas industry, such as funds flow from operations per share, operating netback and net debt. These terms do not have a standardized meaning under International Financial Reporting Standards and may not be comparable to similar measures presented by other companies. The Company calculates funds flow from operations per share by dividing funds flow from operations by the weighted average number of common shares outstanding during the applicable period. Operating netback is presented on a per barrel basis and is calculated by deducting royalties and operating expenses from petroleum revenue. The Company discloses operating netback both prior to realized gains or losses on derivatives and after the impacts of derivatives are included. Realized gains or losses represent the portion of risk management contracts that have settled in cash during the period, and disclosing this impact provides Management and investors with transparent measures that reflect how the Company's risk management program can impact netback metrics. The Company uses operating netback as a key performance indicator of field results, and considers it to be a key measure as it demonstrates Touchstone's profitability relative to current commodity prices. Net debt is calculated by summing the Company's working capital and non-current undiscounted interest bearing liabilities. Working capital is defined as current assets less current liabilities as they appear on the statements of financial position. The Company uses this information to assess its true debt and liquidity position and to manage capital and liquidity risk. Management uses these non-GAAP measures for its own performance measurement and to provide stakeholders with measures to compare the Company's operations over time.

Forward-Looking Statements: Certain information provided in this announcement may constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking information in this announcement may include, but is not limited to, statements regarding expectations related to the future incremental production to be achieved from the drilling program. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. Certain of these risks are set out in more detail in the Company's Annual Information Form dated March 21, 2017 which has been filed on SEDAR and can be accessed at www.sedar.com. The forward-looking statements contained in this announcement are made as of the date hereof, and except as may be required by applicable securities laws, the Company assumes no obligation to update publicly or revise any forward-looking statements made herein or otherwise, whether as a result of new information, future events or otherwise.

Interim Consolidated Statements of Financial Position

(Unaudited, thousands of Canadian dollars)

 
                                                     June 30,    December 
                                             Note        2017    31, 2016 
------------------------------------------  -----  ----------  ---------- 
 
 Assets                                       7 
 Current assets 
 Cash                                                 $ 9,925     $ 8,433 
 Accounts receivable                          12        8,176       8,809 
 Crude oil inventory                                      146         125 
 Prepaid expenses                                         549         368 
                                                       18,796      17,735 
 
 Exploration assets                           4         1,985       1,858 
 Property and equipment                       5        61,806      60,358 
 Restricted cash and cash equivalents         6         3,186       8,461 
 Other assets                                             797         873 
                                                     $ 86,570    $ 89,285 
------------------------------------------  -----  ----------  ---------- 
 
 Liabilities 
 Current liabilities 
 Accounts payable and accrued liabilities            $ 14,234    $ 13,384 
 Income taxes payable                                   3,376       3,505 
                                                       17,610      16,889 
 
 Provisions                                               362         466 
 Term loan and associated liabilities         7        14,699      14,496 
 Decommissioning obligations                  8        16,172      16,455 
 Deferred income taxes                                  5,166       4,745 
------------------------------------------  -----  ----------  ---------- 
                                                       54,009      53,051 
------------------------------------------  -----  ----------  ---------- 
 
 Shareholders' equity 
 Shareholders' capital                        9       170,772     169,995 
 Contributed surplus                                    2,262       2,144 
 Accumulated other comprehensive income                 8,060       9,231 
 Deficit                                            (148,533)   (145,136) 
------------------------------------------  -----  ----------  ---------- 
                                                       32,561      36,234 
------------------------------------------  -----  ----------  ---------- 
                                                     $ 86,570    $ 89,285 
------------------------------------------  -----  ----------  ---------- 
 

Commitments (note 14)

See accompanying notes to these consolidated financial statements.

Approved on behalf of the Board of Directors of Touchstone Exploration Inc.:

/s/ John D. Wright /s/ Kenneth McKinnon

Director and Chairman of the Board of Directors Director and Chair of the Audit Committee

Interim Consolidated Statements of Loss and Comprehensive Loss

(Unaudited, thousands of Canadian dollars, except per share amounts)

 
                                       Three months ended June        Six months ended 
                                                           30,                June 30, 
                                  Note        2017        2016        2017        2016 
-------------------------------  -----  ----------  ----------  ----------  ---------- 
 
 Revenues 
 Petroleum revenue                         $ 7,436     $ 5,996    $ 14,827    $ 10,783 
 Royalties                                 (2,166)     (1,627)     (4,812)     (3,062) 
-------------------------------  -----  ----------  ----------  ----------  ---------- 
                                             5,270       4,369      10,015       7,721 
 Loss on financial derivatives     12            -     (2,783)           -     (1,970) 
                                             5,270       1,586      10,015       5,751 
 Expenses 
 Operating                                   2,857       2,419       4,877       5,457 
 General and administrative                  1,645       1,571       3,071       3,631 
 Net finance expenses              10          390         337       1,162         836 
 Foreign exchange loss                         155          35         235         100 
 Share-based compensation          9            44          33         100         101 
 Depletion and depreciation        5         1,162       1,154       2,290       2,413 
 Impairment                        4           430         114         516         227 
 Accretion on decommissioning 
  obligations                      8            39          76          79         154 
 Accretion on term loan            7            96           -         351           - 
                                             6,818       5,739      12,681      12,919 
-------------------------------  -----  ----------  ----------  ----------  ---------- 
 
 Net loss before income 
  taxes                                    (1,548)     (4,153)     (2,666)     (7,168) 
 
 Income taxes 
 Current tax expense                            31          48         142          67 
 Deferred tax expense 
  (recovery)                                   269     (1,648)         589     (2,238) 
-------------------------------  -----  ----------  ----------  ----------  ---------- 
                                               300     (1,600)         731     (2,171) 
-------------------------------  -----  ----------  ----------  ----------  ---------- 
 
 Net loss                                  (1,848)     (2,553)     (3,397)     (4,997) 
 Foreign currency translation 
  adjustment                                 (904)       (450)     (1,171)     (4,741) 
-------------------------------  -----  ----------  ----------  ----------  ---------- 
 Comprehensive loss                      $ (2,752)   $ (3,003)   $ (4,568)   $ (9,738) 
-------------------------------  -----  ----------  ----------  ----------  ---------- 
 
 Net loss per common 
  share 
 Basic and diluted                 11     $ (0.02)    $ (0.03)    $ (0.04)    $ (0.06) 
-------------------------------  -----  ----------  ----------  ----------  ---------- 
 

See accompanying notes to these consolidated financial statements.

