TAT TransAtlantic Petroleum Ltd New

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

 

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 18, 2014

 

 

TRANSATLANTIC PETROLEUM LTD.

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code: (214) 220-4323

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

 

 

 

 

 

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EXPLANATORY NOTE

On November 18, 2014, TransAtlantic Petroleum Ltd. (the “Company”) filed a Form 8-K to report that the Company, through the Company’s wholly-owned subsidiary TransAtlantic Holdings B.C. Ltd., acquired all of the shares of Stream Oil & Gas Ltd. (“Stream”). This Amendment No. 1 to the Current Report on Form 8-K/A is being filed to provide the financial statements described in Item 9.01 below.

Item 9.01 Financial Statements and Exhibits.

Attached as Exhibit 99.1 hereto and incorporated by reference herein are the audited consolidated financial statements of Stream along with the report of the independent auditors as follows:

Attached as Exhibit 99.2 hereto and incorporated by reference herein are the unaudited amended condensed consolidated interim financial statements of Stream as follows:

Attached as Exhibit 99.3 hereto and incorporated by reference herein are the unaudited pro forma condensed consolidated financial statements of the Company as follows:

 

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

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EXHIBIT INDEX

 

 

 

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Exhibit 23.1

 

 

CONSENT OF INDEPENDENT AUDITORS

 

The Board of Directors
Stream Oil and Gas Ltd and Subsidiary:

 

We consent to the incorporation by reference in the registration statement on Form S-8 (No. 333-200705) of TransAtlantic Petroleum Ltd., of our report dated October 13, 2014, with respect to the consolidated statement of financial position of Stream Oil and Gas Ltd. and Subsidiary as of November 30, 2013, and the related consolidated statements of change in shareholders’ equity, operations and comprehensive income (loss), and cash flows for the year then ended, which report appears in the Form 8-K/A of TransAtlantic Petroleum, Ltd., filed on January 30, 2015.

 

"DAVIDSON & COMPANY LLP"

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

STREAM OIL & GAS LTD.

 

 

 

CONSOLIDATED FINANCIAL STATEMENTS

 

NOVEMBER 30, 2013

 

 

 

 

 

 

 

 

 

 

 

 

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INDEPENDENT AUDITORS' REPORT

 

To the Board of Directors of

Stream Oil & Gas Ltd. and Subsidiary

 

We have audited the accompanying consolidated financial statements of Stream Oil & Gas Ltd. and subsidiary (the "Company"), which comprise the consolidated statements of financial position as at November 30, 2013 and the consolidated statement of operations and comprehensive loss, changes in shareholders' equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management's Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these financial statements in conformity with International Financial Reporting Standards; this includes the design, implementation, and maintenance of internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors' Responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluation the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

 

 

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Opinion

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stream Oil & Gas Ltd. and subsidiary as of November 30, 2013 and the results of its operations and its cash flows for the year then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Emphasis of Matter

 

Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which describes conditions and matters that indicate the existence of a material uncertainty that may cast significant doubt about Stream Oil & Gas Ltd. and subsidiary’s ability to continue as a going concern. As discussed in Note 1 the Company has suffered recurring losses from operations, has a net capital deficiency, and has not met certain financial covenants on its loans.  Management’s plans in regard to these matters are also described in Note 1 and 17.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 

"DAVIDSON & COMPANY LLP"

 

 

 

 

 

 

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STREAM OIL & GAS LTD.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(Expressed in U.S. Dollars)

 

Approved on authorized on behalf of the Board on October 13, 2014:

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

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STREAM OIL & GAS LTD.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Expressed in U.S. Dollars)

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

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STREAM OIL & GAS LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Expressed in U.S. Dollars)

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

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STREAM OIL & GAS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. Dollars)

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

1.NATURE AND CONTINUANCE OF OPERATIONS

 

Stream Oil & Gas Ltd. (the “Company” or “Stream”) was incorporated on January 11, 2005 under the British Columbia Business Corporations Act as 713471 B.C. Ltd. and changed its name on April 20, 2005 to L.G.R. Resources Ltd.  Effective April 19, 2006, the Company’s common shares were listed for trading on the CNQ. On April 4, 2008, the Company changed its name to Stream Oil & Gas Ltd. and consolidated its capital stock on a four for one basis.  On July 25, 2008, the Company’s common shares were listed for trading on the TSX Venture Exchange. The Company’s shares were delisted from trading on the CNQ effective August 15, 2008. The head office is located at Suite 300, 609 – 14^th Street N.W., Calgary, Alberta, T2N 2A1. The Company has one operating subsidiary, Stream Oil & Gas Ltd., a corporation existing under the laws of the Cayman Islands (“Stream (CI)”), owned 100% by the Company.

 

The Company, through its wholly-owned subsidiary, Stream (CI), is in the business of exploring and developing oil and gas properties in the country of Albania. It currently operates five producing and exploration oil and gas properties.

 

These consolidated financial statements of the Company are presented in U.S. dollars. Refer to Note 3 for discussion of the Company’s and its subsidiaries functional currency.

 

The consolidated financial statements have been prepared assuming that Stream will continue on a going-concern basis. The ability of the Company to continue as a going-concern depends upon its ability to maintain adequate cash resources, raise additional financing and to realize profitable operations. During the year ended November 30, 2013, the Company had a net loss of approximately $5.5 million, and as a result has not met certain financial covenants with respect to its bank loan payable and prepayment facility (Note 15), which breach under the bank loan was waived by the bank on September 17, 2014.  The Company’s working capital deficit is approximately $32.9 million (November 30, 2012 (Unaudited) - $14.5 million). These are material uncertainties that may raise significant doubt about the Company’s ability to continue as a going concern. Realization values may be substantially different from carrying values as shown and these consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

 

 

2.BASIS OF PREPARATION

 

Statement of Compliance

 

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

 

Basis of Measurement

 

The consolidated financial statements are presented on the historical cost basis except for certain financial instruments, which are measured at fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting except for the cash flow information.

 

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

2.BASIS OF PREPARATION (cont’d...)

 

Significant Accounting Estimates and Judgements

 

The preparation of consolidated financial statements in conformity with IFRS requires Management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected. Significant accounting estimates and judgments include:

 

Cash generating units

 

The recoverability of petroleum and natural gas property carrying values is assessed at a cash generating unit (CGU) level. Determination of what constitutes a CGU is subject to management judgments. The asset composition of a CGU can directly impact the recoverability of the assets included therein. The key estimates used in the determination of cash flows from oil reserves include the following:

 

 

 

 

Property and equipment is aggregated into cash-generating units based on their ability to generate largely independent cash flows, and are used for impairment testing. The determination of the Company's cash-generating units is subject to Management's judgment. The Company’s CGU’s consist of the individual fields.

 

Depletion and depreciation

 

Amounts recorded for depletion and depreciation and amounts used for impairment calculations are based on estimates of natural gas and liquids reserves. By their nature, the estimates of reserves, including the estimates of future prices, costs, discount rates and the related future cash flows, are subject to measurement uncertainty. Accordingly, the changes in the consolidated financial statements of future periods could be material.

 

Petroleum and natural gas property classification

 

The decision to transfer assets from exploration and evaluation to property and equipment is based on the estimated proved reserves used in the determination of an area's technical feasibility and commercial viability.

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

2.BASIS OF PREPARATION (cont’d...)

 

Decommissioning provision

 

Amounts recorded for decommissioning provision costs and obligations and the related accretion expense requires the use of estimates with respect to the amount and timing of asset retirements, site remediation and related cashflows. Other provisions are recognized in the period when it becomes probable that there will be a future cash outflow.

 

Albpetrol Sh.A. liability

 

Albpetrol Sh.A. oil production share liability is subject to estimation of oil price, off-take volumes by field, and offsetting costs, depending on whether oil production has been taken in excess or below the pre-determined share amounts.

 

Share-based compensation

 

Compensation costs accrued for long-term share-based compensation plans are subject to the estimation of what the ultimate payout will be using pricing models such as the Black-Scholes model, which is based on significant assumptions such as forfeiture rate, volatility, dividend yield and expected term.

 

Deferred taxes

 

Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiaries operate are subject to change. As such, income taxes are subject to measurement uncertainty. Deferred income tax assets are assessed by Management at the end of the reporting period to determine the likelihood that they will be realized from future taxable earnings.

 

 

3.SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Basis of Consolidation

 

These consolidated financial statements include the accounts of the Company and its subsidiary, as disclosed in Note 1. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All intercompany transactions and balances have been eliminated.

