3.A SELECTED FINANCIAL DATA
The
following table presents financial data for Chelsea as of and for the periods
indicated:
|
As at December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
Total assets
|
$10,532,948
|
|
$10,786,357
|
|
$12,305,046
|
|
$13,845,019
|
|
$11,073,620
|
Current liabilities
|
$4,876,262
|
|
$4,457,722
|
|
$4,310,779
|
|
$4,418,783
|
|
$3,667,974
|
Shareholders equity
|
$5,290,169
|
|
$5,968,352
|
|
$7,603,365
|
|
$9,010,936
|
|
$6,937,162
|
Weighted-average
shares
outstanding
|
64,056,876
|
|
64,056,876
|
|
64,056,876
|
|
56,027,645
|
|
43,670,542
|
|
For the Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
Revenue
|
$36,701
|
|
$68,974
|
|
$361,990
|
|
$98,805
|
|
$79,325
|
Net loss for the year
|
$542,938
|
|
$467,693
|
|
$335,221
|
|
$1,005,632
|
|
$382,955
|
Basic and diluted loss
|
$(0.01)
|
|
$(0.01)
|
|
$(0.01)
|
|
$(0.02)
|
|
$(0.01)
|
per share
|
|
|
|
|
|
|
|
|
|
3.B CAPITALIZATION AND
INDEBTEDNESS
Not
applicable.
3.C REASONS FOR THE OFFER AND
USE OF PROCEEDS
Not
applicable.
3.D RISK FACTORS
Overview
You
should carefully consider the following factors in addition to the other
information set forth in this Form 20-F. If any of the following risks actually
occur, our business, financial condition and results of operations and the value
of our shareholders common shares would likely suffer.
The
Companys primary business consists of the exploration and, if successful, the
development of oil and gas properties. There are a number of inherent risks
associated with the exploration, development and production of oil and gas
reserves, many of these risks are beyond the control of the Company.
Success
in the junior oil and gas sector is measured by a companys ability to raise
funds and the ability to secure properties of merit. Not all of these factors
are within managements control. The ability to raise funds is in part dependent
on the state of the junior resource stock market, which in turn is dependent on
the economic climate, oil and gas prices and perceptions as to which way the
market is headed. The ability to secure properties of merit is in large part
dependent on managements contacts and the vitality of the sector.
The risks and uncertainties below are not the only issues facing Chelsea.
Additional risks and uncertainties not presently known to Chelsea or that
Chelsea currently considers immaterial may also impair the business and
operations of Chelsea and cause the price of the Chelsea Common Shares to
decline.
Exploration,
Development and Production Risks
Oil
and natural gas operations involve many risks that even a combination of
experience, knowledge and careful evaluation may not be able to overcome. The
long-term commercial success of Chelsea depends on its ability to find, acquire,
develop and commercially produce oil and natural gas reserves. The future value
of Chelsea is therefore dependent on the success of Chelseas activities, which
are principally directed toward the exploration, appraisal and development of
its properties in Australia. Exploration, appraisal and development of oil and
natural gas properties is highly speculative and involves a significant degree
of risk. Without the continual addition of new reserves, any existing reserves
that Chelsea may discover or acquire at any particular time and the production
therefrom will decline over time as such existing reserves are exploited. Any
discovery of or future increase in Chelseas reserves will depend not only on
its ability to explore and develop any properties it may have from time to time,
but also on its ability to select and acquire suitable producing properties or
prospects. No assurance can be given that Chelsea will be able to continue to
locate satisfactory properties for acquisition or participation. Moreover, if
such acquisitions or participations are identified, Chelsea may determine that
current markets, terms of acquisition and participation or pricing conditions
make such acquisitions or participations uneconomical. There is no assurance
that commercial quantities of oil and natural gas will be discovered or acquired
by Chelsea.
Oil
and natural gas exploration may involve unprofitable efforts, not only from dry
wells, but from wells that are productive but do not produce sufficient revenues
to return a profit after drilling, operating and other costs. Completion of a
well does not assure a profit on the investment or recovery of drilling,
completion and operating costs. In addition, fixing drilling hazards or
environmental damage caused by operations could greatly increase the cost of
those operations, and various field operating conditions may adversely affect
the production from successful wells. These conditions include delays in
obtaining governmental and other approvals or consents, insufficient storage or
transportation capacity or other geological and mechanical conditions. While
diligent well supervision and effective maintenance operations can contribute to
maximizing production rates over time, production delays and declines from
normal field operating conditions cannot be eliminated and can be expected to
adversely affect revenue and cash flow levels to varying degrees.