Interim Consolidated Statements of Changes in Shareholders' Equity

(Unaudited, thousands of Canadian dollars)

 
                               Note   Shareholders'              Contributed 
                                            capital   Warrants       surplus 
----------------------------  -----  --------------  ---------  ------------ 
 Balance as at January 1, 
  2016                                    $ 169,950       $ 33       $ 1,939 
 Net loss                                         -          -             - 
 Other comprehensive loss                         -          -             - 
 Share-based compensation 
  expense                                         -          -           157 
 Share-based compensation 
  capitalized                                     -          -            57 
 Share-based settlements                         45          -          (42) 
 Transfer of unexercised 
  warrants                                        -       (33)            33 
----------------------------  -----  --------------  ---------  ------------ 
 Balance as at December 
  31, 2016                                $ 169,995        $ -       $ 2,144 
----------------------------  -----  --------------  ---------  ------------ 
 
 Net loss                                         -          -             - 
 Other comprehensive loss                         -          -             - 
 Issued pursuant to private 
  placement                     9               777          -             - 
 Share-based compensation 
  expense                       9                 -          -           100 
 Share-based compensation 
  capitalized                   5                 -          -            18 
----------------------------  -----  --------------  ---------  ------------ 
 Balance as at June 30, 
  2017                                    $ 170,772        $ -       $ 2,262 
----------------------------  -----  --------------  ---------  ------------ 
 
 
 
                               Note            Accumulated 
                                       other comprehensive                   Total Shareholders' 
                                                    income         Deficit                Equity 
 
 Balance as at January 1, 
  2016                                            $ 13,018     $ (132,283)              $ 52,657 
 Net loss                                                -        (12,853)              (12,853) 
 Other comprehensive loss                          (3,787)               -               (3,787) 
 Share-based compensation 
  expense                                                -               -                   157 
 Share-based compensation 
  capitalized                                            -               -                    57 
 Share-based settlements                                 -               -                     3 
 Transfer of unexercised 
  warrants                                               -               -                     - 
----------------------------  -----  ---------------------  --------------  -------------------- 
 Balance as at December 
  31, 2016                                         $ 9,231     $ (145,136)              $ 36,234 
----------------------------  -----  ---------------------  --------------  -------------------- 
 
 Net loss                                                -         (3,397)               (3,397) 
 Other comprehensive loss                          (1,171)               -               (1,171) 
 Issued pursuant to private 
  placement                     9                        -               -                   777 
 Share-based compensation 
  expense                       9                        -               -                   100 
 Share-based compensation 
  capitalized                   5                        -               -                    18 
----------------------------  -----  ---------------------  --------------  -------------------- 
 Balance as at June 30, 
  2017                                             $ 8,060     $ (148,533)              $ 32,561 
----------------------------  -----  ---------------------  --------------  -------------------- 
 

See accompanying notes to these consolidated financial statements.

Interim Consolidated Statements of Cash Flows

(Unaudited, thousands of Canadian dollars)

 
                                   Note        2017        2016        2017        2016 
--------------------------------  -----  ----------  ----------  ----------  ---------- 
 
 Cash provided by (used 
  in): 
 
 Operating activities 
 Net loss for the year                    $ (1,848)   $ (2,553)   $ (3,397)   $ (4,997) 
 Items not involving cash 
  from operations: 
 Non-cash loss on financial 
  derivatives                                     -       6,099           -       8,432 
 Unrealized foreign 
  exchange loss                                 325         108         447         314 
 Share-based compensation           9            44          33         100         101 
 Depletion and depreciation         5         1,162       1,154       2,290       2,413 
 Impairment                         4           430         114         516         227 
 Accretion on decommissioning 
  obligations                       8            39          76          79         154 
 Accretion on term loan             7            96           -         351           - 
 Other                                         (79)       (105)       (144)       (209) 
 Deferred income tax 
  expense (recovery)                            269     (1,648)         589     (2,238) 
--------------------------------  -----  ----------  ----------  ----------  ---------- 
 Funds flow from operations                     438       3,278         831       4,197 
 Change in non-cash working 
  capital                                   (1,530)         265     (1,917)       2,158 
---------------------------------------  ----------  ----------  ----------  ---------- 
                                            (1,092)       3,543     (1,086)       6,355 
--------------------------------  -----  ----------  ----------  ----------  ---------- 
 
 Investing activities 
 Restricted cash and 
  cash equivalents                  6             -           -       5,144           - 
 Exploration asset expenditures     4         (520)       (476)       (708)       (629) 
 Property and equipment 
  expenditures (recovery)           5       (4,940)         340     (5,486)       (706) 
 Proceeds from dispositions                       -           -           -         900 
 Change in non-cash working 
  capital                                     2,803         118       2,959        (14) 
---------------------------------------  ----------  ----------  ----------  ---------- 
                                            (2,657)        (18)       1,909       (449) 
--------------------------------  -----  ----------  ----------  ----------  ---------- 
 
 Financing activities 
 Repayments of bank 
  loan                                            -     (2,574)           -     (7,864) 
 Finance lease receipts                          16           4          16          35 
 Issuance of common 
  shares                            9           777           3         777           3 
                                                793     (2,567)         793     (7,826) 
--------------------------------  -----  ----------  ----------  ----------  ---------- 
 
 Change in cash                             (2,956)         958       1,616     (1,920) 
 Cash, beginning of 
  period                                     13,006       1,826       8,433       4,710 
 Impact of foreign exchange 
  in foreign denominated cash 
  balances                                    (125)         (2)       (124)         (8) 
 
 Cash, end of period                        $ 9,925     $ 2,782     $ 9,925     $ 2,782 
--------------------------------  -----  ----------  ----------  ----------  ---------- 
 
 Supplemental information: 
 Cash interest paid                             296          60         424         152 
 Cash income taxes paid                         143          53         173          67 
--------------------------------  -----  ----------  ----------  ----------  ---------- 
 

See accompanying notes to these consolidated financial statements.

