ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s
Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers
of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations,
liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
|
●
|
Executive
Summary
|
|
|
|
|
●
|
Results
of Operations
|
|
|
|
|
●
|
Liquidity
and Capital Resources
|
|
|
|
|
●
|
Recent
Accounting Pronouncements
|
|
|
|
|
●
|
Forward-Looking
Statements.
|
Our
MD&A should be read in conjunction with our Consolidated Financial Statements and related Notes in Item 8, Financial Statements
and Supplementary Data, of this Annual Report on Form 10-K.
Executive
Summary
Park
Place is a U.S. based oil and gas exploration and production company focused on expanding its portfolio of projects in Southeast
Europe, Turkey and countries in the immediate vicinity. The Company’s concentration is on recently acquired oil and gas
producing assets in Turkey and a coal bed methane exploration license in Bulgaria.
Turkey
In
January 18, 2017, the Company completed the acquisition of three oil and gas producing fields in Turkey. The purchase price for
the acquisition of the PPE Turkey Companies from Tiway Oil B.V. was $2.1 million. At December 31, 2016, net production from these
fields was around 280 boepd (barrel of oil equivalent per day). The main producing asset was a 36.75% interest in an offshore
gas development project called the South Akçakoca Sub-Basin (SASB).
The
Company further acquired from its partner Foinavon Energy Turkey Inc. 12.25% working interest in the same license for 1,500,000
shares of the Company and $275,000 February, 2018 to have a total of 49%.
This field has four offshore
platforms connected to an onshore gas plant. On December 31
st
2017, net gas production to the Company was around 563
Mcfd (thousand cubic feet per day) from six producing wells. The SASB field potentially holds significant upside. The other producing
property acquired in Turkey is a 19.6% interest in the Cendere oil field located in Southeast Turkey. This mature oilfield consistently
produces between 110 and 123 bopd (barrels oil per day) net to the Company.
At
SASB, the Company plans to reprocess the 3D seismic to facilitate a potential future program of drilling to bring discovered undeveloped
gas pools on to production.
Bulgaria
The
Company was awarded an exploration license over a 98,000 acre block in northeast Bulgaria. This area was extensively drilled for
coal exploration from 1964 to 1990. Although coal mining is not technically feasible, this has provided an extensive database.
A third-party engineering report prepared for the Company puts the range of prospective resources of recoverable gas between 130
Bcf and 1.2 Tcf on the license. .
Strategic
Focus
Oil
and natural gas prices in Turkey and throughout Southeast Europe make this make this region highly attractive for oil and gas
exploration and production. Most of the countries, including Turkey and Bulgaria, import nearly all of their oil and natural gas
and consumption is projected to increase. Turkey also contains many opportunities for additional oil and coal bed methane production
as well enhanced oil and natural gas recovery from existing fields. Park Place will evaluate these opportunities as they appear.
The fiscal terms are highly attractive. In Turkey, there is a 20% corporate tax and a 12.5% royalty. In Bulgaria, the corporate
tax rate is 10% and the royalties are on a sliding rate starting at 3.5% up to 13.5%
Results
of Operations
Revenue
For
the year ended December 31, 2017, the Company had $3,883,059 in oil and gas revenue from the acquired Tiway operations.
For
the year ended December 31, 2016, we were a pre-revenue stage company, and our future revenues depended upon successful extraction
of oil and gas deposits for sale.
Expenses
The
Company incurred production expenses related to its acquired Tiway operations of $2,814,672, depletion charges of $774,547, and
accretion expense of $224,759 for the year ended December 31, 2017.
Our
general and administrative expenses for the year ended December 31, 2017 were $2,509,940 compared to $3,985,026 for the year ended
December 31, 2016. $1,279,430 in expenses were from the North American head office, which resulted in a year over year decrease
of $1,475,086. In general & administrative expenses in the North American operations, $508,831 was stock based compensation,
and $283,528 in legal and professional fees. Audit and financial services accounted for a further $149,741 in expenses with approximately
$60,000 in audit fees related to the purchase of the Tiway business. Turkey general and administrative expenses accounted for
$1,230,128 of the total general and administrative for 2017.