 

Foreign Currency Translation

 

The functional currency of an entity is the currency of the primary economic environment in which the entity operates. The functional currency of the Company is the Canadian dollar and the functional currency of the Company’s subsidiary is the U.S. dollar. The functional currency determinations were conducted through an analysis of the consideration factors identified in IAS 21, ‘The Effects of Changes in Foreign Exchange Rates’.

 

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

 

The functional currency of the Albanian segment is the US dollar. Foreign currency denominated transactions and balances for this segment are translated to US dollars as follows:

 

 

The results and financial position of the Canadian segment has a Canadian dollar functional currency, which is different from the presentation currency. The Company translates foreign currency denominated transactions and balances related to the Canadian segment into the presentation currency as follows:

 

 

Financial Instruments

 

Financial assets

 

The Company classifies its financial assets into one of the following categories as follows:

 

Fair value through profit or loss - This category comprises derivatives and financial assets acquired principally for the purpose of selling or repurchasing in the near term. They are carried at fair value with changes in fair value recognized in profit or loss.

 

Loans and receivables - These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are carried at amortized cost using the effective interest method less any provision for impairment.

 

Held-to-maturity investments - These assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Company's Management has the positive intention and ability to hold to maturity. These assets are measured at amortized cost using the effective interest method less any provision for impairment.

 

Available-for-sale - Non-derivative financial assets not included in the above categories are classified as available-for-sale. They are carried at fair value with changes in fair value recognized in other comprehensive income. Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from accumulated other comprehensive income and recognized in profit or loss.

 

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

 

All financial assets except those measured at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is objective evidence of impairment as a result of one or more events that have occurred after initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets.

 

The Company has classified its cash as fair value through profit or loss. Accounts receivable, GST and other receivables and related party loan have been classified as loans and receivables.

 

Financial liabilities

 

Stream classifies its financial liabilities into one of two categories as follows:

 

Fair value through profit or loss - This category comprises derivatives and financial liabilities incurred principally for the purpose of selling or repurchasing in the near term. They are carried at fair value with changes in fair value recognized in profit or loss.

 

Other financial liabilities - This category consists of liabilities carried at amortized cost using the effective interest method.

 

The Company has classified its accounts payable and accrued liabilities, Albpetrol Sh.A. oil production share liability, prepayment facility, and bank loan as other financial liabilities.

 

Stream classifies the fair value of financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instruments.

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.  Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

 

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date.  Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.

 

Level 3 – Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

 

Refer to Note 13, ‘Financial Instruments’, for relevant disclosures.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of changes in value.

 

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

 

Exploration and Evaluation (“E&E”) Assets

 

All costs directly associated with the exploration and evaluation of oil and natural gas reserves are initially capitalized. Exploration and evaluation costs are those expenditures for an area where technical feasibility and commercial viability have not yet been determined. These costs include unproved property acquisition costs, geological and geophysical costs, exploration and evaluation drilling, sampling and appraisals. Interest is not capitalized on E&E assets. Costs incurred prior to acquiring the legal rights to explore an area are charged to operations.

 

When an area is determined to be technically feasible and commercially viable, the accumulated costs are transferred to property, plant and equipment. E&E assets are assessed for impairment if (i) sufficient data exists to determine technical feasibility and commercial viability, and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount. For purposes of impairment testing, E&E assets are assessed at the exploration area level.

 

Property and Equipment

 

All costs directly associated with the development of oil and natural gas reserves are capitalized on an area-by-area basis. Development costs include expenditures for areas where technical feasibility and commercial viability have been determined. These costs include proved property acquisitions, development drilling, completion, gathering and infrastructure costs and transfers of exploration and evaluation assets.

 

Costs accumulated within each area are depleted using the unit-of-production method based on proved and probable reserves using estimated future prices and costs. Costs subject to depletion include estimated future costs to be incurred in developing proved and probable reserves.

 

For divestitures of properties, a gain or loss is recognized in net earnings. Exchanges of properties are measured at fair value, unless the transaction lacks commercial substance or fair value cannot be reliably measured. Where the exchange is measured at fair value, a gain or loss is recognized in net earnings.

 

Equipment is recorded at cost. The Company provides for depreciation on the declining balance method at the following annual rates:

 

 

Additions are depreciated at one-half the rate in the year of acquisition.

 

Impairment

 

The carrying value of long-term assets is reviewed quarterly for indicators that the carrying value of an asset or cash generating unit may not be recoverable. If indicators of impairment exist, the recoverable amount of the asset or cash generating unit is estimated. If the carrying value of the asset or cash-generating unit exceeds the recoverable amount, the asset or cash generating unit is written down with an impairment recognized in net earnings.

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

 

Property and equipment are aggregated into cash generating units based on their ability to generate largely independent cash flows.

 

The recoverable amount of an asset or cash generating unit is the greater of its fair value less costs to sell and its value in use. Fair value is determined to be the amount for which the asset could be sold in an arm's length transaction.

 

For cash generating units, fair value less costs to sell may be determined using discounted future net cash flows of proved and probable reserves using forecast prices and costs. Value in use is determined by estimating the present value of the future net cash flows expected to be derived from the continued use of the asset or cash-generating unit.

 

Reversals of impairments are recognized when there has been a subsequent increase in the recoverable amount. In this event, the carrying amount of the asset or cash generating unit is increased to its revised recoverable amount with an impairment reversal recognized in net earnings. The recoverable amount is limited to the original carrying amount less depreciation, depletion and amortization as if no impairment had been recognized for the asset or cash generating unit for prior periods.

 

Share-based Compensation

 

The Company recognizes share-based compensation expense based on the estimated fair value of stock options as measured on the grant date, using the Black-Scholes option pricing model. The fair value of the options is recognized over the vesting period of the related options as both share-based compensation and reserves. This includes a forfeiture estimate, which is revised for actual forfeitures in subsequent periods. The reserves account is subsequently reduced if the options are exercised and the amount initially recorded is then credited to common shares.

 

Provisions and Contingencies

 

Provisions are recognized when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources will be required, and a reliable estimate can be made of the amount of the obligation. Provisions are measured based on the discounted expected future cash outflows.

 

Decommissioning provision

 

Decommissioning provisions are recorded for legal or constructive obligations associated with the retirement of tangible long-lived assets such as producing well sites and equipment. The decommissioning provision is measured at the present value of the expenditure expected to be incurred.

 

The associated decommissioning cost is capitalized as part of the cost of the related long-lived asset. Changes in the estimated provision resulting from revisions to estimated timing, amount of cash flows, or changes in the discount rate are recognized as a change in the decommissioning provision obligation and the related decommissioning provision cost.

 

The depletion of decommissioning provision costs is included in depletion and depreciation in the consolidated statements of operations and comprehensive income (loss). Increases in the

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

 

decommissioning provision resulting from the passage of time are recorded as finance expense of decommissioning provision in the consolidated statements of operations and comprehensive income (loss).

 

Actual expenditures incurred are charged against the decommissioning provision.

 

Contingencies

 

When a contingency is substantiated by confirming events, can be reliably measured and will likely result in an economic outflow, a liability is recognized in the consolidated financial statements as the best estimate required to settle the obligation. A contingent liability is disclosed where the existence of an obligation will only be confirmed by future events, or where the amount of a present obligation cannot be measured reliably or will likely not result in an economic outflow. Contingent assets are only disclosed when the inflow of economic benefits is probable. When the economic benefit becomes virtually certain, the asset is no longer contingent and is recognized in the consolidated financial statements.

 

Income Taxes

 

Income tax expense is recognized in net earnings except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity.

 

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

 

Deferred tax is recognized using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on the initial recognition of assets or liabilities in a transaction that is not a business combination. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

 

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

 

Basic and Diluted Income per Share

 

Basic income per share is calculated by dividing the net income available to common shareholders by the weighted average number of shares outstanding during the period. Diluted income per share reflects the potential dilution of securities that could share in income of an entity and is determined by adjusting the weighted average number of common shares outstanding for the effects of dilutive instruments such as options and restricted shares granted to employees. In a loss year, potentially dilutive common shares are excluded from the loss per share calculation as the effect would be anti-dilutive.

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

 

 

Revenue Recognition

 

Revenue from oil and gas operations is recognized in the accounts when oil and natural gas are shipped, title passes, the price is fixed or determinable, and collection of the sale is reasonably assured.

 

Receivables

 

The Company records an allowance for doubtful accounts against accounts receivable that Management believes are impaired. Specific allowances are recorded against customer receivables based on Stream’s knowledge of the financial condition of its customers. The Company also considers the aging of the receivables, customer and industry concentrations, the current business environment and historical experience.

 

Inventory

 

Inventory consists of crude oil inventory. The crude oil inventory balance is valued at the lower of cost of production and net realizable value.