Notes to the Interim Consolidated Financial Statements (unaudited)

As at June 30, 2017 and for the three and six months ended June 30, 2017 and 2016

   1.         Reporting Entity 

Touchstone Exploration Inc. (the "Company") is incorporated under the laws of Alberta, Canada with its head office located in Calgary, Alberta. The Company is an oil and gas exploration and production company active in the Republic of Trinidad and Tobago ("Trinidad").

The principal address of the Company is located at 4100, 350 7(th) Avenue SW, Calgary, Alberta, T2P 3N9. The Company's common shares are listed on the Toronto Stock Exchange ("TSX") and on the AIM market of the London Stock Exchange ("AIM") under the symbol "TXP".

   2.         Basis of Preparation and Statement of Compliance 

These unaudited interim consolidated financial statements (the "financial statements") have been prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting, using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). These financial statements are condensed as they do not include all the information required by IFRS for annual financial statements and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2016. Unless otherwise stated, amounts presented in these financial statements are rounded to thousands of Canadian dollars and tabular amounts are stated in thousands of Canadian dollars.

These financial statements have been prepared on a historical cost basis, except as detailed in the accounting policies disclosed in Note 3 "Summary of Significant Accounting Policies" of the Company's audited consolidated financial statements for the year ended December 31, 2016. All accounting policies and methods of computation followed in the preparation of these financial statements are consistent with those of the previous financial year, except as noted in Note 3 "Accounting Policies". There have been no significant changes to the use of estimates or judgments since December 31, 2016.

At December 31, 2016, the audited consolidated financial statements included the accounts of the Company and its wholly owned subsidiaries, including Archon Technologies Ltd. Effective January 1, 2017, Archon Technologies Ltd. amalgamated with Touchstone Exploration Inc. All intercompany transactions have been eliminated upon consolidation between the Company and its subsidiaries in these financial statements.

These financial statements were authorized for issue by the Board of Directors on August 10, 2017.

   3.         Accounting Policies 
   (a)    Segment reporting 

Effective January 1, 2017, the Company's operations were viewed as a single operating segment by the chief operating decision makers of the Company for the purpose of resource allocation and assessing operational performance. Accordingly, certain reclassification adjustments have been made to the comparative period to conform to the current presentation.

   (b)    Accounting standards adopted 

There were no new or amended accounting standards or interpretations adopted by the Company during the six months ended June 30, 2017.

-

   (c)    Standards issued but not yet adopted 

In April 2016, the IASB issued its final amendments to IFRS 15 Revenue from Contracts with Customers, which replaces IAS 18 Revenue, IAS 11 Construction Contracts, and related interpretations. IFRS 15 provides a single, principles-based five-step model to be applied to all contracts with customers. The standard requires an entity to recognize revenue to reflect the transfer of goods and services for the amount it expects to receive when control is transferred to the purchaser. Disclosure requirements have also been expanded. The standard is required to be adopted either retrospectively or using a modified retrospective approach for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. IFRS 15 is expected to be applied by the Company on January 1, 2018. The Company is currently in the process of reviewing its underlying crude oil contracts to determine the impact, if any, that the adoption of IFRS 15 will have on its financial statements, as well as the impact that adoption of the standard will have on disclosure.

In July 2014, the IASB completed the final elements of IFRS 9 Financial Instruments. The standard supersedes earlier versions of IFRS 9 and completes the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces a single approach to determine whether a financial asset is measured at amortized cost or fair value and replaces the multiple rules within IAS 39. For financial liabilities, IFRS 9 retains most of the requirements of IAS 39. The Company does not anticipate any material changes in the carrying values of the Company's financial instruments because of the adoption of IFRS 9. The standard will come into effect for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. IFRS 9 is expected be applied on a retrospective basis by the Company on January 1, 2018.

In January 2016, the IASB issued IFRS 16 Leases, which replaces IAS 17 Leases. For lessees applying IFRS 16, a single recognition and measurement model for leases would apply, with required recognition of assets and liabilities for most leases. The standard will come into effect for annual periods beginning on or after January 1, 2019, with earlier adoption permitted if the entity is also applying IFRS 15 Revenue from Contracts with Customers. The standard is required to be adopted either retrospectively or using a modified retrospective approach. IFRS 16 is expected to be applied by the Company on January 1, 2019, and the Company is currently evaluating the impact of the standard on its financial statements.

   4.         Exploration Assets 

Exploration assets consist of the Company's projects in the exploration and evaluation stage which are pending determination of technical and commercial feasibility. The following table is a continuity schedule of the Company's exploration assets.