During
the year ended December 31, 2016, the Company amended and restated the terms of the warrants issued in 2013 to extend the expiration
date one year from August 27, 2016 to August 27, 2017. No other conditions of the warrants were amended. The amended and restated
warrants vested immediately. The Company recognized expense of $3,421,501 related to the amendment and restatement of the warrants.
Other
Income (Expense)
For
the year ended December 31, 2017, other income (expense) was an expense of $24,587. Comparatively, for the year ended December
31, 2016, other income (expense) was an expense of $14,065. In 2017, a $15,695 bargain purchase gain was recorded in relation
to the Tiway acquisition.
Loss
Our
net loss for the year ended December 31, 2017 was $2,486,836 compared to $3,999,091 for the year ended December 31, 2016 for the
reasons explained above.
Liquidity
and Capital Resources
The
following table summarizes our liquidity position as of December 31, 2017 and 2016.
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Cash
|
|
$
|
130,476
|
|
|
$
|
1,550,937
|
|
Working capital deficiency
|
|
|
(1,501,855
|
)
|
|
|
(805,133
|
)
|
Total assets
|
|
|
7,042,450
|
|
|
|
5,042,164
|
|
Total liabilities
|
|
|
5,076,596
|
|
|
|
1,256,749
|
|
Stockholders’ equity
|
|
|
1,965,854
|
|
|
|
3,785,415
|
|
Cash
Used in Operating Activities
We
used net cash of $474,078 in operating activities for the year ended December 31, 2017 compared to $397,241 for the year ended
December 31, 2016. After acquiring accounts receivable of $395,530 from the Tiway operations, accounts receivables increased further
due to timing of receipts, which decreased cash flow by $206,169. To fund the loses for the period, accounts payable increased
by $495,434, while the Company raised funds in the first quarter of 2018.
Cash
Used in Investing Activities
Net
cash used for investing activities in the year ended December 31, 2017 was $1,118,183 compared to $39,811 for the year ended December
31, 2016. Oil and gas properties expenditures increased to $144,002 from $38,848 in 2016 and the Company completed the acquisition,
net of cash, of Tiway for $855,014.
Cash
Provided By Financing Activities
We
have funded our business to date from sales of our common stock through private placements and loans from shareholders. In the
year ended December 31, 2017, we received cash of $210,000 for stock subscriptions as compared to $980,000 for the year ended
December 31, 2016. Additionally, we received $30,000 from the exercise of stock options in 2016 and there were no exercised in
2017. During 2017, we obtained loans from stockholders of $91,025, of which $122,000 was paid back prior to year end. Comparatively,
during 2016, we obtained loans from stockholders of $1,376,500, of which $477,500 was paid back prior to year end.
Future
Operating Requirements
We
expect to finance future operating requirements with cash, cash flows from the PPE Turkey Companies’ operations; and, depending
on market conditions, short-term debt, long-term debt, and equity. As of December 31, 2017, the Company had unrestricted cash
of $127,688. The Company is attempting to raise additional capital to fund future exploration and operating requirements.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Stock
Based Compensation
We
have a stock-based compensation plan covering employees, consultants and our directors. See the Notes to the Consolidated Financial
Statements.
Contractual
Obligation and Commercial Commitments
See
the Executive Summary of this MD&A relating to our commitment under the Bulgarian License.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) applied on a consistent basis. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. In general,
management’s estimates are based on historical experience, on information from third party professionals, and on various
other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those
estimates made by management.
We
believe that our critical accounting policies and estimates include the following:
Oil
and gas properties
The
Company follows the full cost method of accounting for oil and natural gas operations, whereby all costs of exploring for and
developing oil and natural gas reserves are capitalized and accumulated in cost centers on a country-by-country basis. Costs include
land acquisition costs, geological and geophysical charges, carrying charges on non-productive properties and costs of drilling
both productive and non-productive wells. General and administrative costs are not capitalized other than to the extent of the
Company’s working interest in operated capital expenditure programs on which operator’s fees have been charged equivalent
to standard industry operating agreements.
The
costs in each cost center, including the costs of well equipment, are depleted and depreciated using the unit-of-production method
based on the estimated proved reserves before royalties. Natural gas reserves and production are converted to equivalent barrels
of crude oil based on relative energy content. The costs of acquiring and evaluating significant unproved properties are initially
excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has
occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount
of the impairment is added to costs subject to depletion.