Additional
Funding Requirements
Chelsea
will have limited financial resources and limited cash flow from operations, and
therefore will likely require additional financing in order to carry out its oil
and natural gas exploration, acquisition and development activities. There can
be no assurance that additional funding will be available, or available under
terms favourable to Chelsea. Failure to obtain such financing on a timely basis
could cause Chelsea to have limited ability to expend the capital necessary to
undertake or complete future drilling programs, forfeit its interest in certain
properties, miss certain acquisition opportunities and reduce or terminate its
operations. There can be no assurance that debt or equity financing or cash
generated by operations will be available or sufficient to meet these
requirements or for other corporate purposes or, if debt or equity financing is
available, that it will be on terms acceptable to Chelsea. Moreover, future
activities may require Chelsea to alter its capitalization significantly.
Financing by issuing additional securities from the Chelseas treasury may
result in a change of control of Chelsea and dilution to holders of Chelsea
Shares.
History
of Losses
Chelsea
has historically incurred losses from operations. There can be no assurance that
Chelsea will achieve profitability in the future. In addition, should Chelsea be
unable to continue as a going concern, realization of assets and settlement of
liabilities other than in the normal course of business may be at amounts
significantly different from those in the financial statements.
- 7 -
Investment
Risks
Revenues
may not occur for some time, if at all. The timing and extent of these is
variable and uncertain and accordingly the Corporation is unable to predict
when, if at all, profitability will be achieved. An investment in the Common
Shares is highly speculative and should only be made by persons who can afford a
significant or total loss of their investment.
Commodity
Prices
Chelseas
future revenue, profitability, growth and the carrying value of its oil and
natural gas properties will be substantially dependent on prevailing prices of
oil and natural gas. Chelseas ability to borrow and to obtain additional
capital on attractive terms will also be substantially dependent upon oil and
natural gas prices. Prices for oil and natural gas are subject to large
fluctuations in response to relatively minor changes in the supply of and demand
for oil and natural gas, market uncertainty and a variety of additional factors
beyond the control of Chelsea. These factors include economic conditions in
Australia and elsewhere in the world, the actions of the Organization of the
Petroleum Exporting Countries (
OPEC
), governmental regulation,
political stability in the Middle East and elsewhere, the foreign supply of oil
and natural gas, the price of foreign imports and the availability of
alternative fuel sources. Any substantial and extended decline in the price of
oil and natural gas could have an adverse effect in the future on Chelseas
carrying value of its proved reserves, borrowing capacity, revenues,
profitability and cash flows from operations, as applicable. There can be no
assurance that recent commodity prices will be sustained if and when Chelsea
commences production or over the life of the Chelseas operations. There is risk
that commodity prices may decline in the future, although it is not possible to
predict the time or extent of such decline.
Early
Stage of Development, Limited Operating and Earnings History
Chelseas
business plan requires significant expenditure, particularly capital
expenditure, in its oil and gas exploration phase. Any future profitability from
Chelseas business will be dependent upon the successful exploration and
development of its petroleum properties, and there can be no assurance that
Chelsea will achieve profitability in the future. Revenues may not occur for
some time, if at all. The timing and extent of these is variable and uncertain
and accordingly Chelsea is unable to predict when, if at all, profitability will
be achieved.
Ability
to Execute Exploration and Development Program
It
may not always be possible for Chelsea to execute its exploration and
development strategies in the manner in which Chelsea considers optimal.
Chelseas exploration and development programs in onshore Australia involve the
need to obtain approvals from the relevant authorities, which may require
conditions to be satisfied or the exercise of discretion by the relevant
authorities. It may not be possible for such conditions to be satisfied.
Operational
Experience
The
management and directors of Chelsea have significant international experience in
the oil and gas industry; however, given the fact that the team was constituted
recently, the team has, as a group, limited direct experience operating in
onshore Australia, aside from its consultants and advisors.
