The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
1. General
Nature of operations
TransAtlantic Petroleum Ltd. (together with its subsidiaries, “we,” “us,” “our,” the “Company” or “TransAtlantic”) is an international oil and natural gas company engaged in acquisition, exploration, development and production. We have focused our operations in countries that have established, yet underexplored petroleum systems, are net importers of petroleum, have an existing petroleum transportation infrastructure and provide favorable commodity pricing, royalty rates and tax rates to exploration and production companies. We hold interests in developed and undeveloped oil and natural gas properties in Turkey and Bulgaria. As of August 8, 2016, approximately 36% of our outstanding common shares were beneficially owned by N. Malone Mitchell 3rd, our chief executive officer and chairman of our board of directors.
TransAtlantic is a holding company with two operating segments – Turkey and Bulgaria. Its assets consist of its ownership interests in subsidiaries that primarily own assets in Turkey and Bulgaria.
Basis of presentation
Our consolidated financial statements are expressed in U.S. Dollars and have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All amounts in the notes to the consolidated financial statements are in U.S. Dollars unless otherwise indicated. In preparing financial statements, management makes informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews estimates, including those related to fair value measurements associated with acquisitions and financial derivatives, the recoverability and impairment of long-lived assets, contingencies and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates. During the six months ended June 30, 2016, we reclassified certain balance sheet amounts previously reported on our consolidated balance sheet at December 31, 2015 to conform to current year presentation.
Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2015.
2. Going concern
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. These principles assume that we will be able to realize our assets and discharge our obligations in the normal course of operations for the foreseeable future.
We incurred a net loss of $12.2 million for the six months ended June 30, 2016, which included net loss from discontinued operations of $0.1 million. At June 30, 2016, the outstanding principal amount of our debt was $84.7 million (excluding unamortized deferred financing costs), and we had a working capital deficit (excluding assets and liabilities held for sale) of $19.8 million.
Due to the significant decline in Brent crude oil prices during 2015, the borrowing base under our senior credit facility (the “Senior Credit Facility”) with BNP Paribas (Suisse) SA (“BNP Paribas”) and the International Finance Corporation (“IFC”, and together with BNP Paribas, the “Lenders”) was decreased to $5.4 million effective April 1, 2016. The decline in the borrowing base resulted in a $18.8 million borrowing base deficiency under the Senior Credit Facility as of June 30, 2016.
On April 19, 2016, we entered into a second waiver and consent to credit agreement (the “Second Waiver and Consent”) with BNP Paribas and IFC, which granted us a conditional waiver of defaults under the Senior Credit Facility and the current ratio financial covenant non-compliance at December 31, 2015, and March 31, June 30, and September 30, 2016. The Second Waiver and Consent also permitted the borrowers to make certain limited transfers and withdrawals from the collection accounts pledged to the Lenders under the Senior Credit Facility.
6
The Second Waiver and Consent included certain conditions, including the
following:
|
(i)
|
The borrowing base deficiency must be repaid by September 30, 2016 (provided that the Lenders may, in their sole and absolute discretion, agree in writing to extend such date to December 31, 2016) (the “Waiver Period”);
|
|
(ii)
|
All monthly hedge settlement proceeds shall be used to pay down debt outstanding under the Senior Credit Facility;
|
|
(iii)
|
Net proceeds from certain asset sales shall be used to prepay loans outstanding under the Senior Credit Facility;
|
|
(iv)
|
On or before May 15, 2016, the Company shall have entered into a binding purchase and sale agreement for the sale of all of the equity interests in, or all or substantially all of the assets of, Thrace Basin Natural Gas (Turkiye) Corporation (“TBNG”);
|
|
(v)
|
By June 30, 2016, the Lenders shall be granted a security interest over all of the equity interests in, and assets and property of, TBNG; and
|
|
(vi)
|
On or before September 30, 2016, all holders of our 13.0% convertible notes due 2017 (the “2017 Notes”) shall either (a) convert their debt interest under the 2017 Notes into equity interest, or (b) agree to extend the maturity of the 2017 Notes to April 1, 2019 or later on substantially identical terms.
|
As of June 30, 2016, we had $24.2 million of outstanding borrowings under the Senior Credit Facility, a borrowing base deficiency of $18.8 million and no availability. In addition, we were not in compliance with certain covenants in the Second Waiver and Consent, including the requirement to enter into a binding purchase and sale agreement for TBNG by May 15, 2016. We continue to work with the Lenders to satisfy these conditions and restructure our Senior Credit Facility obligations. Subsequent to June 30, 2016, we repaid $0.9 million of principal under the Senior Credit Facility, reducing the outstanding balance to $23.3 million and the borrowing base deficiency to $17.9
million as of August 8, 2016. In addition, as of June 30, 2016 and August 8, 2016, the Lenders held $7.2 million and $12.0 million, respectively, of restricted cash in our collection accounts in Turkey.
Even if we obtain the funds to repay our borrowing base deficiency, we will need some form of debt restructuring, capital raising effort or asset sale in order to fund our operations and meet our substantial debt service obligations of approximately $29.7 million in 2016 and $55.0 million in 2017. We have engaged Seaport Global Inc. as an independent advisor, and our management is actively pursuing improving our working capital position and/or restructuring our future debt service obligations in order to remain a going concern for the foreseeable future.
As a result there is substantial doubt regarding our ability to continue as a going concern.
Management believes the going concern assumption to be appropriate for these consolidated financial statements. If the going concern assumption was not appropriate, adjustments would be necessary to the carrying values of assets and liabilities, reported revenues and expenses, and in the balance sheet classifications used in these consolidated financial statements.
3. Recent accounting pronouncements
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11,
Simplifying the Measurement of Inventory
(“ASU 2015-11”), an amendment to Accounting Standards Codification (“ASC”) Subtopic 330-10. The amendment states that entities should measure inventory at the lower of cost and net realizable value. The amendment does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendment applies to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. ASU 2015-11 is effective for fiscal years beginning after December 31, 2016, including interim periods within those fiscal years. We are currently assessing the potential impact of ASU 2015-11 on our consolidated financial statements and results of operations.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
(“ASU 2016-08”). ASU 2016-08 does not change the core principle of Topic 606 but clarifies the implementation guidance on principal versus agent considerations. ASU 2016-08 is effective for the annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-08 on our consolidated financial statements and results of operations.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. We are currently assessing the potential impact of ASU 2016-09 on our consolidated financial statements and results of operations.
7
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Lic
ensing
(“ASU 2016-10”). ASU 2016-10 does not change the core principle of Topic 606 but clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles
for those areas. ASU 2016-10 is effective for annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-10 on our consolidated financial statements and results of operations.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses
(“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for a fiscal year beginning after December 15, 2018, including interim periods within that fiscal year. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently assessing the potential impact of ASU 2016-13 on our consolidated financial statements and results of operations.