The
capitalized costs less accumulated depletion and depreciation in each cost center are limited to an amount equal to the estimated
future net revenue from proved reserves (based on prices and costs at the balance sheet date) plus the cost (net of impairments)
of unproved properties. The total capitalized costs less accumulated depletion and depreciation, site restoration provision and
future income taxes of all cost centers are further limited to an amount equal to the future net revenue from proved reserves
plus the cost (net of impairments) of unproved properties of all cost centers less estimated future site restoration costs, general
and administrative expenses, financing costs and income taxes.
Proceeds
from the sale of oil and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless
such a sale would significantly alter the rate of depletion and depreciation.
Stock-based
compensation
The
Company accounts for share-based compensation under the provisions of ASC 718 “Compensation – Stock Compensation”.
ASC 718 requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost
be measured at the fair value of the award. We use the Black-Scholes option-pricing model to estimate the fair value of the options
on the date of each grant. The Black-Scholes option-pricing model utilizes highly subjective and complex assumptions to determine
the fair value of stock-based compensation, including the option’s expected term and price volatility of the underlying
stock.
Recent
accounting pronouncements
In
May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which
supersedes most current revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues
when promised goods or services are transferred to customers in an amount that reflects consideration to which an entity expects
to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing
so, more judgement and estimates may be required within the revenue recognition process than are required under existing U.S.
GAAP. The standard is effective for us beginning 2018. We will be using the following transition method: a modified retrospective
approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional
footnote disclosures). We do not believe the adoption of this guidance will have a material impact on our financial statements.
In
February 2016, the FASB issued ASC 2016-02 “Leases (Topic 842)” a comprehensive standard related to lease accounting
to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance
sheet and disclosing key information about leasing arrangements. Most significantly, the new guidance requires lessees to recognize
operating leases with a term of more than 12 months as lease assets and lease liabilities. The adoption will require a modified
retrospective approach at the beginning of the earliest period presented. Early adoption permitted.
The
Company is currently evaluating the impact of the above standards on the consolidated financial statements. Other recent accounting
pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission are not believed by management to have a material impact on the Company’s present
or future consolidated financial statements.
ITEM
8. FINANCIAL STATEMENTS
PARK
PLACE ENERGY INC.
Index
to Financial Statements
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders
Park
Place Energy Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Park Place Energy, Inc. and subsidiaries (the “Company”)
as of December 31, 2017 and 2016, and the related consolidated statements of
operations
and comprehensive loss, stockholders’ equity, and cash flows
for the years then ended, and
the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and
the results of their operations and their cash flows for the years then ended, in conformity with
accounting principles
generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
The
accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in
Note 2 to the financial statements, the entity has suffered recurring losses from operations and has a net capital deficiency
that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters
are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
/s/
Whitley Penn LLP
We
have served as the Company’s auditor since 2014
Houston,
TX
August
10, 2018
PARK
PLACE ENERGY INC.
Consolidated
Balance Sheets
(Expressed
in U.S. dollars)
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
130,476
|
|
|
$
|
1,550,937
|
|
Account receivables
|
|
|
600,312
|
|
|
|
21
|
|
Prepaid expenses and deposits
|
|
|
316,694
|
|
|
|
10,924
|
|
Deposit for Tiway acquisition
|
|
|
-
|
|
|
|
500,000
|
|
Total current assets
|
|
|
1,047,482
|
|
|
|
2,061,882
|
|
Oil and gas properties, net
|
|
|
5,723,394
|
|
|
|
2,939,829
|
|
Property and equipment, net
|
|
|
97,777
|
|
|
|
-
|
|
Restricted cash
|
|
|
127,688
|
|
|
|
-
|
|
Note receivable
|
|
|
46,109
|
|
|
|
40,453
|
|
Total assets
|
|
$
|
7,042,450
|
|
|
$
|
5,042,164
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,584,050
|
|
|
$
|
357,749
|
|
Loans payable
|
|
|
965,287
|
|
|
|
899,000
|
|
Total current liabilities
|
|
|
2,549,337
|
|
|
|
1,256,749
|
|
Asset retirement obligation
|
|
|
2,527,259
|
|
|
|
-
|
|
Total liabilities
|
|
|
5,076,596
|
|
|
|
1,256,749
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock Authorized: 250,000,000 shares, par value $0.00001 Issued and outstanding: 58,243,904 and 50,281,482 shares, respectively
|
|
|
582
|
|
|
|
503
|
|
Additional paid-in capital
|
|
|
22,905,377
|
|
|
|
21,273,494
|
|
Stock subscriptions and stock to be issued
|
|
|
80,400
|
|
|
|
905,000
|
|
Accumulated other comprehensive income (loss)
|
|
|
(135,469
|
)
|
|
|
4,618
|
|
Accumulated deficit
|
|
|
(20,885,036
|
)
|
|
|
(18,398,200
|
)
|
Total stockholders’ equity
|
|
|
1,965,854
|
|
|
|
3,785,415
|
|
Total liabilities and stockholders’ equity
|
|
$
|
7,042,450
|
|
|
$
|
5,042,164
|
|
See
accompanying notes to consolidated financial statements
PARK
PLACE ENERGY INC.