 

Leases

 

Agreements under which the Company makes payments to owners in return for the right to use an asset for a period are accounted for as leases. Leases that transfer substantially all the risks and rewards of ownership are recorded at inception as finance leases within property and equipment and debt. Assets acquired under finance leases are amortized over the estimated useful lives of the underlying assets. All other leases are accounted for as operating leases and the related lease payments are charged to operations as incurred.

 

Comprehensive Income

 

Comprehensive income consists of net income and other comprehensive income and represents the changes in shareholders’ equity which results from transactions and events from sources other than the Company’s shareholders. These transactions and events include unrealized gains (losses) on translation of the parent company Canadian dollar financial statements into the U.S. dollar reporting currency.

 

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

 

New Standards and Interpretations

 

Standards issued but not yet effective up to the date of issuance of the Company’s consolidated financial statements are listed below. This listing is of standards and interpretations issued that the Company reasonably expects to be applicable at a future date. The Company intends to adopt these standards when they become effective.

 

In the annual period beginning December 1, 2013, the Company will be required to adopt the amendments to IFRS 7, Financial Instruments: Disclosures (“IFRS 7”). The amendment requires new disclosures relating to the offset of financial assets and financial liabilities that will enable the users of financial statements to better compare financial statements prepared in accordance with IFRS. The adoption of the amended standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In the annual period beginning December 1, 2013, the Company will be required to adopt IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, and consequential revisions to IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures. The various standards provide revised guidance on the accounting treatment and associated disclosure requirements for joint arrangements and associates, and a revised definition of ‘control’ for identifying entities which are to be consolidated. The adoption of these standards and amendments are not expected to have a material impact on the Company’s consolidated financial statements.

 

In the annual period beginning December 1, 2013, the Company will be required to adopt IFRS 13, Fair Value Measurement. This standard establishes a single framework for all fair value measurements where fair value is required or permitted by IFRS. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In the annual period beginning December 1, 2013, the Company will be required to adopt IAS 19 (Amendment), Employee Benefits (“IFRS 19”), which revises recognition and measurement of post-employment benefits. This amended standard will modify accounting for termination benefits, including distinguishing benefits provided in exchange for service and benefits provided in exchange for the termination of employment and affect the recognition and measurement of termination benefits. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In the annual period beginning December 1, 2014, the Company will be required to adopt IAS 32, Financial Instruments: Presentation (“IAS 32”) which was amended by the IASB in December 2011 to clarify certain aspects of the requirements on offsetting. The amendments focus on the criterion that an entity currently has a legally enforceable right to set off the recognized amounts and the criterion that an entity intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Management is currently evaluating the impact that this standard will have on the consolidated financial statements.

 

In the annual period beginning December 1, 2014 the Company will be required to adopt IFRIC 21, Levies (“IFRIC 21”) which provides guidance on when to recognize a liability for a levy imposed by a government, and covers accounting for outflows imposed on entities by governments (including government agencies and similar bodies) in accordance with laws and/or regulations. Management is currently evaluating the impact that this standard will have on the consolidated financial statements.

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

3.SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

 

In November 2013, the IASB removed the mandatory effective date of IFRS 9, Financial Instruments (“IFRS 9”), which previously was effective to the Company December 1, 2015. The proposed standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The adoption of IFRS 9 and extent of the effects of IFRS 9 on the consolidated financial statements have not been determined by management.

 

In addition during 2013 there have been amendments and clarification to existing standards, including IAS 1, Presentation of Financial Statements (“IAS 1”), which are not expected to have a significant effect on the consolidated financial statements of the Company. The amendments to IAS 1 are not effective to the Company until December 1, 2014.

 

 

4.ECONOMIC DEPENDENCE

 

For the year ended November 30, 2013, the Company sold its oil and gas to customers in Albania and outside Albania. Sales to one customer accounted for 91% or $32,791,183 of total oil and gas revenue during the year ended November 30, 2013. For the year ended November 30, 2012 (Unaudited), the Company sold its oil and gas to customers in Albania and outside of Albania. Sales during the year ended November 30, 2012 (Unaudited) to two customers accounted for 93% of total revenue as follows: sales totalling $21,914,724, accounting for 76.4% of total revenue; and sales totalling $4,742,393, accounting for 16.6% of total revenue.

 

As at November 30, 2013, Stream had three customers accounting for 96% or $2,726,655 of the carrying amount of current accounts receivable, net of allowance for doubtful accounts. As at November 30, 2012 (Unaudited), Stream had two customers accounting for 92% or $3,959,573 of the carrying amount of current and long term accounts receivable, net of allowance for doubtful accounts.

 

 

Page 18

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

5.PROPERTY AND EQUIPMENT

 

 

 

 

Page 19

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

6.EXPLORATION AND EVALUATION ASSETS

 

 

 

Exploration and evaluation assets consist of the Company’s exploration projects which are pending the determination of proven or probable reserves. Additions represent the Company’s costs incurred on exploration and evaluation assets during the year.

 

 

7.DECOMMISSIONING PROVISION

 

The decommissioning provision is estimated by Management based on the Company’s working interests in its wells and facilities, estimated costs to remediate, reclaim and abandon the wells and facilities, and the estimated timing of the costs to be incurred. At November 30, 2013, the decommissioning provision is estimated to be $2,800,085 (November 30, 2012 (Unaudited) – $566,443), based on a total future liability of $22.8 million (November 30, 2012 (Unaudited) – $52.8 million). These obligations will be settled at the end of the useful lives of the underlying assets, which currently is estimated at twenty-five years (November 30, 2012 (Unaudited) – fifty years) into the future. This amount has been calculated using an inflation rate of 2.8% and discounted at 10% as at November 30, 2013 (November 30, 2012 (Unaudited) – 10%).

 

The following table summarizes the changes in the decommissioning provision:

 

 

8.RELATED PARTY TRANSACTIONS

 

Related party transactions for the year ended November 30, 2013 are as follows:

 

Page 20

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

8.RELATED PARTY TRANSACTIONS (cont’d...)

 

 

 

 

 

 

 

 

Key Management Personnel

 

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. Stream has determined that key management personnel consist of executive and non-executive members of the Company’s Board of Directors and corporate officers.

Page 21

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

8.RELATED PARTY TRANSACTIONS (cont’d…)

 

The remuneration of directors and other members of key management personnel during the year ended November 30, 2013 and 2012 (Unaudited) were as follows:

 

 

Share-based payments are the fair value of options granted to key management personnel. Amounts due to related parties have no specific terms of repayment, are unsecured, and have no interest rate.

 

 

9.SHAREHOLDERS’ EQUITY

 

Common Shares

 

The authorized capital of the Company consists of an unlimited number of common shares without par value.

 

Warrants

 

During the year ended November 30, 2012 (Unaudited), 3,250,000 warrants with a $2.00 exercise price and total value of $3,377,163 expired unexercised.

 

During the year ended November 30, 2012 (Unaudited), 387,168 finders’ warrants with a $1.50 exercise price and total value of $480,900 expired unexercised.

 

There were nil warrants outstanding during the year ended November 30, 2013.

 

Stock Options

 

The Company has a stock option plan under which it may grant options to purchase common shares to its directors, officers, employees and consultants. Approved on April 27, 2010, Stream’s plan provides that the maximum number of shares reserved for issue under the plan shall not exceed 20% of the outstanding common shares of the Company, as at the date of the grant. The maximum number of common shares reserved for issue to any one person under the plan cannot exceed 5% of the issued and outstanding number of common shares at the date of the grant. The exercise price of each option  granted under the plan may not be less than the greater of CAD$0.05 per share or the closing price at the date of grant less the maximum discount as may be permitted by the policies of the stock exchange upon which the Company’s shares are listed. Options may be granted for a maximum term of five years from the date of the grant, are non‑transferable and expire within 90 days of termination of employment or holding office as director or officer of the Company. Each share option permits the holder to purchase one share at the stated exercise price. All options vest over a three to five-year period.  

Page 22

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

9.SHAREHOLDERS’ EQUITY (cont’d…)

 

At November 30, 2013, the Company had 2,290,000 stock options outstanding for which shares have been reserved.

 

 

The summary of options outstanding at November 30, 2013was follows:

 

 

 

During the year ended November 30, 2013, the Company granted nil stock options to acquire common shares (2012 (Unaudited) – 1,580,000). Stock-based compensation relating to options vesting during the period using the Black-Scholes option pricing model was $324,283 (2012 (Unaudited) – $344,543), which was also recorded as share-based payment reserve on the statement of financial position. The options granted during the year ended November 30, 2012 will not be exercisable unless and until the closing trading price of the common shares of the Company on the TSX-V has been at or greater than CAD$1.10 per share for any 10 consecutive trading days during the period from April 2, 2012 to April 2, 2015, inclusive.