Assessments
of Value of Acquisitions
Acquisitions
of oil and natural gas issuers and oil and natural gas assets are typically
based on engineering and economic assessments made by independent engineers and
Chelseas own assessments. These assessments will include a series of
assumptions regarding such factors as recoverability and marketability of oil
and natural gas, future prices of oil and natural gas and operating costs,
future capital expenditures and royalties and other government levies which will
be imposed over the producing life of the reserves. Many of these factors are
subject to change and are beyond Chelseas control. In particular, the prices
of, and markets for, oil and natural gas products may change from those
anticipated at the time of making such assessment. In addition, all such
assessments involve a measure of geologic and engineering uncertainty which
could result in lower production and reserves than anticipated. Initial
assessments of acquisitions may be based on reports by a firm of independent engineers that are not the same as the firm that
Chelsea may use for its year-end reserve evaluations. Because each of these
firms may have different evaluation methods and approaches, these initial
assessments may differ significantly from the assessments of the firm used by
Chelsea. Any such instance may offset the return on and value of the securities
of Chelsea.
- 8 -
Availability
of Drilling Equipment
Oil
and natural gas exploration and development activities are dependent on the
availability of drilling and related equipment in the particular areas where
such activities will be conducted. Demand for such limited equipment or access
restrictions may affect the availability of such equipment to Chelsea and may
delay exploration and development activities. Recent industry conditions have
led to shortages of drilling equipment in certain areas. To the extent that
Chelsea is not the operator of its oil and gas properties, Chelsea will be
dependent on such operators for the timing of activities related to such
properties and will be largely unable to direct or control the activities of the
operators.
Cash
Outflow Used In Operations
The
inability of Chelsea to generate positive operating cash inflow in the future
could have a material adverse impact on Chelseas business, financial condition,
results of operations and prospects.
Project
Risks
Chelsea
will manage a variety of projects in the conduct of its business. Project delays
may delay expected revenues from operations. Significant project cost over runs
could make a project uneconomic. Chelseas ability to execute projects and
market oil and natural gas depends upon numerous factors beyond Chelseas
control, including:
|
the effects of inclement weather;
|
|
|
|
the availability of drilling and
related equipment;
|
|
|
|
unexpected cost increases;
|
|
|
|
accidental events;
|
|
|
|
currency fluctuations;
|
|
|
|
changes in regulations;
|
|
|
|
the availability and productivity
of skilled labour;
|
|
|
|
the regulation of the oil and
natural gas industry by various levels of government and
|
|
|
|
governmental agencies.
|
Because of these factors, Chelsea could be unable to execute
projects on time, on budget or at all.
Access
to Infrastructure
Chelseas
ability to market production from any potential oil and natural gas discoveries
may depend on its ability to secure transportation. Chelsea may also be affected
by deliverability uncertainties related to the proximity of its potential
production to pipelines and processing facilities and operational problems
affecting such pipelines and facilities.
- 9 -
Delays
in Business Operations
In
addition to the usual delays in payments by purchasers of oil and natural gas to
Chelsea or to the operators, and the delays by operators in remitting payment to
Chelsea, payments between these parties may be delayed due to restrictions
imposed by lenders, accounting delays, delays in the sale or delivery of
products, delays in the connection of wells to a gathering system, adjustment
for prior periods, or recovery by the operator of expenses incurred in the
operation of the properties. Any of these delays could reduce the amount of cash
flow available for the business of Chelsea in a given period and expose Chelsea
to additional third party credit risks.
Hedging
From
time to time, Chelsea may enter into agreements to receive fixed prices on any
future oil and natural gas production to offset the risk of revenue losses if
commodity prices decline; however, if commodity prices increase beyond the
levels set in such agreements, Chelsea would not benefit from such increases.
Similarly, from time to time, Chelsea may enter into agreements to fix the
exchange rate of various currencies used in its business in order to offset the
risk of revenue or cost related losses in the event of currency fluctuations.
There is no certainty that any such currency hedges which may be entered into
will benefit Chelsea.
Expiration
of Permits, Applications and Authorities
Chelseas
properties are and will continue to be held in the form of permits,
applications, authorities and Working Interests in permits, applications and
authorities. If Chelsea or the holder of the permits, applications and
authorities fails to meet the specific requirement of the permits, applications
or authorities (including any requirements as to their renewal where renewal is
available), the permits, applications or authorities may terminate or expire.