Consolidated
Statements of Operations and Comprehensive Loss
(Expressed
in U.S. dollars)
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Revenue
|
|
|
|
|
|
|
|
|
Oil and gas revenue
|
|
$
|
3,883,059
|
|
|
$
|
-
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
Production
|
|
|
2,814,672
|
|
|
|
-
|
|
Depletion
|
|
|
774,547
|
|
|
|
-
|
|
Depreciation
|
|
|
21,390
|
|
|
|
-
|
|
Accretion of asset retirement obligation
|
|
|
224,759
|
|
|
|
-
|
|
General and administrative
|
|
|
2,509,940
|
|
|
|
3,985,026
|
|
Total expenses
|
|
|
6,345,308
|
|
|
|
3,985,026
|
|
Loss before other income (expense)
|
|
|
(2,462,249
|
)
|
|
|
(3,985,026
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
2,420
|
|
Interest expense
|
|
|
(76,026
|
)
|
|
|
(12,396
|
)
|
Foreign exchange loss
|
|
|
(15,512
|
)
|
|
|
(4,089
|
)
|
Other gain
|
|
|
63,023
|
|
|
|
-
|
|
Taxes
|
|
|
(11,767
|
)
|
|
|
-
|
|
Gain on bargain purchase option
|
|
|
15,695
|
|
|
|
-
|
|
Total other income (expense)
|
|
|
(24,587
|
)
|
|
|
(14,065
|
)
|
Net loss
|
|
$
|
(2,486,836
|
)
|
|
$
|
(3,999,091
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share, basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.08
|
)
|
Weighted average number of shares outstanding basic and diluted
|
|
|
56,001,794
|
|
|
|
50,462,715
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments
|
|
$
|
(140,087
|
)
|
|
$
|
3,428
|
|
Comprehensive loss
|
|
$
|
(2,626,923
|
)
|
|
$
|
(3,995,663
|
)
|
See
accompanying notes to consolidated financial statements
PARK PLACE ENERGY INC.
Consolidated Statements of Stockholders’ Equity
(Expressed in U.S. dollars)
|
|
Common
Stock
|
|
|
Additional paid-in
|
|
|
Stock subscriptions and stock to
|
|
|
Accumulated other comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
be
issued
|
|
|
Income
(loss)
|
|
|
Deficit
|
|
|
Total
|
|
Balance, December 31, 2015
|
|
|
45,731,482
|
|
|
$
|
457
|
|
|
$
|
17,258,619
|
|
|
$
|
350,000
|
|
|
$
|
1,190
|
|
|
$
|
(14,399,109
|
)
|
|
$
|
3,211,157
|
|
Issuance of common stock
|
|
|
4,250,000
|
|
|
|
43
|
|
|
|
424,957
|
|
|
|
(425,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Stock subscriptions received
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
980,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
980,000
|
|
Exercise of stock options
|
|
|
300,000
|
|
|
|
3
|
|
|
|
29,997
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
30,000
|
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
3,481,386
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,481,386
|
|
Restricted stock issued for oil and gas properties
|
|
|
–
|
|
|
|
–
|
|
|
|
78,535
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
78,535
|
|
Currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,428
|
|
|
|
–
|
|
|
|
3,428
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(3,999,091
|
)
|
|
|
(3,999,091
|
)
|
Balance, December 31, 2016
|
|
|
50,281,482
|
|
|
$
|
503
|
|
|
$
|
21,273,494
|
|
|
$
|
905,000
|
|
|
$
|
4,618
|
|
|
$
|
(18,398,200
|
)
|
|
$
|
3,785,415
|
|
Issuance of common stock
|
|
|
6,075,000
|
|
|
|
61
|
|
|
|
1,110,939
|
|
|
|
(1,011,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
100,000
|
|
Stock subscriptions received
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
110,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
110,000
|
|
Stock issuance costs
|
|
|
–
|
|
|
|
–
|
|
|
|
(8,985
|
)
|
|
|