We have reviewed other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operations, financial position and cash flows. Based on that review, we believe that none of these pronouncements will have a significant effect on current or future earnings or operations.
4. Property and equipment
Oil and natural gas properties
The following table sets forth the capitalized costs under the successful efforts method for our oil and natural gas properties as of:
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
(in thousands)
|
|
Oil and natural gas properties, proved:
|
|
|
|
|
|
|
|
Turkey
|
$
|
273,619
|
|
|
$
|
270,591
|
|
Bulgaria
|
|
496
|
|
|
|
489
|
|
Total oil and natural gas properties, proved
|
|
274,115
|
|
|
|
271,080
|
|
Oil and natural gas properties, unproved:
|
|
|
|
|
|
|
|
Turkey
|
|
31,346
|
|
|
|
31,135
|
|
Total oil and natural gas properties, unproved
|
|
31,346
|
|
|
|
31,135
|
|
Gross oil and natural gas properties
|
|
305,461
|
|
|
|
302,215
|
|
Accumulated depletion
|
|
(154,645
|
)
|
|
|
(139,002
|
)
|
Net oil and natural gas properties
|
$
|
150,816
|
|
|
$
|
163,213
|
|
At June 30, 2016 and December 31, 2015, we excluded $0.1 million and $0.7 million, respectively, from the depletion calculation for proved development wells currently in progress and for costs associated with fields currently not in production.
At June 30, 2016, the capitalized costs of our oil and natural gas properties, net of accumulated depletion, included $18.8 million relating to acquisition costs of proved properties, which are being depleted by the unit-of-production method using total proved reserves, and $100.6 million relating to well costs and additional development costs, which are being depleted by the unit-of-production method using proved developed reserves.
At December 31, 2015, the capitalized costs of our oil and natural gas properties included $20.0 million relating to acquisition costs of proved properties, which are being amortized by the unit-of-production method using total proved reserves, and $111.4 million relating to well costs and additional development costs, which are being amortized by the unit-of-production method using proved developed reserves
8
Impairments of proved properties and impairment of exploratory well costs
Proved oil and natural gas properties are reviewed for impairment when events and circumstances indicate the carrying value of such properties may not be recoverable. We primarily use Level 3 inputs to determine fair value, including but are not limited to, estimates of proved reserves, future commodity prices, the timing and amount of future production and capital expenditures and discount rates commensurate with the risk reflective of the lives remaining for the respective oil and natural gas properties.
During the three and six months ended June 30, 2016, we recorded $0.1 million and $1.4 million, respectively, of impairment of proved properties and exploratory well costs, which are primarily measured using Level 3 inputs.
Capitalized cost greater than one year
As of June 30, 2016, we had $1.3 million and $2.2 million of exploratory well costs capitalized for the Hayrabolu-10 and Pinar-1 wells, respectively, in Turkey, which we spud in February 2013 and March 2014, respectively. The Hayrabolu-10 and Pinar-1 wells continue to be held for completion.
Equipment and other property
The historical cost of equipment and other property, presented on a gross basis with accumulated depreciation, is summarized as follows:
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
(in thousands)
|
|
Inventory
|
$
|
20,978
|
|
|
$
|
21,338
|
|
Leasehold improvements, office equipment and software
|
|
7,836
|
|
|
|
7,794
|
|
Gas gathering system and facilities
|
|
4,821
|
|
|
|
4,798
|
|
Other equipment
|
|
2,390
|
|
|
|
2,378
|
|
Vehicles
|
|
401
|
|
|
|
400
|
|
Gross equipment and other property
|
|
36,426
|
|
|
|
36,708
|
|
Accumulated depreciation
|
|
(10,078
|
)
|
|
|
(9,216
|
)
|
Net equipment and other property
|
$
|
26,348
|
|
|
$
|
27,492
|
|
We classify our materials and supply inventory, including steel tubing and casing, as long-term assets because such materials will ultimately be classified as long-term assets when the material is used in the drilling of a well.
At June 30, 2016 and December 31, 2015, we excluded $21.0 million and $21.3 million of inventory, respectively, from depreciation as the inventory had not been placed into service.
5. Asset retirement obligations
The following table summarizes the changes in our asset retirement obligations (“ARO”) for the six months ended June 30, 2016 and for the year ended December 31, 2015:
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
(in thousands)
|
|
Asset retirement obligations at beginning of period
|
$
|
9,237
|
|
|
$
|
10,543
|
|
Change in estimates
|
|
-
|
|
|
|
385
|
|
Foreign exchange change effect
|
|
59
|
|
|
|
(2,137
|
)
|
Additions
|
|
-
|
|
|
|
78
|
|
Accretion expense
|
|
188
|
|
|
|
368
|
|
Asset retirement obligations at end of period
|
|
9,484
|
|
|
|
9,237
|
|
Less: current portion
|
|
-
|
|
|
|
-
|
|
Long-term portion
|
$
|
9,484
|
|
|
$
|
9,237
|
|
Our ARO is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs.
9
6. Commodity derivative instruments
We use derivative contracts to hedge against the variability in cash flows associated with the forecasted sale of a portion of our future oil production. We have not designated the derivative contracts as hedges for accounting purposes, and accordingly, we record the derivative contracts at fair value and recognize changes in fair value in earnings as they occur.
To the extent that a legal right of offset exists, we net the value of our derivative contracts with the same counterparty in our consolidated balance sheets. All of our oil derivative contracts are settled based upon Brent crude oil pricing. We recognize gains and losses related to these contracts on a fair value basis in our consolidated statements of comprehensive (loss) income under the caption “(Loss) gain on commodity derivative contracts.” Settlements of derivative contracts are included in operating activities on our consolidated statements of cash flows under the caption “Cash settlement on commodity derivative contracts.”
During the three months ended June 30, 2016 and 2015, we recorded a net loss on commodity derivative contracts of $3.0 million and $3.3 million, respectively. During the six months ended June 30, 2016 and 2015, we recorded a net loss on commodity derivative contracts of $2.2 million and a net gain of $0.5 million, respectively.