 
                                                Trinidad                  Corporate                     Total 
-----------------------------  -------------------------  -------------------------  ------------------------ 
 
 Balance, January 1, 2016                        $ 1,163                      $ 491                   $ 1,654 
 Additions                                         4,041                         35                     4,076 
 Dispositions                                          -                       (60)                      (60) 
 Impairment                                      (4,574)                      (466)                   (5,040) 
 Transfer from held for sale                       1,413                          -                     1,413 
 Effect of change in foreign 
  exchange rates                                   (185)                          -                     (185) 
-----------------------------  -------------------------  -------------------------  ------------------------ 
 
 Balance, December 31, 2016                      $ 1,858                        $ -                   $ 1,858 
 Additions                                           669                         39                       708 
 Impairment                                        (477)                       (39)                     (516) 
 Effect of change in foreign 
  exchange rates                                    (65)                          -                      (65) 
 
 Balance, June 30, 2017                          $ 1,985                        $ -                   $ 1,985 
-----------------------------  -------------------------  -------------------------  ------------------------ 
 

During the three and six months ended June 30, 2017, $11,000 and $31,000 (2016 - $123,000 and $134,000) of general and administrative expenses were capitalized to exploration assets, respectively.

During the three and six months ended June 30, 2017, the Company incurred $391,000 and $477,000 (2016 - $114,000 and $227,000) in accrued lease expenses and letter of credit holding costs relating to its East Brighton property, respectively. These costs were impaired given the property's estimated recoverable amount was $nil. An additional $39,000 in corporate exploration property lease expenses were incurred and impaired during the three and six months ended June 30, 2017 (2016 - $nil and $nil, respectively).

   5.         Property and Equipment 
 
                                                Trinidad                  Corporate                    Total 
-----------------------------  -------------------------  -------------------------  ----------------------- 
 
 Cost: 
 Balance, January 1, 2015                      $ 167,202                    $ 7,221                $ 174,423 
 Additions                                         4,656                        138                    4,794 
 Dispositions                                          -                    (5,011)                  (5,011) 
 Effect of change in foreign 
  exchange rates                                (12,241)                          -                 (12,241) 
 
 Balance, December 31, 2016                    $ 159,617                    $ 2,348                $ 161,965 
 Additions                                         5,592                        108                    5,700 
 Effect of change in foreign 
  exchange rates                                 (5,195)                          -                  (5,195) 
 
 Balance, June 30, 2017                        $ 160,014                    $ 2,456                $ 162,470 
-----------------------------  -------------------------  -------------------------  ----------------------- 
 
 Accumulated depletion, depreciation 
  and impairments: 
 Balance, January 1, 2015                      $ 102,064                    $ 1,720                $ 103,784 
 Depletion and depreciation                        4,852                        190                    5,042 
 Impairments                                          47                          -                       47 
 Dispositions                                          -                      (144)                    (144) 
 Decommissioning obligation 
  change in estimate                                 349                          -                      349 
 Effect of change in foreign 
  exchange rates                                 (7,471)                          -                  (7,471) 
 
 Balance, December 31, 2016                     $ 99,841                    $ 1,766                $ 101,607 
 Depletion and depreciation                        2,195                         95                    2,290 
 Effect of change in foreign 
  exchange rates                                 (3,233)                          -                  (3,233) 
 
 Balance, June 30, 2017                         $ 98,803                    $ 1,861                $ 100,664 
-----------------------------  -------------------------  -------------------------  ----------------------- 
 
 Net book values: 
 Balance, December 31, 2016                     $ 59,776                      $ 582                 $ 60,358 
 Balance, June 30, 2017                           61,211                        595                   61,806 
-----------------------------  -------------------------  -------------------------  ----------------------- 
 

As at June 30, 2017, $63,293,000 in future development costs were included in Trinidad production asset cost bases for depletion calculation purposes (December 31, 2016 - $70,870,000). During the three and six months ended June 30, 2017, $207,000 and $403,000 in general and administrative expenses were capitalized to property and equipment, respectively (2016 - $194,000 and $515,000). During the three and six months ended June 30, 2017, $9,000 and $18,000 in share-based compensation expenses were capitalized to property and equipment, respectively (2016 - $16,000 and $36,000).

Lease operatorship agreements

The Company's Lease Operating Agreements ("LOAs") in respect of its four core properties (Coora 1, Coora 2, WD-4 and WD-8) with the Petroleum Company of Trinidad and Tobago Limited ("Petrotrin"), initially expire on December 31, 2020, with the Company holding a five-year renewal option upon reaching agreement regarding the proposed work program and financial obligations. The practice in Trinidad is for extensions to be issued in most cases on terms substantially similar to those in effect at the time. Presently, the Company is subject to annual minimum production levels and five-year minimum work commitments from 2016 through 2020 (see note 14).

In 2016, the Company did not meet the annual minimum production levels and the minimum work obligations specified in the Coora 1, Coora 2 and WD-8 LOAs or the minimum work obligations specified in the WD-4 LOA. Although the LOAs provide that the minimum production levels are to be achieved on a best endeavors basis, the LOAs also describe the failure to achieve the minimum production levels or the failure to complete the work obligations as potentially constituting a material breach of the LOAs. As a result of this inconsistency, the Company sought legal advice regarding the effect of not meeting the production levels and not completing the work obligations.

On May 17, 2017, the Company received additional correspondence from Petrotrin approving the Company's development plans for the Coora 1 and WD-4 properties and requesting the Company to provide a definite timeline under which the work obligations for the Coora 2 and WD-8 licences will be met. At the date of these financial statements, the Company has fulfilled its work commitments on the Coora 1 and WD-4 properties for 2016 and 2017. The Company will respond to the Coora-2 and WD-8 request after the results of the initial four well program have stabilized, and the impact of continued low commodity pricing and available capital resources are evaluated.

Based on correspondence and quarterly lease operatorship reviews to date, Petrotrin has not taken the position that there is any breach of the LOAs. It is not anticipated that a default notice will be issued; however, in any event, the Company is only required to begin to rectify the breach within seven days from the date of receipt of such notice. The Company has been advised by its legal counsel that the risk of the loss of the LOAs for an allegation of noncompliance is extremely remote. No assurance can be given that, if future breaches of these obligations occur, they will not result in a material adverse impact to the Company's cash flows. As at June 30, 2017, the Company was in compliance with all other obligations specified in the LOAs.