(4,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(12,985
|
)
|
Vesting of restricted stock units
|
|
|
887,422
|
|
|
|
8
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
8
|
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
428,431
|
|
|
|
80,400
|
|
|
|
–
|
|
|
|
–
|
|
|
|
508,831
|
|
Stock issued as deposit for oil and gas property
|
|
|
1,000,000
|
|
|
|
10
|
|
|
|
89,990
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
90,000
|
|
Restricted stock issued for oil and gas properties
|
|
|
–
|
|
|
|
–
|
|
|
|
11,508
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
11,508
|
|
Currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(140,087
|
)
|
|
|
–
|
|
|
|
(140,087
|
)
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,486,836
|
)
|
|
|
(2,486,836
|
)
|
Balance, December 31, 2017
|
|
|
58,243,904
|
|
|
$
|
582
|
|
|
$
|
22,905,377
|
|
|
$
|
80,400
|
|
|
$
|
(135,469
|
)
|
|
$
|
(20,885,036
|
)
|
|
$
|
1,965,854
|
|
See accompanying notes to consolidated financial statements
PARK PLACE ENERGY INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(2,486,836
|
)
|
|
$
|
(3,999,091
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
508,831
|
|
|
|
3,481,386
|
|
Depletion
|
|
|
774,547
|
|
|
|
-
|
|
Depreciation
|
|
|
21,390
|
|
|
|
-
|
|
Accretion of asset retirement obligation
|
|
|
224,759
|
|
|
|
-
|
|
Gain on bargain purchase option
|
|
|
(15,695
|
)
|
|
|
-
|
|
Unrealized foreign exchange gain
|
|
|
(3,218
|
)
|
|
|
-
|
|
Interest from loans payable
|
|
|
84,169
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
-
|
|
Account receivables
|
|
|
(206,169
|
)
|
|
|
562
|
|
Restricted cash
|
|
|
2,873
|
|
|
|
-
|
|
Prepaid expenses and deposits
|
|
|
125,837
|
|
|
|
2,423
|
|
Accounts payable and accrued liabilities
|
|
|
495,434
|
|
|
|
117,479
|
|
Net cash used in operating activities
|
|
|
(474,078
|
)
|
|
|
(397,241
|
)
|
Investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of Tiway, net of cash acquired
|
|
|
(855,014
|
)
|
|
|
-
|
|
Issuance of note receivable
|
|
|
-
|
|
|
|
(963
|
)
|
Property and equipment expenditures
|
|
|
(119,167
|
)
|
|
|
-
|
|
Oil and gas properties expenditures
|
|
|
(144,002
|
)
|
|
|
(38,848
|
)
|
Net cash used in investing activities
|
|
|
(1,118,183
|
)
|
|
|
(39,811
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from stock subscriptions received
|
|
|
210,000
|
|
|
|
980,000
|
|
Proceeds from exercise of stock options
|
|
|
-
|
|
|
|
30,000
|
|
Stock issuance costs
|
|
|
(12,985
|
)
|
|
|
-
|
|
Proceeds from loans payable
|
|
|
91,025
|
|
|
|
1,376,500
|
|
Repayment of loans payable
|
|
|
(122,000
|
)
|
|
|
-
|
|
Repayment of stockholder loans
|
|
|
-
|
|
|
|
(477,500
|
)
|
Net cash provided by financing activities
|
|
|
166,040
|
|
|
|
1,909,000
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
5,760
|
|
|
|
3,428
|
|
Change in cash and cash equivalents
|
|
|
(1,420,461
|
)
|
|
|
1,475,376
|
|
Cash and cash equivalents, beginning of year
|
|
|
1,550,937
|
|
|
|
75,561
|
|
Cash and cash equivalents, end of year
|
|
$
|
130,476
|
|
|
$
|
1,550,937
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Oil and gas expenditures included in accounts payable
|
|
$
|
-
|
|
|
$
|
121,264
|
|
Restricted stock issued for oil and gas properties
|
|
$
|
-
|
|
|
$
|
78,535
|
|
Stock issued for deposit on oil and gas property
|
|
$
|
90,000
|
|
|
$
|
-
|
|
See accompanying notes to consolidated financial statements
PARK PLACE ENERGY INC.