At June 30, 2016 and December 31, 2015, we had outstanding contracts with respect to our future crude oil production as set forth in the tables below:
Fair Value of Derivative Instruments as of June 30, 2016
|
|
|
|
Puts
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Estimated Fair
|
|
|
|
|
|
Quantity
|
|
|
Price
|
|
|
Value of
|
|
Type
|
|
Period
|
|
(Bbl/day)
|
|
|
(per Bbl)
|
|
|
Asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Put
|
|
July 1, 2016—
December 31, 2016
|
|
|
738
|
|
|
$
|
50.00
|
|
|
$
|
336
|
|
Put
|
|
January 1, 2017—
December 31, 2017
|
|
|
610
|
|
|
$
|
50.00
|
|
|
|
1,190
|
|
Put
|
|
January 1, 2018—
December 31, 2018
|
|
|
494
|
|
|
$
|
50.00
|
|
|
|
1,135
|
|
Put
|
|
January 1, 2019—
March 31, 2019
|
|
|
443
|
|
|
$
|
50.00
|
|
|
|
253
|
|
Total estimated fair value of asset
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,914
|
|
Fair Value of Derivative Instruments as of December 31, 2015
|
|
|
|
Puts
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Estimated Fair
|
|
|
|
|
|
Quantity
|
|
|
Price
|
|
|
Value of
|
|
Type
|
|
Period
|
|
(Bbl/day)
|
|
|
(per Bbl)
|
|
|
Asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Put
|
|
January 1, 2016—
December 31, 2016
|
|
|
808
|
|
|
$
|
50.00
|
|
|
$
|
3,235
|
|
Put
|
|
January 1, 2017—
December 31, 2017
|
|
|
610
|
|
|
$
|
50.00
|
|
|
|
1,798
|
|
Put
|
|
January 1, 2018—
December 31, 2018
|
|
|
494
|
|
|
$
|
50.00
|
|
|
|
1,292
|
|
Put
|
|
January 1, 2019—
March 31, 2019
|
|
|
443
|
|
|
$
|
50.00
|
|
|
|
280
|
|
Total estimated fair value of asset
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,605
|
|
10
Balance sheet presentation
The following table summarizes both: (i) the gross fair value of our commodity derivative instruments by the appropriate balance sheet classification even when the commodity derivative instruments are subject to netting arrangements and qualify for net presentation in our consolidated balance sheets at June 30, 2016 and December 31, 2015, and (ii) the net recorded fair value as reflected on our consolidated balance sheets at June 30, 2016 and December 31, 2015.
|
|
|
|
As of June 30, 2016
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Net Amount of
|
|
|
|
|
|
Gross
|
|
|
Offset in the
|
|
|
Assets
|
|
|
|
|
|
Amount of
|
|
|
Consolidated
|
|
|
Presented in the
|
|
|
|
|
|
Recognized
|
|
|
Balance
|
|
|
Consolidated
|
|
Underlying Commodity
|
|
Location on Balance Sheet
|
|
Assets
|
|
|
Sheet
|
|
|
Balance Sheet
|
|
|
|
|
|
(in thousands)
|
|
Crude oil
|
|
Current assets
|
|
$
|
913
|
|
|
$
|
-
|
|
|
$
|
913
|
|
Crude oil
|
|
Long-term assets
|
|
$
|
2,001
|
|
|
$
|
-
|
|
|
$
|
2,001
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Net Amount of
|
|
|
|
|
|
Gross
|
|
|
Offset in the
|
|
|
Assets
|
|
|
|
|
|
Amount of
|
|
|
Consolidated
|
|
|
Presented in the
|
|
|
|
|
|
Recognized
|
|
|
Balance
|
|
|
Consolidated
|
|
Underlying Commodity
|
|
Location on Balance Sheet
|
|
Assets
|
|
|
Sheet
|
|
|
Balance Sheet
|
|
|
|
|
|
(in thousands)
|
|
Crude oil
|
|
Current assets
|
|
$
|
3,235
|
|
|
$
|
-
|
|
|
$
|
3,235
|
|
Crude oil
|
|
Long-term assets
|
|
$
|
3,370
|
|
|
$
|
-
|
|
|
$
|
3,370
|
|
7. Loans payable
As of the dates indicated, our third-party debt consisted of the following:
|
June 30,
|
|
|
December 31,
|
|
|
2016
|
|
|
2015
|
|
Fixed and floating rate loans
|
(in thousands)
|
|
2017 Notes
|
$
|
34,350
|
|
|
$
|
34,400
|
|
2017 Notes - Related Party
|
|
20,650
|
|
|
|
20,600
|
|
Senior Credit Facility
|
|
24,243
|
|
|
|
32,075
|
|
Unamortized deferred financing cost - Senior Credit Facility and
2017 Notes
|
|
(892
|
)
|
|
|
(1,260
|
)
|
TBNG credit facility
|
|
872
|
|
|
|
5,192
|
|
ANBE Note
|
|
3,593
|
|
|
|
3,592
|
|
West Promissory Notes
|
|
1,000
|
|
|
|
1,000
|
|
Loans payable
|
|
83,816
|
|
|
|
95,599
|
|
Less: current portion
|
|
28,816
|
|
|
|
40,599
|
|
Long-term portion
|
$
|
55,000
|
|
|
$
|
55,000
|
|
Senior Credit Facility
On May 6, 2014, certain of our wholly owned subsidiaries entered into the Senior Credit Facility with BNP Paribas and IFC. The Senior Credit Facility is guaranteed by us and each of TransAtlantic Petroleum (USA) Corp. (“TransAtlantic USA”) and TransAtlantic Worldwide, Ltd. (each, a “Guarantor”).
11
The borrowing base amount is re-determined semi-annually on April 1st and October 1st of each year. The April 1, 2016 redetermination resulted in a $5.4 million borrowing base and a $18.8 million borrowing base deficiency under the Senior Credit
Facility as of June 30, 2016.
Loans under the Senior Credit Facility accrue interest at a rate of three-month LIBOR plus 5.00% per annum (5.63% at June 30, 2016), except as described below. The borrowing base amount equals, for any calculation date, th
e lowest of:
|
·
|
the debt value which results in the field life coverage ratio for such calculation date being 1.50 to 1.00; and
|
|
·
|
the debt value which results in the loan life coverage ratio for such calculation date being 1.30 to 1.00.
|
On April 19, 2016, we entered into the Second Waiver and Consent with BNP Paribas and IFC,
which granted us a conditional waiver of defaults under the Senior Credit Facility and permitted the borrowers to make certain limited transfers and withdrawals from the collection accounts pledged to the Lenders under the Senior Credit Facility.
The Second Waiver and Consent also waived non-compliance with the current ratio financial covenant in the Senior Credit Facility on each of December 31, 2015, and March 31, June 30, and September 30, 2016.