Exploration and production licences

The Company's Fyzabad and Palo Seco exploration and production agreements with the Trinidad and Tobago Minister of Energy and Energy Industries ("MEEI") contain no major work obligations or covenants but expired on August 19, 2013. The Company is currently negotiating licence renewals and has permission from the MEEI to operate in the interim period. The Company has no indication that the two licences will not be renewed. During the three and six months ended June 30, 2017, production volumes produced under expired MEEI production licences represented 4.6% and 5.0% of total production, respectively (2016 - 5.2% and 5.4%).

Private lease agreements

The Company is operating under a number of Trinidad private lease agreements which have expired and are currently being renewed. Based on legal opinions received, the Company is continuing to recognize revenue on the producing properties because the Company is the operator, is paying all associated royalties and taxes, and no title to the revenue has been disputed. The Company currently has no indication that any of the producing expired leases will not be renewed. During the three and six months ended June 30, 2017, production volumes produced under expired Trinidad private lease agreements represented 3.2% and 3.0% of total production, respectively (2016 - 2.2% and 2.3%).

   6.         Restricted cash and cash equivalents 

The Company has United States dollar ("US$") denominated cash collateralized letters of credit that secure long-term work obligations on its production and exploration concessions. A reconciliation of the long-term restricted cash and cash equivalents balance is set forth below:

 
                                               Restricted                Restricted 
                                                 cash and                  cash and 
                                         cash equivalents          cash equivalents 
                                                    (US$)                       ($) 
-----------------------------   -------------------------  ------------------------ 
 
 Balance, January 1, 2016                             $ -                       $ - 
 Additions                                          6,299                     8,457 
 Interest                                               2                         3 
 Effect of change in foreign 
  exchange rates                                        -                         1 
 
 Balance, December 31, 2016                       $ 6,301                   $ 8,461 
 Letter of credit reduction                       (3,858)                   (5,144) 
 Interest                                              11                        15 
 Effect of change in foreign 
  exchange rates                                        -                     (146) 
------------------------------  -------------------------  ------------------------ 
 
 Balance, June 30, 2017                           $ 2,454                   $ 3,186 
------------------------------  -------------------------  ------------------------ 
 

On March 14, 2017, the Company received formal approval from the MEEI to reduce the letter of credit related to the East Brighton exploration property from US$6,000,000 to US$2,150,000. The funds were released to the Company on March 30, 2017.

In addition, at June 30, 2017 the Company had a security agreement with Export Development Canada in connection with a performance security guarantee that supports a US$3,313,000 letter of credit provided to the MEEI related to work commitments on its Ortoire exploration property. The letter of credit expired on August 6, 2017 and will be replaced with a parent company guarantee.

   7.         Term Loan and Associated Liabilities 

On November 23, 2016, the Company completed an arrangement for a $15,000,000, five-year term loan from a Canadian investment fund. The term loan replaced the Company's former bank loan, which was discharged.

The term loan matures on November 23, 2021 with no mandatory repayment of principal required until January 1, 2019. The Company is required to repay $810,000 per quarter commencing on January 1, 2019 through October 1, 2021, and the then outstanding principal balance is repayable on the maturity date. The term loan bears a fixed interest rate of 8% per annum, compounded and payable quarterly in arrears from January 1, 2017. In connection with the term loan, the Company also granted the lender a 1% gross overriding royalty on petroleum sales from current Company land holdings in Trinidad, which are payable until November 23, 2021 regardless of any repayment or prepayment of the term loan. The Company may prepay any principal portion of the term loan after May 23, 2018 and has the option to negotiate a buyout of the future royalty obligations if the term loan balance is prepaid in full. The term loan and the Company's obligations in respect of the royalty are principally secured by fixed and floating security interests over all present and after acquired assets of the Company and its subsidiaries.

The term loan was initially measured at fair value, net of all transaction fees, using a discount rate of 12%. The term loan balance less transaction costs is unwound using the effective interest rate method to the principal value at maturity with a corresponding non-cash accretion charge to earnings. The royalty obligation was initially measured at fair value, using the estimated royalty payable at the inception of the loan discounted by 15%. The royalty liability is reduced by future amounts paid to the lender. Once the liability is reduced to $nil, any subsequent amounts paid are recorded as finance expenses in the period incurred.

The following is a continuity schedule of the term loan and associated liabilities balance from inception to June 30, 2017:

 
                                              Term loan                    Royalty                     Total 
                                              liability                  liability 
----------------------------  -------------------------  -------------------------  ------------------------ 
 
 Balance, November 23, 2016                    $ 13,132                    $ 1,247                  $ 14,379 
 Accretion                                          164                          -                       164 
 Payments                                             -                       (47)                      (47) 
 
 Balance, December 31, 2016                    $ 13,296                    $ 1,200                  $ 14,496 
 Accretion                                          351                          -                       351 
 Payments                                             -                      (148)                     (148) 
----------------------------  -------------------------  -------------------------  ------------------------ 
 
 Balance, June 30, 2017                        $ 13,647                    $ 1,052                  $ 14,699 
----------------------------  -------------------------  -------------------------  ------------------------ 
 

The term loan arrangement contains industry standard representations and warranties, positive and negative covenants and events of default. The financial covenants and the Company's estimated position as at June 30, 2017 was as follows:

 
 Covenant                                        Covenant      Estimated 
                                                threshold       position 
                                                                 at June 
                                                             30, 2017(1) 
-----------------------------------------  --------------  ------------- 
 
 Cash balance                                > $5,000,000     $9,925,000 
 Net funded debt to equity ratio(2)           < 0.5 times      0.2 times 
 EBITDA(3) for the three fiscal quarters 
  ending June 30, 2017                       > $1,875,000     $2,976,000 
 
 

(1) Estimated position subject to final approval.