There can be no assurance that the obligations required to maintain each of the
permits, applications and authorities will be met. The termination or expiration
of Chelseas permits, applications and authorities or the Working Interests
relating to the permits, applications and authorities could have a material
adverse effect on Chelseas business, financial condition, results of operations
and prospects.
Operational
Dependence
In
the future other companies may operate some of the assets in which Chelsea has
an interest. As a result, Chelsea may have limited ability to exercise influence
over the operation of such assets or their associated costs, which could have a
material adverse effect on Chelseas business, financial condition, results of
operations and prospects. Therefore, Chelseas return on the assets operated by
others will depend upon a number of factors that may be outside of Chelseas
control, including the timing and amount of capital expenditures, the operators
expertise and financial resources, the approval of other participants, the
selection of technology and risk management practices.
Markets
and Marketing
The
marketability and price of oil and natural gas that may be discovered or
acquired by Chelsea will be affected by numerous factors beyond its control.
Chelseas ability to market oil and natural gas in the future, may depend upon
its ability to acquire space on pipelines that deliver natural gas to commercial
markets including availability of processing and refining facilities and
transportation infrastructure, including access to facilities, pipelines and
pipeline capacity and economic tariff rates over which Chelsea may have limited
or no control. Chelsea may also be affected by deliverability uncertainties
related to the proximity of its reserves to pipelines and processing facilities,
and related to operational and maintenance problems with such pipelines and
facilities as well as extensive government regulation relating to price, taxes,
royalties, land tenure, allowable production, the export of oil and natural gas
and many other aspects of the oil and natural gas business. Any delay or failure
to acquire access to, or improper operation or maintenance of, such pipelines
and facilities could have a material adverse effect on Chelseas business,
financial condition, results of operations and prospects.
Competition
Oil
and gas exploration is intensely competitive in all phases and involves a high
degree of risk. Chelsea competes with numerous other participants in the search
for, and the acquisition of, oil and natural gas properties. Chelseas competitors include oil and natural gas companies
that have substantially greater financial resources, staff and facilities than
those of Chelsea. Currently Chelsea is insulated from competition on the lands
which it currently holds due to the nature of the proprietary exploration rights
granted by the governing bodies under the various licenses and permits, however
Chelsea may face competition on surrounding lands if it seeks to increase its
land position to acquire other prospective properties. Chelsea may also face
competition from competitors on lands which it currently holds a license or
permit for in the event that, as a condition of the license or permit, it is
required to partially relinquish certain of the lands. In this circumstance, if
Chelsea elects to re-apply for such permits or licenses, there are no assurances
that Chelsea will be successful. Chelseas ability to add reserves in the future
will depend not only on its ability to explore and develop its present
properties, but also on its ability to select and acquire suitable producing
properties or prospects for exploratory drilling. Competitive factors in the
distribution and marketing of oil and natural gas include price and methods and
reliability of delivery. Competition may also be presented by alternate fuel
sources.
- 10 -
Reliance
on Key Personnel
Chelseas
success will depend in large measure on the performance of its management and
other key personnel. The loss of the services of any of such persons could have
a material adverse effect on the Chelseas business, financial condition,
results of operations and prospects. Chelsea does not have key person insurance
in effect for management. The contributions of these individuals to the
immediate operations of Chelsea are likely to be of central importance. In
addition, the competition for qualified personnel in the oil and natural gas
industry is intense and there can be no assurance that Chelsea will be able to
continue to attract and retain all personnel necessary for the development and
operation of its business. Investors must rely upon the ability, expertise,
judgment, discretion, integrity and good faith of the management of Chelsea.
Estimate
of Resources
The
Corporations historical resource estimates, available in the Corporations
disclosure documents filed on SEDAR and on EDGAR, have been classified as
undiscovered petroleum initially in place and prospective resources. Any such
resource estimates are estimates only. There is no certainty that any portion of
the resources will be discovered. If discovered, there is no certainty that it
will be commercially viable to produce any portion of the resources. Readers are
cautioned that the volumes presented are estimates only and should not be
construed as being exact quantities. Chelseas proposed drilling and seismic
program must be considered as a high risk exploration play.