The Second Waiver and Consent included certain conditions, including the following:
|
(i)
|
The borrowing base deficiency must be repaid by September 30, 2016 (provided that the Lenders may, in their sole and absolute discretion, agree in writing to extend such date to December 31, 2016);
|
|
(ii)
|
All monthly hedge settlement proceeds shall be used to pay down debt outstanding under the Senior Credit Facility;
|
|
(iii)
|
Net proceeds from certain asset sales shall be used to prepay loans outstanding under the Senior Credit Facility;
|
|
(iv)
|
On or before May 15, 2016, the Company shall have entered into a binding purchase and sale agreement for the sale of all of the equity interests in, or all or substantially all of the assets of, TBNG;
|
|
(v)
|
By June 30, 2016, the Lenders shall be granted a security interest over all of the equity interest in, and assets and property of, TBNG; and
|
|
(vi)
|
On or before September 30, 2016, all holders of the 2017 Notes shall either (a) convert their debt interest under the 2017 Notes into equity interest, or (b) agree to extend the maturity of the 2017 Notes to April 1, 2019 or later on substantially identical terms.
|
Pursuant to the Second Waiver and Consent, as of April 19, 2016, the Lenders’ aggregate commitments were reduced to $30.5 million, with individual commitments of $15.2 million each, and shall be further reduced by the amount of any payments under the Senior Credit Facility. During the Waiver Period, interest on the borrowing base deficiency will accrue at a rate of three-month LIBOR plus 7.00% per annum (7.63% at June 30, 2016).
As of June 30, 2016, we had $24.2 million of outstanding borrowings under the Senior Credit Facility, a borrowing base deficiency of $18.8 million and no availability. In addition, we were not in compliance with certain covenants in the Second Waiver and Consent, including the requirement to enter into a binding purchase and sale agreement for TBNG by May 15, 2016. We continue to work with the Lenders to satisfy these conditions and restructure our Senior Credit Facility obligations. Subsequent to June 30, 2016, we repaid $0.9 million of principal under the Senior Credit Facility, reducing the outstanding balance to $23.3 million and the borrowing base deficiency to $17.9 million, as of August 8, 2016. In addition, as of June 30, 2016 and August 8, 2016, the Lenders held $7.2 million and $12.0 million, respectively, of restricted cash in our collection accounts in Turkey.
As of August 8, 2016, we had granted a security interest in favor of the Lenders over all of the equity interests in, and moveable assets of, TBNG, and were in the process of granting a security interest in favor of the Lenders over all present and future receivables of TBNG. We are also in active negotiations with third party purchasers for the sale of TBNG. We have engaged Seaport Global Inc. as an independent advisor, and our management is actively pursuing alternate structures for the 2017 Notes.
We have classified all borrowings under the Senior Credit Facility as short-term debt as of June 30, 2016 due to the uncertainty regarding our ability to comply with the covenants in the Senior Credit Facility for the next twelve months
.
12
2017 Notes
As of June 30, 2016, we had $55.0
million aggregate principal amount of outstanding 2017 Notes.
The 2017 Notes bear interest at a rate of 13.0% per annum and mature on July 1, 2017. The 2017 Notes are convertible at any time, at the election of a holder, into our common shares at a conversion price of $6.80 per share.
On June 30, 2016, we issued 2,905,737 common shares in a private placement to certain holders of the 2017 Notes, at the election of such holders to receive common shares in lieu of cash interest on the 2017 Notes (see Note 9, “Shareholders’ equity”).
TBNG credit facility
TBNG has a fully-drawn credit facility with a Turkish bank. During the second quarter of 2016, the facility was amended and the monthly principal installments were deferred until August 29, 2016. The facility may be prepaid without penalty. The facility is secured by a lien on a Turkish real estate property owned by Gundem Turizm Yatirim ve Isletmeleri Anonim Sirketi (“Gundem”), which is 97.5% beneficially owned by Mr. Mitchell and his children. At June 30, 2016, TBNG owed $0.9 million under the credit facility and had no availability.
West Promissory Notes
In August 2015, TransAtlantic USA entered into promissory notes (the “Promissory Notes”) with each of Mary West CRT 2 LLC and Gary West CRT 2 LLC, shareholders of the Company (collectively, the “Holders”), whereby TransAtlantic USA could borrow up to $1.5 million under each Promissory Note to fund our share repurchase program. The Holders are managed by Randy Rochman, an observer of our board of directors.
On August 21, 2015, TransAtlantic USA borrowed $500,000 under each Promissory Note. Pursuant to the terms of the Promissory Notes, the Holders are granted a first priority lien and security interest in all of our common shares purchased under our share repurchase program. Loans under the Promissory Notes accrue interest at a rate of 9.00% per annum and mature on October 1, 2016. The Promissory Notes are guaranteed by us. As of June 30, 2016, we had borrowed $1.0 million under the Promissory Notes and had no availability. The funds were used to purchase our common shares pursuant to our share repurchase program.
ANBE Note
On December 30, 2015, TransAtlantic USA entered into a $5.0 million draw down convertible promissory note (the “Note”) with ANBE Holdings, L.P. (“ANBE”), an entity owned by the children of the Company’s chairman and chief executive officer, N. Malone Mitchell 3rd, and controlled by an entity managed by Mr. Mitchell and his wife. The Note bears interest at a rate of 13.0% per annum. On December 30, 2015, the Company borrowed $3.6 million under the Note (the “Initial Advance”) for general corporate purposes.
On June 30, 2016, TransAtlantic USA entered into an extension of the Note (the “Extension”) with ANBE. The Extension extended the date on which the Company could request advances under the Note from June 15, 2016 to August 15, 2016 and extended the maturity date of the Note from June 30, 2016 to August 31, 2016. As of June 30, 2016, the Company had borrowed $3.6 million under the Note and had availability of $1.4 million.
Advances under the Note may be converted, at the election of ANBE, any time after the NYSE MKT approves the Company’s application to list the additional common shares issuable pursuant to the conversion feature of the Note and prior to the maturity of the Note. The conversion price per common share for each advance is equal to 105% of the closing price of the Company’s common shares on the NYSE MKT on the trading date immediately prior to such advance. The conversion price of the Initial Advance is $1.3755 per share.
On June 30, 2016, we issued 355,826 common shares in a private placement to ANBE in lieu of cash interest on the Note (see Note 9, “Shareholders’ equity”).
13
8. Contingencies relating to production leases and exploration permits
Selmo
We are involved in litigation with persons who claim ownership of a portion of the surface at the Selmo oil field in Turkey. These cases are being vigorously defended by TransAtlantic Exploration Mediterranean International Pty Ltd (“TEMI”) and Turkish governmental authorities. We do not have enough information to estimate the potential additional operating costs we would incur in the event the purported surface owners’ claims are ultimately successful. Any adjustment arising out of the claims will be recorded when it becomes probable and measurable.
Morocco
During 2012, we were notified that the Moroccan government may seek to recover approximately $5.5 million in contractual obligations under our Tselfat exploration permit work program. In February 2013, the Moroccan government drew down our $1.0 million bank guarantee that was put in place to ensure our performance of the Tselfat exploration permit work program. Although we believe that the bank guarantee satisfies our contractual obligations, during 2012, we recorded $5.0 million in accrued liabilities relating to our Tselfat exploration permit for this contingency.