Notes to Consolidated Financial Statements
For the year ended December 31, 2017 and 2016
(Expressed in U.S. dollars)
Park Place Energy Inc. and its consolidated
subsidiaries, (“Park Place”, “Company”, “we” or “our”) is a U.S. based oil and
gas exploration and production company. Our corporate headquarters are located at Suite 700, 838 West Hastings Street, Vancouver,
B.C., Canada. The Company also has registered offices in Turkey and Bulgaria. Park Place was incorporated in Delaware in 2015.
2.
|
Summary of Significant Accounting Policies
|
|
(a)
|
Basis of Presentation
|
The consolidated financial statements
of Park Place Energy Inc. (“Park Place”, “Company”, “we” or “our”) have been prepared
in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S.
dollars. These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The Company has suffered recurring
losses from operations and the Company has a significant working capital deficiency. These conditions raise substantial doubt about
the Company’s ability to continue as a going concern. The Company will need to raise funds through either the sale of its
securities, issuance of corporate bonds, joint venture agreements and/or bank financing to accomplish its goals. If additional
financing is not available when needed, the Company may need to cease operations. The Company may not be successful in raising
the capital needed to drill and/or rework existing oil wells. Any additional wells that the Company may drill may be non-productive.
Management believes that actions presently being taken to secure additional funding for the reworking of its existing infrastructure
will provide the opportunity for the Company to continue as a going concern. Since the Company has an oil producing asset, its
goal is to increase the production rate by optimizing its current infrastructure. The accompanying financial statements have been
prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account
for this uncertainty.
The preparation of consolidated financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the estimated useful
lives and recoverability of long-lived assets, impairment of oil and gas properties, fair value of stock-based compensation, and
deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience
and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent
from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s
estimates. To the extent there are material differences between the estimates and the actual results, future results of operations
will be affected.
|
(c)
|
Cash and cash equivalents
|
The Company considers all highly
liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Accounts receivable consist of oil
and gas receivables. The Company has classified these as short-term assets in the balance sheet because the Company expects repayment
or recovery within the next 12 months. The Company evaluates these accounts receivable for collectability and, when necessary,
records allowances for expected unrecoverable amounts. The Company deems all accounts receivable to be collectable and has not
recorded any allowance for doubtful accounts.
In accordance with Accounting Standards
Codification (“ASC”) 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset
groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances
that could trigger a review include, but are not limited to: significant decreases in the market price of the assets; significant
adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the assets; current period cash flow or operating losses combined with a history
of losses or a forecast of continuing losses associated with the use of the assets; and current expectation that the assets will
more likely than not be sold or disposed significantly before the end of their estimated useful life. Recoverability is assessed
based on the carrying amount of the assets and their fair value, which is generally determined based on the sum of the undiscounted
cash flows expected to result from the use and the eventual disposal of the assets, as well as specific appraisal in certain instances.
An impairment loss is recognized when the carrying amount of the assets is not recoverable and exceeds fair value.
|
(f)
|
Oil and Gas Properties
|
The Company follows the full cost
method of accounting for oil and natural gas operations, whereby all costs of exploring for and developing oil and natural gas
reserves are capitalized and accumulated in cost centers on a country-by-country basis. Costs include: license and land acquisition
costs, geological, engineering, geophysical, seismic and other data, carrying charges on non-productive properties and costs of
drilling and completing both productive and non-productive wells. General and administrative costs which are associated with acquisition,
exploration and development activities are capitalized. General and administrative costs are capitalized other than to the extent
of the Company’s working interest in operated capital expenditure programs on which operator’s fees have been charged
equivalent to standard industry operating agreements.
The costs in each cost center, including
the costs of well equipment, are depleted and depreciated using the unit-of-production method based on the estimated proved reserves
before royalties. The costs of acquiring and evaluating significant unproved properties are initially excluded from depletion calculations.