Estimate
of Fair Market Value
There
are numerous uncertainties inherent in an estimate of fair market value
including many factors beyond the Corporations control. The valuations herein
represent estimates only. In general, estimates are based upon a number of
variable factors and assumptions, such as engineering and geophysical
information pertaining to hydrocarbon potential, current material contracts of
the Corporation, production history of competitors on similar land positions,
access to lands, availability, timing and amount of capital expenditures,
marketability of oil and natural gas, royalty rates, the assumed effects of
regulation by governmental agencies, and future operating costs, all of which
may vary from actual results. All such estimates are to some degree speculative,
and are only attempts to define the degree of speculation involved.
Third
Party Credit Risk
Chelsea
is or may be exposed to third party credit risk through its contractual
arrangements with its current or future joint venture partners, marketers of its
petroleum and natural gas production and other parties. In the event such
entities fail to meet their contractual obligations to Chelsea, such failures
could have a material adverse effect on Chelseas business, financial condition,
results of operations and prospects.
Management
of Growth
Chelsea
may be subject to growth-related risks including capacity constraints and
pressure on its internal systems and controls. The ability of Chelsea to manage
growth effectively will require it to continue to implement and improve its
operational and financial systems and to expand, train and manage its employee
base. The inability of Chelsea to deal with this growth could have a
material adverse effect on Chelseas business, financial condition, results of
operations and prospects.
- 11 -
Market
Price of the Corporation s Securities
The
trading price of securities of oil and natural gas companies is subject to
substantial volatility, and such trading prices have been particularly volatile
in recent months. This volatility is often based on factors both related and
unrelated to the financial performance or prospects of the companies involved.
The market price of the Common Shares could be subject to significant
fluctuations in response to variations in Chelseas operating results, financial
condition, liquidity and other internal factors. Factors that could affect the
market price of the Common Shares that are unrelated to Chelseas performance
include domestic and global commodity prices and market perceptions of the
attractiveness of particular industries. The price at which the Common Shares
will trade cannot be accurately predicted.
Insurance
Oil
and natural gas exploration, development and production operations are subject
to all the risks and hazards typically associated with such operations,
including hazards such as fire, explosion, blowouts, cratering, sour gas
releases and spills, each of which could result in substantial damage to oil and
natural gas wells, production facilities, other property and the environment or
in personal injury. In accordance with industry practice, Chelsea is not fully
insured against all of these risks, nor are all such risks insurable. Prior to
drilling, Chelsea will obtain insurance in accordance with industry standards to
address certain of these risks. However, such insurance has limitations on
liability that may not be sufficient to cover the full extent of such
liabilities. In addition, such risks may not be insurable in all circumstances
or, in certain circumstances, Chelsea may elect not to obtain insurance to deal
with specific risks due to the high premiums associated with such insurance or
other reasons. The payment of any such uninsured liabilities would reduce the
funds available to Chelsea. The occurrence of a significant event that Chelsea
is not fully insured against, or the insolvency of the insurer of such event,
could have a material adverse effect on Chelseas business, financial condition,
results of operations and prospects.
Dividends
Chelsea
has not paid any dividends on the Common Shares and it is not anticipated that
Chelsea will pay any dividends on the Common Shares for the foreseeable future.
Conflicts
of Interest
The
directors or officers of Chelsea may also be directors or officers of other oil
and gas companies or otherwise involved in natural resource exploration and
development and situations may arise where they are in a conflict of interest
with Chelsea. Conflicts of interest, if any, which arise will be subject to and
governed by procedures prescribed by the ABCA which require a director or
officer of a company who is a party to, or is a director or an officer of, or
has some material interest in any person who is a party to, a material contract
or proposed material contract with Chelsea to disclose his or her interest and,
in the case of directors, to refrain from voting on any matter in respect of
such contract unless otherwise permitted under the ABCA.
Title
to Properties
Title
to oil and natural gas interests is often not capable of conclusive
determination without incurring substantial expense. Although title reviews will
be done according to industry standards prior to the purchase of most oil and
natural gas producing properties or the commencement of drilling wells, such
reviews do not guarantee or certify that an unforeseen defect in the chain of
title will not arise to defeat the claim of Chelsea. To the extent title defects
do exist, it is possible Chelsea may lose all or a portion of its right, title,
estate and interest in and to the properties to which the title relates.