Bulgaria
During 2012, we were notified that the Bulgarian government may seek to recover approximately $2.0 million in contractual obligations under our Aglen exploration permit work program. Due to the Bulgarian government’s January 2012 ban on fracture stimulation and related activities, a force majeure event under the terms of the exploration permit was recognized by the government. Although we invoked force majeure, we recorded $2.0 million in general and administrative expense relating to our Aglen exploration permit during 2012 for this contractual obligation.
In October 2015, the Bulgarian Ministry of Energy and Economy filed a suit against our subsidiary, Direct Petroleum Bulgaria EOOD (“Direct Bulgaria”), claiming a $200,000 penalty for Direct Bulgaria’s alleged failure to fulfill the Aglen work program. We believe that Direct Bulgaria is not under any obligation to fulfill the work program until the 2012 force majeure event is rectified and intend to vigorously defend this claim.
Direct Petroleum
In July 2013, we entered into a second amendment (the “Amendment”) to the purchase agreement (the “Purchase Agreement”) with Direct Petroleum Exploration, LLC (“Direct”). The Amendment set forth a new obligation to drill and test the Deventci-R2 well by May 1, 2014. We completed the drilling and testing requirements pursuant to the Amendment during April 2014, which resulted in the reversal of a $2.5 million contingent liability recorded in 2011. The reversal was recognized in our consolidated statements of comprehensive income (loss) under the caption “Revaluation of contingent consideration” during the nine months ended September 30, 2014.
In December 2014, Direct filed suit against the Company alleging that it was due liquidated damages of $5.0 million worth of common shares of the Company pursuant to the Amendment. On March 15, 2016, the Company entered into a settlement agreement pursuant to which we agreed to issue 225,000 common shares to Direct in exchange for a mutual release of all current and future claims against the other party in connection with the Purchase Agreement. On April 17, 2016, the Company issued 225,000 common shares to Direct pursuant to a settlement agreement, and the court dismissed the lawsuit on April 28, 2016.
14
9. Shareholders’ equity
June 2016 share issuance
On June 30, 2016, we issued an aggregate of 5,773,305 common shares in private placements under the Securities Act of 1933, as amended (the “Securities Act”). Of the 5,773,305 common shares, (i) 2,905,737 common shares were issued to holders of the 2017 Notes at the election of such holders to receive common shares in lieu of cash interest on the 2017 Notes; (ii) 355,826 common shares were issued to ANBE in lieu of cash interest on the Note; and (iii) 2,511,742 common shares were issued for cash, which was used to pay cash interest to certain holders of the 2017 Notes. All of the shares were issued at a value of $0.6599 per share, which was equal to 75% of the 10-day volume weighted average price through the close of trading of the common shares on the NYSE MKT on June 29, 2016.
Direct settlement
On April 17, 2016, we issued 225,000 common shares to Direct pursuant to a settlement agreement.
Restricted stock units
We recorded share-based compensation expense of $0.2 million for awards of restricted stock units (“RSUs”) for each of the three months ended June 30, 2016 and 2015. We recorded share-based compensation expense of $0.4 million and $0.5 million for awards of RSUs for the six months ended June 30, 2016 and 2015, respectively.
As of June 30, 2016, we had approximately $0.6 million of unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.5 years.
Earnings per share
We account for earnings per share in accordance with ASC Subtopic 260-10,
Earnings Per Share
(“ASC 260-10”). ASC 260-10 requires companies to present two calculations of earnings per share: basic and diluted. Basic earnings per common share for the three and six months ended June 30, 2016 and 2015 equals net loss divided by the weighted average shares outstanding during the periods. Weighted average shares outstanding are equal to the weighted average of all shares outstanding for the period, excluding unvested RSUs. Diluted earnings per common share for the three and six months ended June 30, 2016 and 2015 are computed in the same manner as basic earnings per common share after assuming the issuance of common shares for all potentially dilutive common share equivalents, which includes RSUs. For the three and six months ended June 30, 2016, there were no dilutive securities included in the calculation of diluted earnings per share.
The following table presents the basic and diluted earnings per common share computations:
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
(in thousands, except per share amounts)
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net loss from continuing operations
|
$
|
(6,544
|
)
|
|
$
|
(5,689
|
)
|
|
$
|
(12,110
|
)
|
|
$
|
(9,712
|
)
|
Net loss from discontinued operations
|
$
|
(118
|
)
|
|
$
|
(1,561
|
)
|
|
$
|
(103
|
)
|
|
$
|
(3,032
|
)
|
Basic net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
41,001
|
|
|
|
40,973
|
|
|
|
40,870
|
|
|
|
40,870
|
|
Basic net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.16
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.24
|
)
|
Discontinued operations
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.07
|
)
|
Diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
41,001
|
|
|
|
40,973
|
|
|
|
40,870
|
|
|
|
40,870
|
|
Diluted net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.16
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.30
|
)
|
|
$
|
(0.24
|
)
|
Discontinued operations
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.07
|
)
|
15
10. Segment information
In accordance with ASC 280,
Segment Reporting
(“ASC 280”), we have two reportable geographic segments: Turkey and Bulgaria. Summarized financial information from continuing operations concerning our geographic segments is shown in the following table:
|
Corporate
|
|
|
Turkey
|
|
|
Bulgaria
|
|
|
Total
|
|
|
(in thousands)
|
|
For the three months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
17,698
|
|
|
$
|
-
|
|
|
$
|
17,698
|
|
Loss from continuing operations before income
taxes
|
|
(3,990
|
)
|
|
|
(567
|
)
|
|
|
(138
|
)
|
|
|
(4,695
|
)
|
Capital expenditures
|
$
|
-
|
|
|
$
|
911
|
|
|
$
|
-
|
|
|
$
|
911
|
|
For the three months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
25,053
|
|
|
|
|
|
|
$
|
25,053
|
|
(Loss) income from continuing operations before income
taxes
|
|
(5,405
|
)
|
|
|
4,970
|
|
|
|
(3,866
|
)
|
|
|
(4,301
|
)
|
Capital expenditures
|
$
|
108
|
|
|
$
|
4,418
|
|
|
$
|
-
|
|
|
$
|
4,526
|
|
For the six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
$
|
33,264
|
|
|
|
|
|
|
$
|
33,264
|
|
(Loss) income from continuing operations before income
taxes
|
|
(8,990
|
)
|
|
|
679
|
|
|
|
(203
|
)
|
|
|
(8,514
|
)
|
Capital expenditures
|
$
|
-
|
|
|
$
|
3,191
|
|
|
$
|
-
|
|
|
$
|
3,191
|
|
For the six months ended June 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
50,810
|
|
|
$
|
-
|
|
|
$
|
50,810
|
|
(Loss) income from continuing operations before income
taxes
|
|
(11,903
|
)
|
|
|
9,177
|
|
|
|
(3,967
|
)
|
|
|
(6,693
|
)
|
Capital expenditures
|
$
|
163
|
|
|
$
|
10,776
|
|
|
$
|
41
|
|
|
$
|
10,980
|
|
Segment assets
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
$
|
10,477
|
|
|
$
|
217,677
|
|
|
$
|
618
|
|
|
$
|
228,772
|
|
December 31, 2015
|
$
|
14,689
|
|
|
$
|
231,388
|
|
|
$
|
601
|
|
|
$
|
246,678
|
|
(1)
|
Excludes assets from our discontinued Albanian and Moroccan operations of $1.6 million and $51.5 million at June 30, 2016 and December 31, 2015, respectively.
|
11. Financial instruments
Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and our loans payable were each estimated to have a fair value approximating the carrying amount at June 30, 2016 and December 31, 2015, due to the short maturity of those instruments.