 

On September 20, 2013, 50,000 options with an expiry date of April 4, 2013 were exercised for proceeds of CAD$12,500, and 200,000 options with an expiry date of May 11, 2013 were exercised for proceeds of CAD$50,000. A total value of $34,439 was allocated to common shares for these options.

Page 23

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

9.SHAREHOLDERS’ EQUITY (cont’d…)

 

The estimated grant date fair market value of options granted during the year was determined using the Black-Scholes model under the following assumptions:

 

 

 

10.SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS

 

 

The Company had the following significant non-cash transactions for the year ended November 30, 2013:

 

 

 

 

 

 

Page 24

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

11.SEGMENTED INFORMATION

 

The Company has one reportable operating segment, being the development of oil and gas properties in Albania.  Segmented information is as follows:

 

 

 

 

 

 

Page 25

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

12.CAPITAL MANAGEMENT

 

 

 

 

 

 

13.FINANCIAL INSTRUMENTS

 

 

 

 

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board of Directors has implemented and monitors compliance with risk management policies. Stream’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks, adherence to market conditions and the Company’s activities.

 

 

Page 26

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

13.FINANCIAL INSTRUMENTS   (cont’d…)

 

 

Credit Risk

 

 

 

 

 

 

 

Page 27

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

13.FINANCIAL INSTRUMENTS   (cont’d…)

 

 

Interest Rate Risk

 

 

 

Sensitivity analysis:

At November 30, 2013, if LIBOR fluctuated by 1% during the year against its current position, net loss for the year ended November 30, 2013 would have differed by approximately $136,300.

 

Market Risk

 

 

Commodity Price Risk

 

 

Page 28

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

13.FINANCIAL INSTRUMENTS   (cont’d…)

 

 

 

14.CONTINGENCIES

 

BA Capital Inc.

 

On February 16, 2010, Stream announced that BA Capital Inc., a private consulting company owned by Mr. Art Agolli, commenced litigation against the Company, claiming damages of $637,000 plus interest and costs arising from the allegedly wrongful termination of a Consulting Agreement with the Company. Management believes the lawsuit to be without merit and intends to defend against the litigation vigorously. At this time, the likelihood of the outcome is not determinable and no liability has been recorded in connection with the litigation.

 

Albanian Tax Assessment

 

Prepaid expenses includes $331,581 (November 30, 2012 (Unaudited) – $309,374) paid to the Albanian courts as deposits with the Albanian Government Tax Directorate for three assessments that Stream has challenged. These assessments are: $67,626 for property tax in communes in which the company operates; $56,780 for VAT applied charged improperly on imported vehicles; and $207,175 relating to a retroactive change on the calculation of excise tax on the Company’s importation and use of diluent. In all three cases, the recoverability of these amounts is dependent on the outcome of the individual case and at November 30, 2013, all were considered recoverable.

 

Royalty Tax Recovery

 

During the year ended November 30, 2013 the Company entered into negotiations with the Albpetrol Sh.A (“Albpetrol”), a state-owned oil company, and Albanian National Agency for Natural Resources (“AKBN”) relating to tax neutralization on export shipments and recovery of royalty fees paid to Albania totaling approximately $9.3 million. The Company has yet to receive the signed agreement, therefore it has not accrued for the amount.

 

Other Claims and Settlements

 

During the year ended November 30, 2013, the Company received $373,413 of funds, net of related legal costs, as settlement of disputed services previously provided by an engineering firm to the Company.

 

 

Page 29

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

15.COMMITMENTS

 

Leases

 

The Company has two 48 month finance lease contracts, bearing interest at 9.50% per annum, for the purchase of certain automobiles. The first lease was entered into during the fiscal year ended November 30, 2010, and the second lease was entered into during the fiscal year ended November 30, 2011. The automobiles are classified as a depreciable asset, are recorded at a cost of $239,381, and are amortized on a declining balance basis. As at November 30, 2013 the accumulated amortization balance is $146,533 (November 30, 2012 (Unaudited) - $106,770).

 

The future minimum lease payments are as follows:

 

 

Bank Loan

 

On December 19, 2011, the Company entered into a $20,000,000 trade finance term loan facility with Raiffeisen Bank Sh.A (“Raiffeisen”) based in Albania. Under the terms of the facility, Stream must use the funds by December 19, 2012, one year from the originating date of the loan, and must repay it at the rate of 1/20th of the outstanding balance plus interest at the end of the first quarter, 1/19th of the outstanding balance at the second quarter, and then continuing each quarter, starting from the first quarter of drawdown. The loan will be repaid infull within five years ending December 30, 2016. The loan carries interest at the rate of LIBOR+5.5% with a minimum combined interest rate of 7%, and is secured by all fixed assets, equipment, accounts receivable, inventory, concession agreements, and all agreements of the Company signed with third parties. The loan is guaranteed by the parent company, Stream Oil and Gas Ltd. (BC).

 

The repayment dates for the term of the loan are the last business day of each March, June, September and December, except December 2011, up to the date that the loan is repaid in full. Subsequent to year end Raiffeisen provided the Company with a principal payment date extension whereby the December 31, 2013 payment was extended to February 28, 2014 (see Note 17).

 

Unless the lender agrees otherwise, under the loan covenants the Company will ensure that at the end of each fiscal year:

 

Page 30

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

15.COMMITMENTS (cont’d...)

 

As at November 30, 2013, the Company had not satisfied the terms of the first two financial covenants under the terms of the loan. As at November 30, 2013 and the date of these consolidated financial statements being approved by the Board of directors, Raiffeissen has not exercised its right under the terms of the loan agreement to enforce any security or collateral on the loan nor has it declared that any or all of the amounts outstanding under the loan are immediately due or payable on demand. On September 17, 2014, the Company amended the terms of the loan agreement. See Note 13- Liquidity Risk and Note 17 – Subsequent Events for further discussion.

 

Stream also has undertaken that for any fiscal period during which the Company is unable to pay the outstanding interest and principal due, the Company will provide a cash injection within 30 days.

 

 

Borrowing costs of $1,037,743 were capitalized to petroleum and natural gas properties during the year ended November 30, 2013.

 

Trafigura Prepayment Agreement

 

In April 2013, the Company entered into a Prepayment Agreement for crude sales (the “Supply Agreement”) to provide oil production from its Albanian oilfields to Trafigura PTE Ltd. (“Trafigura”).  Trafigura has committed to prepay part of the purchase price of oil sales under the Prepayment Agreement in an amount not exceeding $20 million to Stream.

 

As at November 30, 2013, Stream had drawn the first $7.0 million prepayment against this facility. The agreement requires that all funds be fully drawn by October 31, 2013. Further withdrawals from the prepayment facility up to $20.0 million will require the Company to obtain certain amendments to its Raiffeisen loan and the completion of further due diligence procedures by Trafigura as Trafigura considers necessary. The prepayments will be discharged by Stream’s delivery of crude oil to Trafigura in accordance with and at the times and in the quantities as set out the Crude Sales Contract between the two companies.

Page 31

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

15.COMMITMENTS (cont’d...)

 

The obligation related to the total amount received by Stream must be discharged by August 31, 2015.   Commencing October 31, 2013, the Company began repayment of any amounts received as of that date.  Interest on any drawn funds will be paid monthly at the rate of LIBOR plus 6%.

 

Unless Trafigura agrees otherwise, under the prepayment agreement covenants the Company will ensure that at the end of each fiscal year:

 

 

Also, a coverage ratio as estimated by the Company is not to be less than 150% at all times. The coverage ratio is the estimated aggregate valuation of the volume of crude oil to be delivered per the Crude Sales Contract divided by the prepayment liability plus any applicable funding costs and fees.

 

As at November 30, 2013, the Company had not satisfied the terms of the first two financial covenants under the terms of the supply agreement. As at November 30, 2013 and the date of these consolidated financial statements being approved by the Board of directors, Trafigura has not exercised its right under the terms of the supply agreement to enforce any security or collateral on the supply agreement nor has it declared that any or all of the amounts outstanding under the supply agreement are immediately due or payable on demand. See Note 13- Liquidity Risk and Note 17 – Subsequent Events for further discussion.

 

The Crude Sales Contract has a term of three years at which time it may be extended upon written agreement by both parties.

 

 

Albpetrol Sh.A.

 

The Company operates its petroleum and natural gas properties pursuant to Petroleum Agreements with Albpetrol Sh.A (“Albpetrol”), a state-owned oil company, under Albpetrol’s existing licence with Albanian National Agency for Natural Resources (“AKBN”). Under the term of the original Petroleum Agreements, the Company was required to remit to Albpetrol a share of the oil produced by the Company, either in kind and/or in cash based on specified formulas. In accordance with the Petroleum Agreements, the Company recorded an estimate as to the Company’s obligation to Albpetrol on a quarterly basis, as Albpetrol did not have the capacity to physically take possession of the oil in kind.