(2) Net funded debt is defined as interest-bearing debt less cash reserves. Equity is defined as book value of shareholders' equity less accumulated other comprehensive income (loss).

(3) EBITDA is defined as net earnings before interest, income taxes and non-cash items.

   8.         Decommissioning Obligations 

The Company's decommissioning obligations relate to future site restoration and abandonment costs including the costs of production equipment removal and land reclamation based on current environmental regulations. The total decommissioning obligation is estimated by Management based on the Company's net ownership interest in all wells and facilities, estimated costs to reclaim and abandon these wells and facilities, and the estimated timing of the costs to be incurred in future periods.

Pursuant to Trinidad production licences, the Company is obligated to remit funds into an abandonment fund based on production. The abandonment fund obligations are determined based on cumulative crude oil sales and recognized as a current liability and a reduction of the long-term decommissioning obligation. Payments to the fund are recorded as a long-term asset included in property equipment. The Company and the relevant Trinidad government entity must agree on the budget and site to reclaim prior to using the abandonment fund.

As at June 30, 2017, the Company remitted $738,000 of abandonment fund payments, and $266,000 in short-term fund obligations were included in accounts payable and accrued liabilities (December 31, 2016 - $697,000 and $328,000, respectively). As at June 30, 2017, the Company estimated the total undiscounted cash flows required to settle its decommissioning obligations to be approximately $20,159,000 (December 31, 2016 - $20,664,0000). June 30, 2017 decommissioning liabilities were discounted using a weighted average risk-free rate of 5.8% and calculated using an inflation rate of 4.8% (December 31, 2016 - 5.8% and 4.8%, respectively).

The majority of these obligations are anticipated to be incurred in twenty-five years and are expected to be funded from the abandonment fund and the Company's internal resources available at the time of settlement. The following table summarizes the Company's decommissioning obligation provision:

 
 
 
 Balance, January 1, 2016                             $ 16,987 
 Dispositions                                          (4,028) 
 Liabilities incurred                                        1 
 Accretion expense                                         378 
 Change in estimates                                     4,367 
 Effect of change in foreign 
  exchange rates                                         (922) 
 
 Balance, December 31, 2016                           $ 16,783 
 Liabilities incurred                                      129 
 Accretion expense                                          79 
 Change in estimates                                      (11) 
 Effect of change in foreign 
  exchange rates                                         (542) 
 
 Balance, June 30, 2017                               $ 16,438 
------------------------------------  ------------------------ 
 
 Non-current                                            16,172 
 Current (included in accounts 
  payable)                                                 266 
 
 Total decommissioning obligation                     $ 16,438 
------------------------------------  ------------------------ 
 
   9.         Shareholders' Capital 

(a) Issued and outstanding common shares

 
                                        Number of 
                                           shares                   Amount 
-----------------------------    ----------------  ----------------------- 
 
 Balance, January 1, 2016              83,087,143                $ 169,950 
 Exercise of incentive share 
  options                                  50,000                       45 
 
 Balance, December 31, 2016            83,137,143                $ 169,995 
 Issued pursuant to private 
  placement                            20,000,000                      777 
-------------------------------  ----------------  ----------------------- 
 
 Balance, June 30, 2017               103,137,143                $ 170,772 
-------------------------------  ----------------  ----------------------- 
 

The Company has authorized an unlimited number of voting common shares without nominal or par value.

(b) Private placement

On June 26, 2017, the Company completed an admission and listing on the AIM market of the London Stock Exchange. In conjunction with the AIM admission, the Company placed an additional 20,000,000 common shares at a price of 7.25 pence sterling ($0.1221) for gross proceeds of GBP1,450,000 ($2,446,000). Following the private placement, the Company had 103,137,143 common shares outstanding.

Total fees incurred from the private placement were $1,669,000, which included brokerage commissions and legal, accounting and corporate finance advisory fees. Net proceeds of the private placement were $777,000.

All common shares issued by the Company pursuant to the offering are freely transferable outside of Canada, however these common shares are subject to a four-month restricted hold period in Canada which will prevent such common shares from being resold in Canada, through a Canadian exchange or otherwise, during the restricted period without an exemption from the Canadian prospectus requirement. The restriction period expires on October 27, 2017.

(c) Share options and incentive share options

The Company has a share option plan pursuant to which options to purchase common shares of the Company may be granted by the Board of Directors to directors, officers, employees and consultants of the Company. The exercise price of each option may not be less than the closing price of the common shares prior to the date of grant. Compensation expense is recognized as the options vest. Unless otherwise determined by the Board of Directors, vesting typically occurs one third on each of the next three anniversaries of the date of the grant as recipients render continuous service to the Company, and the share options typically expire five years from the date of the grant. The maximum number of common shares issuable on the exercise of outstanding share options and incentive share options at any time is limited to 10% of the issued and outstanding common shares.

 
                                             Number of        Weighted average 
                                         share options          exercise price 
--------------------------------    ------------------  ---------------------- 
 
 Outstanding, January 1, 2016                5,308,445                  $ 0.75 
 Granted                                     1,578,800                    0.23 
 Forfeited                                 (1,245,205)                    0.72 
----------------------------------  ------------------  ---------------------- 
 
 Outstanding, December 31, 2016              5,642,040                  $ 0.61 
 Granted                                     1,466,300                    0.14 
 Forfeited                                   (125,001)                    0.46 
 
 Outstanding, June 30, 2017                  6,983,339                  $ 0.51 
 
 Exercisable, June 30, 2017                  4,052,644                    0.73 
----------------------------------  ------------------  ---------------------- 
 

During the three and six months ended June 30, 2017, the Company granted 447,500 and 1,466,300 share options to directors and employees, respectively (2016 - nil and 1,558,800). The weighted average fair value of options granted during the three and six months ended June 30, 2017 was $0.09 and $0.08 per option as estimated on the date of each grant using the Black-Scholes option pricing model (2016 - nil and $0.13 per option).