Interest rate risk
We are exposed to interest rate risk as a result of our variable rate short-term cash holdings and borrowings under the Senior Credit Facility.
Foreign currency risk
We have underlying foreign currency exchange rate exposure. Our currency exposures relate to transactions denominated in the Canadian Dollar, Bulgarian Lev, European Union Euro, Romanian New Leu and Turkish Lira (“TRY”). We are also subject to foreign currency exposures resulting from translating the functional currency of our foreign subsidiary financial statements into the U.S. Dollar reporting currency. We have not used foreign currency forward contracts to manage exchange rate fluctuations. At June 30, 2016, we had 28.6 million TRY (approximately $9.9 million) in cash and cash equivalents and restricted cash, which exposes us to exchange rate risk based on fluctuations in the value of the TRY.
Commodity price risk
We are exposed to fluctuations in commodity prices for oil and natural gas. Commodity prices are affected by many factors, including, but not limited to, supply and demand. At June 30, 2016 and December 31, 2015, we were a party to commodity derivative contracts (see Note 6, “Commodity derivative instruments”).
16
Concentration of credit risk
The majority of our receivables are within the oil and natural gas industry, primarily from our industry partners and from government agencies. Included in receivables are amounts due from Turkiye Petrolleri Anonim Ortakligi, the national oil company of Turkey, and Turkiye Petrol Rafinerileri A.Ş., a privately owned oil refinery in Turkey, which purchases all of our oil production. The receivables are not collateralized. To date, we have experienced minimal bad debts from customers in Turkey. The majority of our cash and cash equivalents are held by three financial institutions in the United States and Turkey.
Fair value measurements
The following table summarizes the valuation of our financial assets and liabilities as of June 30, 2016:
|
Fair Value Measurement Classification
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Liabilities
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
(in thousands)
|
|
Measured on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
-
|
|
|
$
|
2,914
|
|
|
$
|
-
|
|
|
$
|
2,914
|
|
Disclosed but not carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Credit Facility
|
|
-
|
|
|
|
-
|
|
|
|
(22,082
|
)
|
|
|
(22,082
|
)
|
2017 Notes
|
|
-
|
|
|
|
-
|
|
|
|
(47,826
|
)
|
|
|
(47,826
|
)
|
Total
|
$
|
-
|
|
|
$
|
2,914
|
|
|
$
|
(69,908
|
)
|
|
$
|
(66,994
|
)
|
The following table summarizes the valuation of our financial assets and liabilities as of December 31, 2015:
|
Fair Value Measurement Classification
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Liabilities
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
(in thousands)
|
|
Measured on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
-
|
|
|
$
|
6,605
|
|
|
$
|
-
|
|
|
$
|
6,605
|
|
Disclosed but not carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Credit Facility
|
|
-
|
|
|
|
-
|
|
|
|
(30,050
|
)
|
|
|
(30,050
|
)
|
2017 Notes
|
|
-
|
|
|
|
-
|
|
|
|
(44,489
|
)
|
|
|
(44,489
|
)
|
Total
|
$
|
-
|
|
|
$
|
6,605
|
|
|
$
|
(74,539
|
)
|
|
$
|
(67,934
|
)
|
We remeasure our derivative contracts on a recurring basis, with changes flowing through earnings. At June 30, 2016 and December 31, 2015, the fair values of the Senior Credit Facility and 2017 Notes were estimated using a discounted cash flow analysis based on unobservable Level 3 inputs, including our own credit risk associated with the loans payable.
17
12. Related party transactions
The following table summarizes related party accounts receivable and accounts payable as of the dates indicated:
|
June 30,
|
|
|
December 31,
|
|
|
2016
|
|
|
2015
|
|
|
(in thousands)
|
|
Related party accounts receivable:
|
|
|
|
|
|
|
|
Riata Management service agreement
|
$
|
230
|
|
|
$
|
194
|
|
PSIL MSA
|
|
249
|
|
|
|
-
|
|
Viking International master services agreement
|
|
-
|
|
|
|
220
|
|
Total related party accounts receivable
|
$
|
479
|
|
|
$
|
414
|
|
Related party accounts payable:
|
|
|
|
|
|
|
|
PSIL MSA
|
$
|
1,818
|
|
|
$
|
-
|
|
Riata Management service agreement
|
|
304
|
|
|
|
384
|
|
Viking International master services agreement
|
|
-
|
|
|
|
2,300
|
|
Total related party accounts payable
|
$
|
2,122
|
|
|
$
|
2,684
|
|
Services transactions
On March 3, 2016, Mr. Mitchell closed a transaction whereby he sold his interests in Viking Services B.V. (“Viking Services”), the beneficial owner of Viking International Limited (“Viking International”), Viking Petrol Sahasi Hizmetleri A.S. (“VOS”) and Viking Geophysical Services Ltd. (“Viking Geophysical”), to a third party. As part of the transaction, Mr. Mitchell acquired certain equipment used in the performance of stimulation, wireline, workover and similar services, which equipment is owned and operated by a new entity, Production Solutions International Petrol Arama Hizmetleri Anonim Sirketi (“PSIL”). PSIL is beneficially owned by Dalea Investment Group, LLC, which is controlled by Mr. Mitchell. Consequently, on March 3, 2016, TEMI entered into a master services agreement (the “PSIL MSA”) with PSIL on substantially similar terms to the current master services agreements with Viking International, VOS and Viking Geophysical. Pursuant to the PSIL MSA, PSIL performs the services on behalf of TEMI and its affiliates. The master service agreements with each of Viking International, VOS and Viking Geophysical will remain in effect through the remainder of the five-year term of the agreements ending on June 13, 2017.