Page 32

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

15.COMMITMENTS (cont’d...)

 

Subsequent to year end, the Company entered into negotiations with Albpetrol to agree upon the actual obligation the Company has to Albpetrol, which was determined to be $11,440,145 as at November 30, 2013. The total agreed upon liability to Albpetrol consists of an accrual of $15,448,346 relating to the share of oil produced not previously delivered to Albpetrol, (relating to three separate oil properties).  

 

This amount has been offset by $4,008,201 relating to oil delivered to Albpetrol which was in excess of the Company’s obligation (relating to one oil property). The $4,008,201 was estimated by the Company based on internal production records and the final amount owed to the Company will be finalized between the Company and Albpetrol at a later date. As at November 30, 2012 (Unaudited), the Company had accrued $2,114,795.

 

16.INCOME TAXES

 

A reconciliation of income taxes at statutory rates with the reported taxes for the years ended November 30, 2013 and 2012 (Unaudited) is as follows:

 

 

In April 2013, the Canadian statutory tax rate increased to 26% from 25% and as at November 30, 2013 the applicable rate was 25.8% (2012 (Unaudited) - 25.1%). Under the terms of the Company’s Petroleum Agreements in Albania, Albanian profits will be taxed at a rate of 50% (2012 (Unaudited) – 50%).

 

The significant components of the Company`s deferred tax assets and liabilities are as follows:

 

 

Page 33

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

16.INCOME TAXES (cont’d…)

 

The Company’s deferred tax liabilities result from temporary differences between the carrying values and tax values of Albanian assets and liabilities. The movement between the opening and closing balance was recognized in the consolidated statement of operations and comprehensive income.

 

The significant components of the Company’s unrecognized deferred tax assets and liabilities are as follows:

 

 

The Company has Canadian non-capital losses of $5,875,000 which will expire over the fiscal years ending 2015 through 2033 (2012 (Unaudited) - $5,455,000 expiring over fiscal years ending 2015 through 2032). Per the Albanian Petroleum tax agreements, the Albanian losses will not expire. All other items with the exception of share issue costs have no expiry. Share issue costs expire 2031.

 

Tax attributes are subject to review, and potential adjustment, by tax authorities.

 

 

17.SUBSEQUENT EVENTS

 

 

Page 34

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STREAM OIL & GAS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

November 30, 2013

 

 

 

17.SUBSEQUENT EVENTS (cont’d…)

 

 

 

 

 

 

 

Page 35

Exhibit 99.2

 

 

 

 

 

 

 

 

 

 

 

 

STREAM OIL & GAS LTD.

 

 

 

AMENDED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

FOR THE THREE AND NINE MONTH PERIODS ENDED AUGUST 31, 2014

 

(Unaudited)

 

 

 

 

 

 

 

---

STREAM OIL & GAS LTD.

AMENDED CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in U.S. Dollars)

(Unaudited)

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements

---

STREAM OIL & GAS LTD.

AMENDED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Expressed in U.S. Dollars)

(Unaudited)

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements

---

STREAM OIL & GAS LTD.

AMENDED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(Expressed in U.S. Dollars)

(Unaudited)

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements

---

STREAM OIL & GAS LTD.

AMENDED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. Dollars)

(Unaudited)

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements

---

STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

Stream Oil & Gas Ltd. (the “Company” or “Stream”) was incorporated on January 11, 2005 under the British Columbia Business Corporations Act as 713471 B.C. Ltd. and changed its name on April 20, 2005 to L.G.R. Resources Ltd.  Effective April 19, 2006, the Company’s common shares were listed for trading on the CNQ. On April 4, 2008, the Company changed its name to Stream Oil & Gas Ltd. and consolidated its capital stock on a four for one basis.  On July 25, 2008, the Company’s common shares were listed for trading on the TSX Venture Exchange. The Company’s shares were delisted from trading on the CNQ effective August 15, 2008. The head office is located at Suite 300, 609 – 14^th Street N.W., Calgary, Alberta, T2N 2A1.The Company has one operating subsidiary, Stream Oil & Gas Ltd., a corporation existing under the laws of the Cayman Islands (“Stream (CI)”), owned 100% by the Company.

 

The Company, through its wholly-owned subsidiary Stream (CI), is in the business of exploring and developing oil and gas properties in the country of Albania. It currently operates five producing and exploration oil and gas properties.

 

These condensed consolidated interim financial statements of the Company are presented in U.S. dollars. Refer to Note 3 of the Company’s consolidated audited financial statements for the year ended November 30, 2013 for the discussion of the Company’s and its subsidiaries functional currency.

 

The condensed consolidated interim financial statements have been prepared assuming that Stream will continue on a going-concern basis. The ability of the Company to continue as a going-concern depends upon its ability to maintain adequate cash resources, raise additional financing and to realize profitable operations. During the fiscal year ended November 30, 2013, the Company had not met certain financial covenants with respect to its bank loan payable and prepayment facility (Note 15) which breach under the bank loan was waived by the bank on September 17, 2014.   The Company has not paid the September 30, 2014 interest and principle due on the bank loan which is an event of default (Note 15). The Company has not paid the September and October principle and interest due on the prepayment facility which is also an event of default (Note 15). The Company is currently in discussions with the bank and with the holder of the prepayment agreement on resolution of these outstanding obligations. The Company’s working capital deficit is approximately $47.1 million (November 30, 2013 – $32.9 million).  These are material uncertainties that may raise significant doubt about the Company’s ability to continue as a going concern. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.

 

 

 

Statement of Compliance

 

These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).  These condensed consolidated interim financial statements follow the same accounting policies and methods of computation as outline in Note 3 of the Company’s consolidated audited

Page 6

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

financial statements for the year ended November 30, 2013. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements.

 

The condensed consolidated interim financial statements were authorized for issue by the Board of Directors on November 7, 2014.

 

Basis of Measurement

 

The condensed consolidated interim financial statements are presented on the historical cost basis except for certain financial instruments, which are measured at fair value. In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting except for the cash flow information.

 

Basic and diluted income (loss) per share

 

Basic income per share is calculated by dividing the net income available to common shareholders by the weighted average number of shares outstanding during the period. Diluted income per share reflects the potential dilution of securities that could share in income of an entity and is determined by adjusting the weighted average number of common shares outstanding for the effects of dilutive instruments such as options and restricted shares granted to employees. In a period where a loss has occurred, potentially dilutive common shares are excluded from the loss per share calculation as the effect would be anti-dilutive.

 

New standards and interpretations not yet adopted

 

Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or IFRIC that are mandatory to adopt.  The following have not yet been adopted by the Company and are being evaluated to determine their impact.

 

 

 

 

The Company has reclassified its comparative figures for the three and nine month periods ended August 31, 2013, where applicable, to conform to the presentation used in the current period.  The changes did not affect prior period’s earnings.

 

 

Page 7

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

For the nine months ended August 31, 2014 and 2013, the Company sold its oil and gas to customers in Albania and outside of Albania. Sales to two customers accounted for 95% or $23,207,529 of total oil and gas revenue during the nine months ended August 31, 2014.  Sales during the nine months ended August 31, 2013 were 89% or $23,767,167 to one customer outside Albania.

 

As at August 31, 2014, Stream had two customers accounting for 89% or $3,562,501 of the carrying amount of current accounts receivable, net of allowance for doubtful accounts.  As at November 30, 2013, Stream had three customers accounting for 96% or $2,726,655 of the carrying amount of current receivable, net of allowance for doubtful accounts.

 

 

Page 8

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

 

Page 9

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

 

Exploration and evaluation assets consist of the Company’s exploration projects which are pending the determination of proven or probable reserves. Additions represent the Company’s costs incurred on exploration and evaluation assets during the year.

 

 

 

The decommissioning provision is estimated by Management based on the Company’s working interests in its wells and facilities, estimated costs to remediate, reclaim and abandon the wells and facilities, and the estimated timing of the costs to be incurred. At August 31, 2014, the decommissioning provision was estimated to be $3,010,085 (November 30, 2013 – $2,800,085), based on a total future liability of $22.8 million (November 30, 2013 – $22.8 million). These obligations will be settled at the end of the useful lives of the underlying assets, which currently is estimated at twenty-five years (November 30, 2013 – twenty-five years) into the future. This amount was calculated using an inflation rate of 2.8% and discounted at 10% as at August 31, 2014 (November 30, 2013 – 10%).