The Company has an incentive share option plan which provides for the grant of incentive share options to purchase common shares of the Company at a $0.05 exercise price. A maximum of two million incentive shares have been approved for issuance under this plan. Unless otherwise determined by the Board of Directors, vesting typically occurs one third on each of the next three anniversaries of the date of the grant, and the incentive share options typically expire five years from the date of the grant.

 
                                                  Number of        Weighted average 
                                                  incentive          exercise price 
                                              share options 
------------------------------------    -------------------  ---------------------- 
 
 Outstanding, January 1, 2016                       298,125                  $ 0.06 
 Exercised                                         (50,000)                    0.05 
 Forfeited                                        (120,625)                    0.06 
 
 Outstanding, December 31, 2016 and 
  June 30, 2017                                     127,500                  $ 0.06 
 
 Exercisable, June 30, 2017                         127,500                    0.06 
--------------------------------------  -------------------  ---------------------- 
 

During the three and six months ended June 30, 2017, the Company recorded share-based compensation expenses of $44,000 and $100,000 (2016 - $33,000 and $101,000) in the consolidated statement of earnings, respectively, as a result of the vesting of outstanding options and additional share options granted in 2017.

   10.        Net Finance Expenses 
 
                                           Three months ended June                               Six months ended June 
                                                               30,                                                 30, 
                                    2017                      2016                      2017                      2016 
--------------  ------------------------  ------------------------  ------------------------  ------------------------ 
 
 Interest 
  income                          $ (17)                    $ (30)                    $ (34)                    $ (61) 
 Interest 
  expense on 
  bank loan                            -                        25                         -                       120 
 Interest 
  expense on 
  term loan                          299                         -                       595                         - 
 Interest 
  expense on 
  taxes                              108                       263                       601                       616 
 Finance fees 
  and other                            -                        79                         -                       161 
 
 Net finance 
  expenses                         $ 390                     $ 337                   $ 1,162                     $ 836 
--------------  ------------------------  ------------------------  ------------------------  ------------------------ 
 
   11.        Loss per Common Share 
 
                          Three months ended June         Six months ended June 
                                              30,                           30, 
                              2017           2016           2017           2016 
-------------------  -------------  -------------  -------------  ------------- 
 
 Net loss                $ (1,848)      $ (2,553)      $ (3,397)      $ (4,997) 
-------------------  -------------  -------------  -------------  ------------- 
 
 Weighted number of average common shares 
  outstanding: 
 
 Basic and diluted      84,236,044     83,125,605     83,689,629     83,106,374 
 
 Basic and diluted 
  loss per share          $ (0.02)       $ (0.03)       $ (0.04)       $ (0.06) 
-------------------  -------------  -------------  -------------  ------------- 
 

There was no dilutive impact to the weighted average number of common shares for the three and six months ended June 30, 2017 and 2016, as all share options, incentive share options and warrants were excluded from the weighted average dilutive share calculation because their effect would be anti-dilutive.

   12.        Risk Management 
   (a)    Credit risk 

Credit risk arises from the potential that the Company may incur a loss if a counterparty to a financial instrument fails to meet its obligation in accordance with agreed terms. The Company's Trinidad crude oil production is sold, as determined by market based prices adjusted for quality differentials, to Petrotrin. Typically, the Company's maximum credit exposure to Petrotrin is revenue for one month's petroleum sales, of which $2,801,000 was included in accounts receivable as at June 30, 2017 (December 31, 2016 - $1,880,000). The aging of accounts receivable as at June 30, 2017 and December 31, 2016 was as follows:

 
                                                    June 30,           December 31, 
                                                                               2016 
                                                        2017 
-------------------------------  ----  ---------------------  --------------------- 
 
 Not past due                                        $ 4,318                $ 3,373 
 Past due greater than 90 days                         3,858                  5,436 
-------------------------------------  ---------------------  --------------------- 
 
 Total accounts receivable                           $ 8,176                $ 8,809 
-------------------------------------  ---------------------  --------------------- 
 

No provision was made for past due receivables as the Company assessed that there were no impaired receivables. The Company believes that the accounts receivable balances that are past due are still collectible, as the majority are due from Trinidad government agencies. The Company's carrying values of accounts receivable balances represents the Company's maximum credit exposure.

   (b)    Liquidity risk 

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. Liquidity risk also includes the risk of not being able to liquidate assets in a timely manner at a reasonable price. The Company's approach to managing liquidity is to ensure that it will have sufficient liquidity to meet liabilities when due, under both normal and unusual conditions without incurring unacceptable losses or jeopardizing the Company's business objectives. The Company manages this risk by preparing cash flow forecasts to assess whether additional funds are required. The Company's liquidity is dependent on the Company's expected business growth and changes in the business environment.

To manage its capital structure in a period of low commodity prices, the Company may further reduce its fixed cost structure, adjust capital spending, issue new equity or seek additional sources of debt financing. The Company will continue to manage its expenditures to reflect current financial resources in the interest of sustaining long-term viability.

Undiscounted cash outflows relating to financial liabilities as at June 30, 2017 were as follows:

 
                         Undiscounted                  Less than                1 - 3 years                4 - 5 years 
                               amount                     1 year 
---------------  --------------------  -------------------------  -------------------------  ------------------------- 
 
 Accounts 
  payable 
  and accrued 
  liabilities                $ 14,234                   $ 14,234                        $ -                        $ - 
 Income taxes 
  payable                       3,376                      3,376                          -                          - 
 Term loan                     15,000                          -                      4,050                     10,950 
 
 Total 
  financial 
  liabilities                $ 32,610                   $ 17,610                    $ 4,050                   $ 10,950 
---------------  --------------------  -------------------------  -------------------------  ------------------------- 
 
   (c)    Commodity price risk 

The Company is exposed to commodity price movements as part of its operations, particularly in relation to prices received for its oil production. Commodity prices for oil are impacted by the world and continental/regional economy and other events that dictate the levels of supply and demand. Consequently, these changes could also affect the value of the Company's properties, the level of spending for exploration and development and the ability to meet obligations as they come due.