Dalea Amended Note and Pledge Agreement
On April 19, 2016, we entered into a note amendment agreement (the “Note Amendment Agreement”) with Mr. Mitchell, and Dalea Partners, LP (“Dalea”), pursuant to which Dalea agreed to deliver an amended and restated promissory note (the “Amended Note”) in favor of us, in the principal sum of $7,964,053, which Amended Note would amend and restate that certain promissory note, dated June 13, 2012, made by Dalea in favor of us in the principal amount of $11.5 million (the “Original Note”). The Note Amendment Agreement reduced the principal amount of the Original Note to $8.0 million in exchange for the cancellation of an account payable of approximately $3.5 million (the “Account Payable”) owed by TransAtlantic Albania Ltd. (“TransAtlantic Albania”), a former subsidiary of the Company, to Viking International. We have indemnified a third party for any liability relating to the payment of the Account Payable.
Pursuant to the Note Amendment Agreement, on April 19, 2016, we entered into the Amended Note, which amended and restated the Original Note that was issued in connection with our sale of our subsidiaries, Viking International and Viking Geophysical Services, to a joint venture owned by Dalea and Abraaj Investment Management Limited in June 2012. In the Amended Note, we and Dalea acknowledged that (i) while the sale of Dalea’s interest in Viking Services enabled us to take the position that the Original Note was accelerated in accordance with its terms, the principal purpose of including the acceleration events in the Original Note was to ensure that certain oilfield services provided by Viking Services to us would continue to be available to us, and (ii) such services will now be provided pursuant to the PSIL MSA. PSIL is beneficially owned by Dalea Investment Group, LLC, which is controlled by Mr. Mitchell. As a result, the Amended Note revised the events triggering acceleration of the repayment of the Original Note to the following: (i) a reduction of ownership by Dalea (and other controlled affiliates of Mr. Mitchell) of equity interest in PSIL to less than 50%; (ii) the sale or transfer by Dalea or PSIL of all or substantially all of its assets to any person (a “Transferee”) that does not own a controlling interest in Dalea or PSIL and is not controlled by Mr. Mitchell (an “Unrelated Person”), or the subsequent transfer by any Transferee that is not an Unrelated Person of all or substantially all of its assets to an Unrelated Person; (iii) the acquisition by an Unrelated Person of more than 50% of the voting interests of Dalea or PSIL; (iv) termination of the PSIL MSA other than as a result of an uncured default thereunder by TEMI; (v) default by PSIL under the PSIL MSA, which default is not remedied within a period of 30 days after notice thereof to PSIL; and (vi) insolvency or bankruptcy of PSIL. The maturity date of the Amended Note was extended to June 13, 2019. The interest rate on the Amended Note remains at 3.0% per annum and continues to be guaranteed by Mr. Mitchell. The Amended Note contains customary events of default.
18
In addition, pursuant to the Note Amendment Agreement, on April 19, 2016, we entered into a pledge agreement (the “Pledge Agreement”) with Dalea, whereby Dalea pledged the $2.0 million principal amount of the 2017 Notes owned by Dalea (
the “Dalea Convertible Notes”), including any future securities for which the Dalea Convertible Notes are converted or exchanged, as security for the performance of Dalea’s obligations under the Amended Note. The Pledge Agreement provides that interest pay
able to Dalea under the Dalea Convertible Notes (or any future securities for which the Dalea Convertible Notes are converted or exchanged) will be credited first against the outstanding principal balance of the Amended Note and, upon full repayment of the
outstanding principal balance of the Amended Note, any accrued and unpaid interest on the Amended Note. The Pledge Agreement contains customary events of default
.
On June 30, 2016, we entered into a waiver with Dalea, whereby we waived our right under the Pledge Agreement to receive the interest payment due July 1, 2016 under the Dalea Convertible Notes in connection with the payment of 201,459 common shares to Dalea with respect to the 2017 Note interest payment paid on June 30, 2016.
Private placements
On June 30, 2016, we issued an aggregate of 5,773,305 common shares in private placements under the Securities Act. Of the 5,773,305 common shares, (i) 1,974,452 common shares were issued to Dalea, the trusts of Mr. Mitchell’s four children and Pinon Foundation, a nonprofit entity controlled by Mrs. Mitchell, at their election to receive common shares in lieu of cash interest on the 2017 Notes; (ii) 355,826 common shares were issued to ANBE in lieu of cash interest on the Note and (iii) 814,627 common shares were issued to Dalea and the trusts of Mr. Mitchell’s four children for cash, which was used to pay cash interest to certain holders of the 2017 Notes (see Note 9, “Shareholders’ equity”).
Indemnity agreement
On May 9, 2016, Mr. Mitchell guaranteed the payment of director and officer liability premiums in the amount of $0.4 million
(the “Guaranteed Payments”) payable to US Premium Finance solely in the event of a change of control of the Company. On May 9, 2016, we entered into an Indemnity Agreement with Mr. Mitchell pursuant to which we agreed to indemnify him for any damages he incurs related to the Guaranteed Payments.
13. Discontinued operations
Discontinued operations in Albania
As of December 31, 2015 and June 30, 2016, we classified our Albania segment as assets and liabilities held for sale and presented the operating results within discontinued operations for all periods presented.
In February 2016, we sold all of the outstanding equity in Stream Oil & Gas Ltd. (“Stream”) to GBC Oil Company Ltd. (“GBC Oil”) in exchange for (i) the future payment of $2.3 million to Raiffeisen Bank Sh.A. (“Raiffeisen”) to pay down the term loan facility dated as of September 17, 2014 (the “Term Loan Facility”) between Stream’s wholly-owned subsidiary, TransAtlantic Albania and Raiffeisen, and (ii) the assumption of $29.2 million of liabilities owed by Stream, consisting of $23.1 million of accounts payable and accrued liabilities and $6.1 million of debt. TransAtlantic Albania owns all of our former Albanian assets and operations. In addition, GBC Oil issued us a warrant pursuant to which we have the option to acquire up to 25% of the fully diluted equity interests in TransAtlantic Albania for nominal consideration at any time on or before March 1, 2019. Prior to the sale of Stream to GBC Oil, TransAtlantic Albania entered into an assignment and assumption agreement pursuant to which TransAtlantic Albania will assign its Delvina natural gas assets and $12.9 million of associated liabilities to Delvina Gas Company Ltd. (“Delvina Gas”), our newly formed, wholly owned subsidiary, to be effective immediately upon receipt of required contractual consents. There is no assurance that we will be able to obtain the required contractual consents. In addition, we agreed to indemnify GBC Oil and Stream for the $12.9 million of liabilities related to the Delvina gas operations. We are currently negotiating a joint venture with a third party for the purchase of a portion of Delvina Gas. There is no assurance that we will be able to complete a joint venture for the purchase of a portion of Delvina Gas. If the Delvina natural gas assets are not transferred to Delvina Gas due to a breach of the purchase agreement by GBC Oil or its affiliates, we believe we have contractual damages claims that would offset any such indemnification obligations, including the Account Payable. Subsequent to the divestiture, we reduced the $12.9 million of indemnification liabilities to $9.5 million due to the cancellation of the Account Payable discussed in Note 12, “Related party transactions”.