 

The following table summarizes the changes in the decommissioning provision:

 

 

 

Related party transactions for the three months ended August 31, 2014 are as follows:

 

Page 10

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

 

 

 

 

 

 

Related party transactions for the nine months ended August 31, 2014 are as follows:

 

 

 

 

Page 11

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

 

 

Key Management Personnel

 

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. Stream has determined that key management personnel consist of the Company’s Board of Directors and corporate officers.

 

The remuneration of directors and other members of key management personnel during the nine months ended August 31, 2014 and 2013 were as follows:

 

 

Share-based payments are the fair value of options granted to key management personnel. Amounts due to related parties have no specific terms of repayment, are unsecured, and have no interest rate.

 

 

 

Common Shares

 

The authorized capital of the Company consists of an unlimited number of common shares without par value.

 

Warrants

 

There were no warrants outstanding during the nine months ended August 31, 2014 or during the year ended November 30, 2013.

 

Stock Options

 

The Company has a stock option plan under which it may grant options to purchase common shares to its directors, officers, employees and consultants.  Approved on April 27, 2010, Stream’s plan provides that the maximum number of shares reserved for issue under the plan shall not exceed 20% of the outstanding common shares of the Company, as at the date of the grant.  The maximum number of common shares reserved for issue to any one person under the plan cannot exceed 5% of the issued and outstanding number of common shares at the date of the grant.  The exercise price of each option granted under the

Page 12

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

plan may not be less than the greater of CAD$0.05 per share or the closing price at the date of grant less the maximum discount as may be permitted by the policies of the stock exchange upon which the Company’s shares are listed. Options may be granted for a maximum term of five years from the date of the grant, are non‑transferable and expire within 90 days of termination of employment or holding office as director or officer of the Company.  Each share option permits the holder to purchase one share at the stated exercise price.  All options vest over a three to five-year period, with the board having the ability to accelerate the vesting period at its option.  

 

At August 31, 2014, the Company had 1,930,000 stock options outstanding for which shares have been reserved.

 

 

The summary of options outstanding at August 31, 2014 was as follows:

 

 

 

Page 13

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

During the nine months ended August 31, 2014, the Company granted 350,000 stock options to acquire common shares (November 30, 2013 – nil). Stock-based compensation relating to options vesting during the period using the Black-Scholes option pricing model was $194,206 (August 31, 2013 – $267,640), which was also recorded as share-based payment reserve on the statement of financial position.  The options granted during the period were fully vested at August 31, 2014 and expire in 5 years.

 

 

 

 

 

The Company had the following significant non-cash transactions affecting cash flows from investing and financing activities for the nine months ended August 31, 2014:

 

 

 

 

 

Page 14

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

The Company has one reportable operating segment, being the development of oil and gas properties in Albania.  Segmented information is as follows:

 

 

 

 

Page 15

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

The Company considers its common shares and components of shareholders’ equity in the management of capital, which at August 31, 2014 totaled $26,137,692 (November 30, 2013 – $21,868,976).

 

The Company’s objective, when managing capital, is to ensure sufficient resources are available to meet day to day operating requirements and to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The Company manages the capital structure and makes adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets. In order to meet its objectives for managing capital, the Company may issue new shares, which has historically been done through private placements.  

 

The Company’s officers and senior management take full responsibility for managing Stream’s capital and do so through quarterly meetings and regular review of financial information.  The Company’s Board of Directors is responsible for overseeing this process.

 

At August 31, 2014, the Company was subject to externally imposed capital requirements. Under the Company’s loan agreement with Raiffeisen Bank Sh.A. (“Raiffeisen”) and the Prepayment agreement with Trafigura PTE Ltd. (“Trafigura”) (Note 15), the Company is required to meet certain covenants on an annual basis, which as at November 30, 2013 were not all met by the Company (Note 15).

 

 

 

The fair values of the Company’s accounts receivable, VAT, GST and other receivables, related party loan, customer deposits, accounts payable and accrued liabilities, Albpetrol Sh.A. oil production share liability, finance lease obligation, prepayment facility, shareholder loan, and bank loan payable approximate their carrying value, which is the amount recorded on the statement of financial position.  The Company’s cash is based on level 1 quoted prices in active markets for identical assets under the fair value hierarchy.

 

The Company examines the various financial instrument risks to which it is exposed and assesses any impact and likelihood of those risks. These risks may include currency risk, credit risk, liquidity risk, interest rate risk and other price risks.

 

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital.

 

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework.  The Board of Directors has implemented and monitors compliance with risk management policies.  Stream’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks, adherence to market conditions and the Company’s activities.

 

Page 16

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

Currency Risk

 

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Company operates internationally and is exposed to risks from changes in foreign currency rates, particularly the Canadian dollar, the Euro and the Albanian LEK. The Company does not use derivative instruments to reduce its exposure to foreign currency risk.

 

Sensitivity analysis:

At August 31, 2014, if the United States dollar had fluctuated by 10% against the local functional currencies with all other variables held constant, net income for the nine months ended August 31, 2014 would have differed by $1,613,536 and the translation adjustment reserve would have differed by $63,254.  This is primarily attributable to the Company’s accounts receivable of which $4,011,795 is denominated in Albanian LEK, and the accounts payable balance of which $12,865,229 is denominated in Albanian LEK, and $6,166,138 is denominated in Euro.

 

Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. Stream places its cash with high quality financial institutions. The Company has concentrations of credit risk with respect to accounts receivable as disclosed in Note 4.  As at August 31, 2014, $1,077,125 or 27% of accounts receivable have been outstanding for 90 days or more (November 30, 2013 – $1,217,852 or 43%). The Company believes that the entire balance is collectible. Stream performs credit evaluations of its commercial customers but generally does not require collateral to support accounts receivable.

 

Of the total receivables in Albania, approximately $3,562,501 (November 30, 2013 – $2,805,226) is from two customers of which $761,642 (November 30, 2013 – $1,196,323) is greater than 90 days past due. The Company expects to collect the full amount of the receivable. Based on actual repayment history, the full amount has been classified as current. Subsequent to period end, $1,512,599 of accounts receivables were collected.

 

Liquidity Risk

 

Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due. The Company has a planning and budgeting process in place to help determine the funds required to support Stream’s normal operating requirements.

 

Stream’s objective in managing liquidity risk is to maintain sufficient liquidity in order to meet operational requirements at any point in time. The Company generates cash flow from its operations; however, Stream is exposed to liquidity risk because it is subject to the limited local market for sales of its production.  The Company may seek additional cash funding by means of issuing share capital or obtaining additional debt financing.

 

At November 30, 2013, the Company had not met certain financial covenants with respect to its bank loan payable and prepayment facility (Note 15).  The Company has not paid the interest and principle due at September 30, 2014, which is an event of default (Note 15). The Company has not paid the September and October principle and interest due on the prepayment facility which is also an event of default (Note 15).

Page 17

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

As at August 31, 2014, the Company had cash of $884,265 (November 30, 2013 – $1,962,183) to settle current liabilities of $52,070,385 (November 30, 2013 – $40,077,678), the long term bank loan payable of $6,095,009 (November 30, 2013 – $9,139,713), long term prepayment facility of $nil (November 30, 2013 - $2,711,694) and the long term accounts payable of $6,283,830 (November 30, 2013 - $nil). The Company will continue to generate cash from operations, pursue Albanian tax recoveries, evaluate debt financings and will consider other sources of financing including debt and equity, as required, in order to meet the negative working capital (Note 1).

 

Interest Rate Risk

 

Interest rate risk is the risk that the fair values or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

 

The Company is exposed to interest rate risk to the extent that it has excess cash held with banks and other financial institutions and through interest bearing debt. Interest on the bank loan is calculated at LIBOR+5.5% with a minimum combined interest rate of 7%.  Interest on the prepayment facility is calculated at LIBOR+6%. LIBOR is a fluctuating rate; therefore, the Company has interest rate risk with respect to its bank loan and prepayment facility.

 

Sensitivity analysis:

At August 31, 2014, if LIBOR fluctuated by 1% during the period against its current position, net loss for the nine months ended August 31, 2014 would have differed by approximately $20,522.

 

Market Risk

 

The Company is exposed to price risk with respect to commodity and equity prices. Equity price risk is defined as the potential adverse impact on Stream’s earnings due to movements in individual equity prices or general movements in the level of the stock market. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. Management closely monitors commodity, individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.

 

Commodity Price Risk

 

Commodity price risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in commodity prices.  Commodity prices for oil are impacted by not only the relationship between the Euro, Albanian LEK and US dollar but also world economic events that dictate the levels of supply and demand.  The Company does not enter into derivative contracts or forward sales contracts, and accordingly does not apply hedge accounting.  Stream’s production is usually sold using “spot” or near term contracts with prices fixed at the time of transfer of custody or on the basis of a monthly average market price. 