Issuance
of Debt
From
time to time, Chelsea may enter into transactions to acquire assets or the
shares of other corporations. These transactions may be financed partially or
wholly with debt, which may increase Chelseas debt levels above industry standards. Depending on future
exploration and development plans, Chelsea may require additional equity and/or
debt financing that may not be available or, if available, may not be available
on favourable terms. Neither Chelseas articles nor its by-laws limit the amount
of indebtedness that Chelsea may incur. The level of Chelseas indebtedness from
time to time could impair Chelseas ability to obtain additional financing in
the future on a timely basis to take advantage of business opportunities that
may arise. If Chelsea becomes unable to pay its debt service charges or
otherwise commits an event of default, such as bankruptcy, lenders may foreclose
on or sell Chelseas properties.
- 12 -
Currency
Many
of the operational, capital and other expenses incurred by Chelsea are paid in
Australian dollars or US dollars. If Chelsea achieves commercial production, the
revenue from its products will likely be denominated in US dollars or Australian
dollars. The assets and liabilities of Chelsea are recorded in Canadian dollars.
As a result, fluctuations in the Australian dollars or the US dollars against
the Canadian dollar could result in unanticipated and material fluctuations in
the financial results of Chelsea. Chelsea does not currently use derivative
instruments to hedge exposure to foreign exchange risks.
Dilution
Chelsea
may make future acquisitions or enter into financing or other transactions
involving the issuance of securities of Chelsea which may be dilutive to
existing securityholders.
Regulatory
Oil
and natural gas operations (exploration, production, pricing, marketing and
transportation) are subject to extensive controls and regulations imposed by
various levels of government that may be amended from time to time. Chelseas
operations require licenses and permits from various governmental authorities.
There can be no assurance that Chelsea will be able to obtain all necessary
licenses and permits that may be required to carry out exploration and
development of its projects.
In
Australia, while government policies and regulations in relation to exploration,
production and marketing are similar in many respects, they ultimately vary
between different states and between different governing bodies. Chelseas
activities will require compliance with various laws, both state and those of
the Commonwealth of Australia, relating to, among other things, the protection
of the environment, Aboriginal cultural heritage, native title rights, the
protection of workers and the public. Changes in government, government policies
and legislation could have a material adverse effect on Chelseas business,
financial condition, results of operations and prospects.
In
particular, in order to pursue its exploration programs in Australia, Chelsea
may require approval from government and non-government bodies to facilitate
access to any blocks and tenements in which it has an interest. Any tenements
residing within reserves, including national parks and conservation reserves,
which are subject to state and Commonwealth legislation could be subject to a
change in legislation that could have a material adverse effect on Chelseas
business, financial condition, results of operations and prospects. In addition,
any tenements residing in areas which are subject to government policies
regarding national defence or of any other particular national interest to
Australia may be subject to access requirements that could result in a material
adverse effect on Chelsea if they are particularly onerous to Chelsea.
Chelseas
licenses, permits and authorizations will be subject to applications for renewal
in accordance with their terms. Where a licensee has not complied with the
conditions to which an exploration permit is subject, or any directions given by
the relevant Minister and the Minister is not satisfied that special
circumstances exist that justify the granting of the renewal of the permit, the
Minister may refuse to grant a renewal of a permit. Where a Minister is
satisfied that a commercially exploitable accumulation of petroleum may occur in
an exploration permit area, the Minister may require the licensee to apply for a
production license or risk losing the exploration permit. A Minister may also
refuse to grant a production license, or may grant a production license subject
to such conditions as the Minister sees fit but which are unfavourable or
particularly onerous to Chelsea. If a permit is not renewed or a production
license is not granted or granted subject to unfavourable conditions, Chelsea
may suffer significant damage through loss of the opportunity to develop
and discover that tenement and this could have an adverse effect on Chelseas
business plan.
- 13 -
Rights
to licenses, permits and authorities held by Chelsea carry with them various
obligations in regard to minimum expenditure levels, work commitments and
responsibilities in respect of the environment and safety generally. Failure to
observe such requirements could prejudice the right to maintain title to a given
area.