These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned
or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject
to depletion.
The capitalized costs (less accumulated
depletion and depreciation in each cost center) are limited to an amount equal to the estimated future net revenue from proved
reserves (based on prices and costs at the balance sheet date) plus the cost (net of impairments) of unproved properties. The total
capitalized costs, less accumulated depletion and depreciation, site restoration provision and future income taxes of all cost
centers, is further limited to an amount equal to the future net revenue from proved reserves plus the cost (net of impairments)
of unproved properties of all cost centers less estimated future site restoration costs, general and administrative expenses, financing
costs and income taxes.
Proceeds from the sale of oil and
natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would significantly
decrease the Company’s total proven reserves.
|
(g)
|
Property and equipment
|
Property and equipment are stated
at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease
term. The estimated useful lives are: other assets are depreciated over 20 years; and leasehold improvements are depreciated over
the term of the lease.
|
(h)
|
Asset Retirement Obligations
|
The Company records the fair value
of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement
of tangible long-lived assets that results from the acquisition, construction, development, and/or normal use of the long-lived
assets. The Company also records a corresponding asset that is amortized over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of
time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost).
|
(i)
|
Financial Instruments and Fair Value Measures
|
The carrying amounts reported in
the consolidated balance sheets for cash equivalents, notes and accounts receivable, loans payable, accounts payable and accrued
expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. None of these instruments
are held for trading purposes.
The Company accounts for income taxes
using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability
method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities and for operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed
more likely than not to be realized.
As of December 31, 2017, and 2016,
the Company did not have any amounts recorded pertaining to uncertain tax positions. The Company recognizes interest and penalties
related to uncertain tax positions in general and administrative expense. We did not incur any penalties or interest during the
years ended December 31, 2017 and 2016. On December 22, 2017 the U.S. enacted the Tax Cuts and Jobs Act (“the Tax Act”)
which significantly changed U.S. tax law. The Tax Act lowered the Company’s statutory federal income tax rate from a maximum
of 39% to a rate of 21% effective January 1, 2018. The company has deferred tax losses and assets and they were adjusted as a result
of the change in tax law reducing the federal income tax rate. The Company’s tax years 2014 and forward remain open.
|
(k)
|
Foreign Currency Translation
|
Operations outside the United States
prepare financial statements in currencies other than the United States dollar. The income statement amounts are translated at
average exchange rates for the year, while the assets and liabilities are translated at year-end exchange rates. Translation adjustments
are accumulated as a separate component of stockholders’ equity and other comprehensive income. The functional currency of
our Bulgarian operations is considered to be the Bulgarian Lev. The functional currency of our Turkish operations is considered
to be the Turkish lira.
|
(l)
|
Stock-based Compensation
|
The Company records stock-based compensation
in accordance with ASC 718 (“Compensation – Stock Compensation”) using the fair value method. All transactions
in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company uses the Black-Scholes
option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price
as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to,
the Company’s expected stock price volatility over the term of the awards, and actual and projected stock option exercise
behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement
of operations over the requisite service period.
The Company computes loss per share
of Company stock in accordance with ASC 260 (“Earnings per Share”), which requires presentation of both basic and diluted
earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available
to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible
preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti-dilutive. As at December 31, 2017 and 2016, the Company had 14,210,000 and 14,976,797
potentially dilutive shares outstanding, which were excluded from the calculation of diluted EPS, respectively.
Comprehensive loss consists of net
loss and foreign currency cumulative translation adjustment.
|
(o)
|
Related Party Transactions
|
Amounts owing to directors and officers
incurred in the course of regular operations are classified in accounts payable. At December 31, 2017, $132,249 of accounts payable
were to related parties and $212,738 at December 31, 2016.
|
(p)
|
Recently Issued Accounting Pronouncements
|
For fiscal years beginning after
December 15, 2018:
In February 2016, the FASB issued
ASC 2016-02 “Leases (Topic 842)” a comprehensive standard related to lease accounting to increase transparency and
comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information
about leasing arrangements. Most significantly, the new guidance requires lessees to recognize operating leases with a term of
more than 12 months as lease assets and lease liabilities. The adoption will require a modified retrospective approach at the beginning
of the earliest period presented. Early adoption permitted.