19
Discontinued operations in Morocco
On June 27, 2011, we decided to discontinue our operations in Morocco. We have substantially completed the process of winding down our operations in Morocco. We have presented the Moroccan segment operating results as discontinued operations for all periods presented.
The assets and liabilities held for sale at June 30, 2016 and December 31, 2015 were as follows:
|
Albania
|
|
|
Morocco
|
|
|
Total
Held for Sale
|
|
|
(in thousands)
|
|
As of June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
-
|
|
|
$
|
16
|
|
|
$
|
16
|
|
Other current assets
|
|
1,551
|
|
|
|
12
|
|
|
|
1,563
|
|
Total current assets held for sale
|
$
|
1,551
|
|
|
$
|
28
|
|
|
$
|
1,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other accrued liabilities
|
$
|
9,421
|
|
|
$
|
6,596
|
|
|
$
|
16,017
|
|
Total current liabilities held for sale
|
$
|
9,421
|
|
|
$
|
6,596
|
|
|
$
|
16,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
1,201
|
|
|
$
|
16
|
|
|
$
|
1,217
|
|
Other current assets
|
|
1,853
|
|
|
|
11
|
|
|
|
1,864
|
|
Property and equipment, net
|
|
48,430
|
|
|
|
-
|
|
|
|
48,430
|
|
Total current assets held for sale
|
$
|
51,484
|
|
|
$
|
27
|
|
|
$
|
51,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other accrued liabilities
|
$
|
37,888
|
|
|
$
|
6,352
|
|
|
$
|
44,240
|
|
Accounts payable - related party
|
|
3,540
|
|
|
|
-
|
|
|
|
3,540
|
|
Loans payable
|
|
6,123
|
|
|
|
-
|
|
|
|
6,123
|
|
Deferred tax liability
|
|
15,286
|
|
|
|
-
|
|
|
|
15,286
|
|
Total current liabilities held for sale
|
$
|
62,837
|
|
|
$
|
6,352
|
|
|
$
|
69,189
|
|
Loans payable
As of the dates indicated, TransAtlantic Albania’s third-party debt consisted of the following:
|
June 30,
|
|
|
December 31,
|
|
|
2016
|
|
|
2015
|
|
Fixed and floating rate loans
|
(in thousands)
|
|
Term Loan Facility
|
$
|
-
|
|
|
$
|
6,123
|
|
Loans payable
|
$
|
-
|
|
|
$
|
6,123
|
|
Term Loan Facility
TransAtlantic Albania was a party to the Term Loan Facility with Raiffeisen. The loan was scheduled to mature on December 31, 2016 and bore interest at the rate of LIBOR plus 5.5%, with a minimum interest rate of 7.0%. TransAtlantic Albania was required to pay 1/16th of the total commitment each quarter on the last business day of each of March, June, September and December each year. The loan was guaranteed by TransAtlantic Albania’s parent company, Stream. TransAtlantic Albania could prepay the loan at its option in whole or in part, subject to a 3.0% penalty plus breakage costs. The Term Loan Facility was secured by substantially all of the assets of TransAtlantic Albania.
20
As o
f December 31, 2015, TransAtlantic Albania had $6.1 million outstanding under the Term Loan Facility and no availability. As of December 31, 2015, TransAtlantic Albania was in default under the Term Loan Facility for failure to repay $1.1 million due on D
ecember 31, 2015. On February 29, 2016, we sold all the equity interest in Stream, the parent company of TransAtlantic Albania, to GBC Oil, who assumed the Term Loan Facility.
Our operating results from discontinued operations for the three and six months ended June 30, 2016 and 2015 are summarized as follows:
|
Albania
|
|
|
Morocco
|
|
|
Total
|
|
|
(in thousands)
|
|
For the three months ended June, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Production and transportation expense
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total other costs and expenses
|
|
118
|
|
|
|
-
|
|
|
|
118
|
|
Loss before income taxes
|
$
|
(118
|
)
|
|
$
|
-
|
|
|
$
|
(118
|
)
|
Gain on disposal of discontinued operations
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income tax benefit
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations
|
$
|
(118
|
)
|
|
$
|
-
|
|
|
$
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
3,437
|
|
|
$
|
-
|
|
|
$
|
3,437
|
|
Production and transportation expense
|
|
3,763
|
|
|
|
-
|
|
|
|
3,763
|
|
Total other costs and expenses
|
|
1,801
|
|
|
|
-
|
|
|
|
1,801
|
|
Total other income
|
|
(8
|
)
|
|
|
-
|
|
|
|
(8
|
)
|
Loss before income taxes
|
$
|
(2,135
|
)
|
|
$
|
-
|
|
|
$
|
(2,135
|
)
|
Income tax benefit
|
|
574
|
|
|
|
-
|
|
|
|
574
|
|
Loss from discontinued operations
|
$
|
(1,561
|
)
|
|
$
|
-
|
|
|
$
|
(1,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
626
|
|
|
$
|
-
|
|
|
$
|
626
|
|
Production and transportation expense
|
|
1,155
|
|
|
|
-
|
|
|
|
1,155
|
|
Total other costs and expenses
|
|
527
|
|
|
|
-
|
|
|
|
527
|
|
Loss before income taxes
|
$
|
(1,056
|
)
|
|
$
|
-
|
|
|
$
|
(1,056
|
)
|
Gain on disposal of discontinued operations
|
|
749
|
|
|
|
-
|
|
|
|
749
|
|
Income tax benefit
|
|
204
|
|
|
|
-
|
|
|
|
204
|
|
Loss from discontinued operations
|
$
|
(103
|
)
|
|
$
|
-
|
|
|
$
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June, 2015
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
4,676
|
|
|
$
|
-
|
|
|
$
|
4,676
|
|
Production and transportation expense
|
|
6,138
|
|
|
|
-
|
|
|
|
6,138
|
|
Total other costs and expenses
|
|
3,836
|
|
|
|
-
|
|
|
|
3,836
|
|
Total other income
|
|
1,583
|
|
|
|
-
|
|
|
|
1,583
|
|
Loss before income taxes
|
$
|
(3,715
|
)
|
|
$
|
-
|
|
|
$
|
(3,715
|
)
|
Income tax benefit
|
|
683
|
|
|
|
-
|
|
|
|
683
|
|
Loss from discontinued operations
|
$
|
(3,032
|
)
|
|
$
|
-
|
|
|
$
|
(3,032
|
)
|
21