The Company had no commodity risk management contracts in place as at or during the six months ended June 30, 2017. During the three and six months ended June 30, 2016, the Company recorded net losses of $2,783,000 and $1,970,000 related to commodity risk management contracts, respectively. The Company's commodity price contracts were liquidated on June 2, 2016.

To manage commodity price risk, the Company has reduced its operating and administrative cost structure. The Company may reduce capital expenditures, issue new equity or seek additional sources of debt should forward commodity pricing materially decrease. The Company will continue to monitor forward commodity prices and may enter into commodity based risk management contracts in the future to reduce the volatility of petroleum revenues and protect future development capital programs.

   (d)    Foreign currency risk 

Foreign exchange risk arises from changes in foreign exchange rates that may affect the fair value or future cash flows of the Company's financial assets or liabilities. As the Company primarily operates in Trinidad, fluctuations in the exchange rate between the Canadian dollar and the Trinidad and Tobago dollar can have a significant effect on reported results. The Company's foreign exchange gain or losses primarily include unrealized gains or losses on the translation of the Company's US$ denominated working capital balances in Canada and Trinidad. The Company's foreign currency policy is to monitor foreign currency risk exposure in its areas of operations and mitigate that risk where possible by matching foreign currency denominated expenses with revenues denominated in foreign currencies. The Company attempts to limit its exposure to foreign currency through collecting and paying foreign currency denominated balances in a timely fashion. The Company had no contracts in place to manage foreign currency risk as at or during the six months ended June 30, 2017.

   13.        Capital Management 

The basis for the Company's capital structure is dependent on the Company's expected business growth and any changes in the business and commodity price environment. Stewardship of the Company's capital structure is managed through its financial and operating forecast process. The forecast of the Company's future cash flows is based on estimates of production, crude oil prices, royalty expenses, operating expenses, general and administrative expenses, capital expenditures and other investing and financing activities. The forecast is regularly updated based on changes in commodity prices, production expectations and other factors that in the Company's view would impact cash flow.

The Company's objective is to maintain net debt to annualized funds flow from operations at or below a level of 3.0 to 1. While the Company may exceed this ratio from time to time, efforts are made after a period of variation to bring the measure back in line. Net debt is a non-IFRS measure calculated as working capital less long-term portions of undiscounted interest bearing financial liabilities. Working capital is calculated as current assets less current liabilities as they appear on the consolidated statements of financial position. Net debt is used by management as a key measure to assess the Company's liquidity.

The Company also monitors its capital management through the net debt to net debt plus equity ratio. The Company's strategy is to utilize more equity than debt, thereby targeting net debt to net debt plus shareholders' equity at a ratio of less than 0.4 to 1.

 
                                         Target               June 30,           December 31, 
                                        measure                                          2016 
                                                                  2017 
--------------------------------  -------------  ---------------------  --------------------- 
 
 Working capital surplus                                     $ (1,186)                $ (846) 
 Undiscounted term loan balance                                 15,000                 15,000 
 
 Net debt                                                     $ 13,814               $ 14,154 
 Shareholders' equity                                           32,561                 36,234 
-----------------------------------------------  ---------------------  --------------------- 
 
 Net debt plus equity                                         $ 46,375               $ 50,388 
-----------------------------------------------  ---------------------  --------------------- 
 
 Rolling four quarter funds flow from 
  operations(1)                                                $ 2,751                $ 6,117 
-----------------------------------------------  ---------------------  --------------------- 
 
 Net debt to funds flow from 
  operations                        < 3.0 times                    5.0                    2.3 
--------------------------------  -------------  ---------------------  --------------------- 
 
 Net debt to net debt plus 
  equity                            < 0.4 times                    0.3                    0.3 
--------------------------------  -------------  ---------------------  --------------------- 
 

(1) Calculated as funds flow from operations from July 1, 2016 to June 30, 2017.

   14.        Commitments 

The Company has minimum work obligations under various operating agreements with Petrotrin, exploration commitments under exploration licence and production agreements with the MEEI and various lease commitments for office space and equipment. As at June 30, 2017, the Company's estimated contractual capital requirements over the next four years and thereafter were as follows:

 
                                   2017               2018               2019               2020            Thereafter 
--------------------  -----------------  -----------------  -----------------  -----------------  -------------------- 
 
 Operating 
  agreements                    $ 1,400            $ 7,120              $ 599              $ 377                 $ 182 
 Exploration 
  agreements                        360              6,466              7,280                823                     - 
 Office leases                      134                424                304                289                   269 
 Equipment leases                   187                354                338                290                     3 
--------------------  -----------------  -----------------  -----------------  -----------------  -------------------- 
 
 Total minimum 
  payments                      $ 2,081           $ 14,364            $ 8,521            $ 1,779                 $ 454 
--------------------  -----------------  -----------------  -----------------  -----------------  -------------------- 
 

Under the terms of its operating agreements, the Company must fulfill minimum work obligations on an annual basis over the specific licence term. In total, the Company is obligated to drill 12 wells and perform 18 heavy workovers prior to the end of 2021. As of June 30, 2017, three wells and 11 workovers have been completed with respect to these obligations. The Company failed to drill four wells that were required in 2016, two of which were drilled during the three months ended June 30, 2017 (see note 5).

Under the terms of its exploration licences, the Company must drill five wells prior to the end of December 31, 2020, none of which have been completed as of June 30, 2017.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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