Environmental
Risks and Regulations
All
phases of the oil and natural gas business present potential environmental risks
and hazards and are therefore subject to environmental regulation pursuant to a
variety of federal, state and local laws and regulations. Environmental
legislation provides for, among other things, restrictions and prohibitions on
spills, releases or emissions of various substances produced in association with
oil and natural gas operations. The legislation also requires that wells and
facility sites be operated, maintained, abandoned and reclaimed to the
satisfaction of applicable regulatory authorities. Compliance with such
legislation can require significant expenditures and a breach may result in the
imposition of fines and penalties, some of which may be material. Environmental
legislation is evolving in a manner expected to result in stricter standards and
enforcement, larger fines and liability and the potential for increased capital
expenditures and operating costs. The discharge of oil, natural gas or other
pollutants into the air, soil or water may give rise to liabilities to
governments and third parties and may require Chelsea to incur costs to remedy
such discharge. Generally, Australian state and territory legislation and
associated regulations include provisions for the regulation of activities on
petroleum tenement lands. Statutory provisions require petroleum tenement lands
to be protected and rehabilitated to ensure that environmental damage is
avoidable or minimal where authorized. These provisions may require approvals
and consents to be obtained before certain lands may be accessed and explored.
In addition, each state and territory government may impose a wide range of
obligations on tenement holders to ensure that petroleum operations comply with
various environmental standards and requirements.
No
assurance can be given that environmental laws will not result in a curtailment
of future production (if any) or a material increase in the costs of production,
development or exploration activities or otherwise adversely affect the
Corporations financial condition, results of operations or prospects.
Changes
in Legislation
The
return on an investment in securities of Chelsea is subject to changes in
Canadian and Australian tax laws and government incentive programs and there can
be no assurance that such laws or programs will not be changed in a manner that
adversely affects Chelsea or the holding and disposing of the securities of
Chelsea. Legislation, regulations and policies continue to be introduced by
government and government agencies concerning the security of industrial
facilities, including oil and natural gas facilities. Chelseas operations may
be subject to such laws and regulations. Presently, it is not possible to
accurately estimate the costs Chelsea could incur to comply with any such laws
or regulations, but such expenditures could be substantial.
Income
Taxes
Chelsea,
and all of its subsidiaries will file all required income tax returns and
believes that it will be in full compliance with the provisions of the Income
Tax Act (Canada), United States taxation laws and Australian taxation laws and
all other applicable tax legislation. However, such returns are subject to
reassessment by applicable taxation authorities. In the event of a successful
reassessment of Chelsea, or its subsidiaries, as the case may be, whether by re-
characterization of exploration and development expenditures or otherwise, such
reassessment may have an impact on current and future taxes payable. In
Australia, Chelsea Oil Australia pty will file any annual income tax returns
required pursuant to the Australian taxation laws. It will be assessed while in
exploration and production phases of its operation. While in exploration it will
be assessed as having no or negative income and will be able to retain a credit
towards future income in the event that it has an income from production in the
future. In other words, losses for the Australian subsidiaries will be able to
be set-off against future profits. The Corporations subsidiaries will still be
required to file annual income tax returns.
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Climate Change
Australia
is a signatory to the United Nations Framework Convention on Climate Change and
has ratified the Kyoto Protocol established thereunder to set legally binding
targets to reduce nationwide emissions of carbon dioxide, methane, nitrous oxide
and other so called greenhouse gases. Subsequently, representatives from
approximately 170 countries met in Copenhagen, Denmark to attempt to negotiate a
successor to the Kyoto Protocol. The result of such meeting was the Copenhagen
Accord, a non-binding political consensus rather than a binding international
treaty such as the Kyoto Protocol.
Chelseas
exploration and production facilities and other operations and activities emit
greenhouse gases and Chelsea may therefore be required to comply with various
laws under the jurisdiction in which its activities are being carried out. For
example, for its Australian activities, it will be required to report its
greenhouse gas emissions to the Australian government where those emissions
exceed the thresholds prescribed under the National Greenhouse and Energy
Reporting Act 2007 (Cwth). In addition, the Australian Energy Efficiency
Opportunities Act 2006 (Cwth) requires persons using more than certain amounts
of energy per year to identify and implement opportunities for energy efficiency
and to publicly report the results of those measures. Additionally, the
Australian government also is proposing to set a national greenhouse emissions
cap and introduce an associated national greenhouse emissions trading scheme
from 2011. Under such a scheme, companies may face potentially significant costs
to pay for the greenhouse emissions associated with their operations and
activities, as well as face significant increases in energy costs generally.