 

The Company’s primary revenues are from oil sales in Albania and outside Albania, priced on a quality differential basis, to the Brent oil price.  As of August 31, 2014, a $1 per barrel change in the Brent oil price, with all other variables held constant, would affect net income for the period by approximately $431,560 (August 31, 2013 – $343,000).

Page 18

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

BA Capital Inc.

 

On February 16, 2010, Stream announced that BA Capital Inc., a private consulting company owned by Mr. Art Agolli, commenced litigation against the Company, claiming damages of $637,000 plus interest and costs arising from the allegedly wrongful termination of a Consulting Agreement with the Company. Management believes the lawsuit to be without merit and intends to defend against the litigation vigorously.  At this time, the likelihood of the outcome is not determinable and no liability has been recorded in connection with the litigation.

 

 

Albanian Tax Assessment

 

Prepaid expenses includes $331,581 (November 30, 2013 – $331,581) paid to the Albanian courts as deposits with the Albanian Government Tax Directorate for three assessments that Stream has challenged. These assessments are: $67,626 for property tax in communes in which the company operates; $56,780 for VAT applied charged improperly on imported vehicles; and $207,175 relating to a retroactive change on the calculation of excise tax on the Company’s importation and use of diluent. In all three cases, the recoverability of these amounts is dependent on the outcome of the individual case and at August 31, 2014, all were considered recoverable.

 

Royalty Tax Recovery

 

During the year ended November 30, 2013 the Company entered into negotiations with the Albpetrol Sh.A (“Albpetrol”), a state-owned oil company, and Albanian National Agency for Natural Resources (“AKBN”) relating to tax neutralization on export shipments and recovery of royalty fees paid to Albania totaling approximately $9.3 million. As at August 31, 2014, the Company has yet to receive the signed agreement, therefore it has not accrued for the recoverable amount.

 

 

 

Leases

 

The Company has two 48 month finance lease contracts, bearing interest at 9.50% per annum, for the purchase of certain automobiles. The first lease was entered into during the fiscal year ended November 30, 2010, and the second lease was entered into during the fiscal year ended November 30, 2011. The automobiles are classified as a depreciable asset, are recorded at a cost of $239,381, and are amortized on a declining balance basis. As at August 31, 2014 the accumulated amortization balance is $167,439 (November 30, 2013 – $146,533).

Page 19

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

The future minimum lease payments are as follows:

 

 

Bank Loan

 

On December 19, 2011, the Company entered into a $20.0 million trade finance term loan facility with Raiffeisen based in Albania. Under the terms of the facility, Stream must use the funds by December 19, 2012, one year from the originating date of the loan, and must repay it at the rate of 1/20th of the outstanding balance plus interest at the end of the first quarter, 1/19th of the outstanding balance at the second quarter, and then continuing each quarter, starting from the first quarter of drawdown. The loan will be repaid in full within five years ending December 30, 2016. The loan carries interest at the rate of LIBOR+5.5% with a minimum combined interest rate of 7%, and is secured by all fixed assets, equipment, accounts receivable, inventory, concession agreements, and all agreements of the Company signed with third parties. The loan is guaranteed by the parent company, Stream Oil and Gas Ltd. (BC).

 

The repayment dates for the term of the loan are the last business day of each March, June, September and December, except December 2011, up to the date that the loan is repaid in full.  During December 2013, the Company entered into discussions with Raiffeisen whereby Raiffeisen provided a one-time principal payment date extension to February 28, 2014. In March 2014, Stream provided a cash injection and paid the outstanding obligations for the December 31, 2013 interest and principal; see Commitments (Note 15) Shareholder Loan.

 

Unless the lender agrees otherwise, under the loan covenants the Company will ensure that at the end of each fiscal year:

 

 

As at November 30, 2013, the Company had not met certain of the above financial covenants with respect to the Raiffeisen loan. On June 30, 2014 and September 30, 2014, the Company failed to pay the outstanding obligation for interest and principal.

 

Page 20

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

On September 17, 2014, the Company signed an Amendment and restatement agreement with Raiffeisen. Under the terms of this revised agreement:

 

 

The Company has not paid the September 30, 2014 interest and principle due on the Bank Loan which is an event of default. The Company is currently in discussions with Raiffeisen on resolution of this outstanding obligation. Given the event of default on the loan interest and principle, the Company has classified its loan as current as Raiffeisen would have the right to call the loan should they choose to do so. To date, Reiffeisen has not called the loan.

 

 

During the nine months ended August 31, 2014, $2,041,003 was repaid.  Borrowing costs of $615,585 were capitalized to petroleum and natural gas properties during the nine months ended August 31, 2014 (year ended November 30, 2013 – $1,037,743).

 

Trafigura Prepayment Agreement

 

In April 2013, the Company entered into a Prepayment Agreement for crude sales (the “Supply Agreement”) to provide oil production from its Albanian oilfields to Trafigura.  Trafigura has committed to prepay part of

Page 21

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

the purchase price of oil sales under the Prepayment Agreement in an amount not exceeding $20.0 million to Stream.

 

In October, 2013, Stream had drawn the first $7.0 million prepayment against this facility. The agreement required that all funds be fully drawn by October 31, 2013.  Further withdrawals from the prepayment facility up to $20.0 million were not drawn. These withdrawals would have required the Company to obtain certain amendments to its Raiffeisen loan and the completion of further due diligence procedures by

Trafigura as Trafigura considers necessary. The prepayments will be discharged by Stream’s delivery of crude oil to Trafigura in accordance with and at the times and in the quantities as set out the Crude Sales Contract between the two companies.

 

The obligation related to the total amount received by Stream must be discharged by August 31, 2015.   Commencing October 31, 2013, the Company began repayment of any amounts received as of that date.  Interest on any drawn funds will be paid monthly at the rate of LIBOR+6%.

 

Unless Trafigura agrees otherwise, under the prepayment agreement covenants the Company will ensure that at the end of each fiscal year:

 

 

Also, a coverage ratio as estimated by the Company is not to be less than 150% at all times. The coverage ratio is the estimated aggregate valuation of the volume of crude oil to be delivered per the Crude Sales Contract divided by the prepayment liability plus any applicable funding costs and fees.

 

The Crude Sales Contract has a term of three years at which time it may be extended upon written agreement by both parties.

 

Page 22

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

 

Borrowing costs of $223,349 were capitalized to exploration and evaluation assets during the nine months ended August 31, 2014 (year ended November 30, 2013 – $nil).

 

As at November 30, 2013, the Company had not met certain financial covenants with respect to the Trafigura Prepayment agreement as per the above covenants. See Note 13 - Liquidity Risk for further discussion.

 

Subsequent to the quarter end, the Company and Trafigura agreed to a deferral of the prepayment amounts for May to July, and 50% of August, inclusive, with the payments due at the end of October 2014. The Company has not paid the September and October prepayment amounts which is an event of default, and is in discussions with Trafigura as to the resolution of these payments. Interest will continue to be due. See Note 16 - Subsequent Events.

 

Shareholder Loan

 

In March 2014, the Company arranged a loan (the “Loan”) of CAD$5.0 million from an individual insider and shareholder of the Company (the “Lender”). The Loan was intended to be advanced in two tranches. The first tranche of CAD$3.0 million was advanced on execution of loan agreements (received) and the second tranche of CAD$2.0 million was to be advanced upon the delivery of security in the form of common shares from Sotirios Kapotas (President, Chief Executive Officer and a Director of the Company) and Arian Tartari (Vice President, Albania). The Company chose not to proceed with the second tranche. Proceeds from the Loan were used to provide additional capital to advance Stream’s drilling programs.

 

The Loan was initially for a six-month term. On September 2, 2014, the maturity date of the Shareholder loan was extended to the earlier of: (i) November 16, 2014 and (ii) the date on which the Arrangement Agreement is terminated prior to the Arrangement being effected. The Loan bears interest at a rate of 10% per annum calculated and compounded monthly and due on maturity of the Loan. The Company may prepay the Loan, in whole or in part, at any time without notice, bonus or penalty. See Note 16 - Subsequent Events.

 

Under the General Security Agreement, the Company has granted a security interest in all personal property, including but not limited to: inventory; equipment; accounts and debts; chattel paper; documents of title; contractual rights; insurance claims; money and personal property. In addition, under separate call option agreements, the CEO of the Company has pledged 6,486,401 of his shares in the Company and the Vice President, Albania has pledged 3,000,000 of his shares in the Company to the holder of the Loan to be acquitted at a nominal price.