The
direct or indirect costs of these laws and regulations could have a material
adverse effect on Chelseas business, financial condition, results of operations
and prospects. The future implementation or modification of greenhouse gases
regulations, whether to meet the limits required by the Kyoto Protocol, the
Copenhagen Accord or as otherwise determined, could have a material impact on
the nature of oil and natural gas operations, including those of Chelsea. Given
the evolving nature of the debate related to climate change and the control of
greenhouse gases and resulting requirements, it is not possible to predict the
impact on Chelsea and its operations and financial condition.
Geo-Political
Risks
The
marketability and price of oil and natural gas that may be acquired or
discovered by Chelsea is and will continue to be affected by political events
throughout the world that cause disruptions in the supply of oil. Conflicts, or
conversely peaceful developments, arising in the Middle East, and other areas of
the world, have a significant impact on the price of oil and natural gas. Any
particular event could result in a material decline in prices and therefore
result in a reduction of Chelseas net production revenue (if any).
In addition, Chelseas properties and facilities
could be subject to a terrorist attack. If any of Chelseas properties, wells or
facilities are the subject of terrorist attack it could have a material adverse
effect on Chelseas business, financial condition, results of operations and
prospects. Chelsea will not have insurance to protect against the risk from
terrorism.
Native
Title
The
requirement to comply with the procedures provided for under the Native Title
Act where native title has not been extinguished is likely to be affected by
exploration or production activities have the potential to significantly delay
the grant of petroleum tenements in Australian jurisdictions. To the extent such
requirements delay or restrict the granting of any petroleum tenements to
Chelsea, or petroleum tenements are not granted to Chelsea, it could have a
material adverse effect on Chelsea. Indigenous Land Access Agreements with the
relevant aboriginal have been entered into and therefore, at present there are
no further negotiations currently required under the Native Title Act.
Alternatives
to and Changing Demand for Hydrocarbon Products
Fuel
conservation measures, alternative fuel requirements, increasing consumer demand
for alternatives to oil and natural gas, and technological advances in fuel
economy and energy generation devices could reduce the demand for crude oil and
other liquid hydrocarbons. The Corporation cannot predict the impact of changing
demand for oil and natural gas products, and any major changes
may have a material adverse effect on the Corporations business, financial
condition, results of operations and cash flows and therefore on the dividends
declared on the Common Shares.
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Forward-looking
Information May Prove Inaccurate
Numerous
statements containing forward-looking information are found in this Form 20-F,
documents incorporated by reference herein and other documents forming part of
the Corporations public disclosure record. Such statements and information are
subject to risks and uncertainties and involve certain assumptions, some, but
not all, of which are discussed elsewhere in this document. The occurrence or
non-occurrence, as the case may be, of any of the events described in such risks
could cause actual results to differ materially from those expressed in the
forward-looking information.
Government
Approval for Share Acquisitions
There
are circumstances in which the acquisition of shares by a foreign person or
corporation in a foreign corporation which has an Australian subsidiary (such as
Chelsea) may activate the Australian Treasurers powers and, in order to avoid
an adverse order by the Australian Treasurer, require the foreign person or
company to provide prior notification of the proposed acquisition and seek a
statement of no objections in respect of that proposal. In such case, the
associated risks include the Australian Treasurer objecting to the acquisition,
the Australian Treasurer imposing conditions on a statement of no objection
which are onerous, prohibitive or uncommercial, having regard to the individual
circumstances of the foreign person or company and the time period for assessing
the acquisition being extended and unduly delaying the foreign persons or
companys ability to purchase the shares.
Aboriginal
Heritage
The
procedures and regulatory powers set forth in applicable laws relating to the
protection of Aboriginal cultural heritage in Australia may delay, limit or
prevent oil and gas exploration activities in Australia. Such procedures and
powers, to the extent they affect Chelsea, could have an adverse effect on
Chelseas business, financial condition, results of operations and prospects.
Other
Risks
Chelsea
also faces a number of risk factors that are outside of its control, generally,
including, without limitation, terrorist activities, natural disasters, general
economic and other conditions.