 

Unless the Lender agrees otherwise, under the Loan covenants, the Company will:

 

 

Page 23

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

 

 

 

During the nine months ended August 31, 2014, $nil funds of the Loan were repaid.

 

Albpetrol Sh.A.

 

The Company operates its petroleum and natural gas properties pursuant to Petroleum Agreements with Albpetrol, under Albpetrol’s existing license with AKBN. Under the term of the original Petroleum Agreements, the Company is required to remit to Albpetrol a share of the oil produced by the Company, either in-kind and/or in cash based on specified formulas.  In accordance with the Petroleum Agreements, the Company recorded an estimate as to the Company’s obligation to Albpetrol on a quarterly basis.

 

The Company entered into negotiations with Albpetrol to agree upon the actual net obligation the Company has to Albpetrol, which was determined to be $11,440,145 as at November 30, 2013.  The total agreed upon liability to Albpetrol as at November 30, 2013 consisted of an accrual of $15,448,346 relating to the share of oil produced not previously delivered to Albpetrol, (relating to three separate oil properties).  This amount was offset by $4,008,201 relating to oil delivered to Albpetrol which was in excess of the Company’s obligation (relating to one oil property).

 

As at August 31, 2014, the balance owing to Albpetrol was $12,471,937 (November 30, 2013 - $11,440,145). During the nine month period ended August 31, 2014, the Company had accrued an additional $5,731,792 and repaid $4,700,000. Subsequent to August 31, 2014 the Company paid a further $700,000 against this liability.

 

Related to this agreement, during the nine months ended August 31, 2014, the Company received a royalty tax credit of $1,168,148 against royalty tax obligations related to calculation on the December 31, 2013 balance of the Albpetrol Sh.A. oil production share liability.

Page 24

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

Long Term Accounts Payable

 

The Company renegotiated its payment terms with two key vendors whereby the Company committed to a payment plan over future years to pay off the existing accounts payable balance.  The fair value of the long

term accounts payable discounted at a 10% discount rate over the terms of the commitments amounts to $5,501,745 with a deferred premium on valuation of $782,085.

 

The Company has the following obligations with respect to future payments on the accounts payable:

 

 

 

 

The Company has restated its comparative figures for the three and nine month period ended August 31, 2014, as follows:

 

 

 

 

Subsequent to the period end, the Company entered into the following transactions:

 

 

Page 25

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STREAM OIL & GAS LTD.

AMENDED NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

For the Three and Nine Months Ended August 31, 2014

(Unaudited)

 

 

 

 

 

 

 

 

 

Page 26

Exhibit 99.3

 

TRANSATLANTIC PETROLEUM LTD.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

Stream Acquisition

The following unaudited pro forma consolidated financial data is presented for the year ended December 31, 2013 and as of and for the nine months ended September 30, 2014 to show the pro forma effects of the Stream acquisition.

 

On November 18, 2014, TransAtlantic Petroleum Ltd. (“TransAtlantic” or the “Company”) completed an arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia) involving TransAtlantic, TransAtlantic Holdings B.C. Ltd, the Company’s wholly-owned subsidiary (“Purchaser Subco”), Stream Oil & Gas Ltd. (“Stream”) and the holders (“Stream Shareholders”) of common shares in the capital of Stream (“Stream Shares”). Pursuant to the Arrangement, TransAtlantic, through Purchaser Subco, acquired all of the issued and outstanding Stream Shares in exchange for an aggregate of 3,218,641 common shares in the capital of TransAtlantic (“TransAtlantic Shares”) (representing an exchange ratio of 0.04812 of a TransAtlantic Share for each outstanding Stream Share).  Additionally, Stream Shareholders are entitled to receive additional consideration of 0.00845 of a TransAtlantic Share for each Stream Share in the event that Stream has received the final endorsement from Albania’s Ministry of Energy for certain agreements amending the terms of certain of Stream’s petroleum agreements in Albania within nine months of the closing date (the “Contingent Payment Event”).

 

The total transaction value for TransAtlantic to acquire the Stream Shares was approximately $23.9 million ($28.0 million in the event that the Contingent Payment Event occurs) (at a deemed price of $7.41 per common share). The Stream Shares were de‐listed from the TSX Venture Exchange on November 20, 2014.

 

The acquisition has been accounted for using the acquisition method of accounting under generally accepted accounting principles in the United States of America (U.S. GAAP). Under the acquisition method of accounting, the total purchase price is allocated to the tangible and intangible acquired assets and assumed liabilities of Stream, based on their respective preliminary estimated fair values as of the date of acquisition.

 

The Company has prepared the Unaudited Pro Forma Condensed Consolidated Balance Sheet, using the acquisition method of accounting. The estimated fair values of the acquired assets and assumed liabilities as of the date of acquisition, which are based on estimates and assumptions of the Company, the consideration paid and the entries to record the direct transaction costs incurred, are reflected within the pro forma adjustment entries.

 

Prior to completion of the Arrangement, Stream was engaged in the business of acquiring crude oil and natural gas properties and exploring for, developing and producing oil and natural gas in Albania.  The properties and assets of Stream consisted of producing crude oil and natural gas reserves and proven plus probable crude oil and natural gas reserves not yet on production and possible reserves.

 

Preliminary Purchase Price Allocation

The determination of the estimated fair value required management to make significant estimates and assumptions. These estimates and assumptions of the fair value allocation are preliminary and subject to change upon the finalization of the appraisals and other valuation analyses, which are in the process of being completed.

 

The following tables summarize the consideration paid in the acquisition and the preliminary fair value of assets acquired and liabilities assumed that will be recognized at the acquisition date:

 

 

 

 

 

---

 

 

 

The pro forma consolidated statements of comprehensive income (loss) for the year ended December 31, 2013 and for the nine months ended September 30, 2014 have been prepared assuming the acquisition of Stream was completed at the beginning of the respective periods.

 

Our fiscal year ends on December 31st, and Stream’s fiscal year ends on November 30th. Accordingly, the pro forma consolidated balance sheet information as of September 30, 2014 has been derived from our historical consolidated balance sheet as of September 30, 2014 and Stream’s historical condensed consolidated interim statement of financial position as of August 31, 2014.   The pro forma adjustments within the unaudited pro forma consolidated balance sheet represent the adjustments to the historical carrying amounts as of September 30, 2014 for certain assets acquired and assumed liabilities of Stream to reflect the preliminary purchase price allocation to assets and liabilities at the date of acquisition. The pro forma consolidated statement of comprehensive income (loss) for the nine months ended September 30, 2014 has been derived from our historical consolidated statement of comprehensive income (loss) for the period then ended and Stream’s historical condensed consolidated interim statement of operations and comprehensive income (loss) for the nine months ended August 31, 2014.  The pro forma consolidated statement of comprehensive income (loss) for the year ended December 31, 2013 has been derived from our historical consolidated statement of comprehensive income (loss) for the year then ended and Stream’s historical consolidated statement of operations and comprehensive income (loss) for the year ended November 30, 2013.

The pro forma consolidated financial data has been prepared for illustrative purposes only and does not purport to be indicative of the actual results for the periods indicated or that may be realized in the future. Although management believes the assumptions used in preparing these pro forma financial results are reasonable, these assumptions may not be correct. As a result, actual results could differ materially.

 

2

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TRANSATLANTIC PETROLEUM LTD.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As of September 30, 2014

(Thousands of U.S. Dollars)

 

 

 

3

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See Accompanying Notes to these Unaudited Pro Forma Consolidated Financial Data

 

 

 

4

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Nine Months Ended September 30, 2014

(Thousands of U.S. Dollars, except per share amounts)

 

See Accompanying Notes to these Unaudited Pro Forma Consolidated Financial Data

 

5

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TRANSATLANTIC PETROLEUM LTD.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Year Ended December 31, 2013

(Thousands of U.S. Dollars, except per share amounts)

 

See Accompanying Notes to these Unaudited Pro Forma Consolidated Financial Data

 

6

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TRANSATLANTIC PETROLEUM LTD.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

1. Description of U.S. GAAP and Pro Forma Adjustments

 

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* * * * * * *

 

8

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TRANSATLANTIC PETROLEUM LTD.

PRO FORMA SUPPLEMENTAL OIL AND NATURAL GAS DISCLOSURES

 

 

The following tables present certain unaudited pro forma consolidated information concerning TransAtlantic’s proved oil and gas reserves at December 31, 2013 giving effect to the acquisition of Stream as if it had occurred on December 31, 2013.  There are numerous uncertainties inherent in estimating the quantities of proved reserves and projecting future rates of production and timing of development expenditures.  The following reserve data represents estimates only and reflects prices and costs as of December 31, 2013, and should not be construed as being exact. Amounts are in thousands of U.S. Dollars.

 

 

 

 

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