In May 2014, the FASB issued Accounting
Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes most current revenue recognition
guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred
to customers in an amount that reflects consideration to which an entity expects to be entitled for those goods or services. ASU
2014-09 defines a five step process to achieve this core principle and, in doing so, more judgement and estimates may be required
within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for us beginning 2018.
We will be using the following transition method: a modified retrospective approach with the cumulative effect of initially adopting
ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We do not believe the adoption
of this guidance will have a material impact on our financial statements.
The Company is currently evaluating
the impact of the above standards on the consolidated financial statements. Other recent accounting pronouncements issued by the
FASB, including its Emerging Issues Task Force, are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
On January 18, 2017, Park Place
completed the acquisition of three oil and gas exploration and production companies operating in Turkey from Tiway Oil B.V. in
exchange for cash consideration of $2,100,000, which included a deposit of $500,000 paid in the prior year. On the date
of acquisition, the fair value of the identifiable net assets exceeded the purchase consideration by $15,695, which is included
in the other income line of the accompanying consolidated statement of. We incurred acquisition related expenses of approximately
$39,000 which include legal and corporate matters.
The following table presents recognized
fair value of the identifiable assets acquired and liabilities assumed at acquisition:
Assets:
|
|
|
|
|
Cash
|
|
$
|
744,986
|
|
Accounts receivable
|
|
|
395,530
|
|
Prepaid and other current assets
|
|
|
330,765
|
|
Restricted cash
|
|
|
130,227
|
|
Oil and natural gas properties – proved
|
|
|
3,414,110
|
|
Total assets
|
|
|
5,015,618
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
597,423
|
|
Asset retirement obligation
|
|
|
2,302,500
|
|
Total liabilities
|
|
|
2,899,923
|
|
|
|
|
|
|
Total identifiable net assets
|
|
|
2,115,695
|
|
Cash consideration
|
|
|
2,100,000
|
|
Bargain purchase gain
|
|
$
|
15,695
|
|
During the period between the acquisition
date and December 31, 2017, revenues and operating expenses of approximately $3,883,059 and $5,065,496 were recorded in the statement
of operations related to the Tiway acquisition after the closing date and we generated losses of approximately $1,132,701.
Included in prepaid expenses and
deposits for the year ended December 31, 2017, is the value of a stock grant for a deposit an additional 12.25% of the South Akcakoca
Sub Basin (“SASB”) gas field bringing the Company’s total interest to 49%. The stock grant was 1,000,000 shares
valued at the market price on the date of grant of $0.09 per share, $90,000. The acquisition closed subsequent to year end and
was applied to the purchase price.
The restricted cash is related with
the drilling bonds provided to GDPA (General Directorate of Petroleum Affairs) for the exploration licenses due to Turkish Petroleum
Law. The amounts are for 2% of the annual work budget of the different Turkish licenses which is submitted to GDPA on annual basis.
6.
|
Oil and Gas Properties
|
|
|
Unproven properties
|
|
|
Proven properties
|
|
|
|
|
|
|
Bulgaria
|
|
|
Turkey
|
|
|
Total
|
|
January 1, 2016
|
|
$
|
2,701,182
|
|
|
$
|
-
|
|
|
$
|
2,701,182
|
|
Expenditures
|
|
|
238,647
|
|
|
|
-
|
|
|
|
238,647
|
|
December 31, 2016
|
|
$
|
2,939,829
|
|
|
$
|
-
|
|
|
$
|
2,939,829
|
|
Expenditures
|
|
|
144,002
|
|
|
|
-
|
|
|
|
144,002
|
|
Acquisition
|
|
|
-
|
|
|
|
3,414,110
|
|
|
|
3,414,110
|
|
Depletion
|
|
|
-
|
|
|
|
(774,547
|
)
|
|
|
(774,547
|
)
|
December 31, 2017
|
|
$
|
3,083,831
|
|
|
$
|
2,639,563
|
|
|
$
|
5,723,394
|
|
Bulgaria
The Company holds a 98,205-acre
oil and gas exploration claim in the Dobrudja Basin located in northeast Bulgaria. The Company intends to conduct exploration for
natural gas and test production activities over a five-year period in accordance with or exceeding its minimum work program obligation.
The Company’s commitment is to perform geological and geophysical exploration activities in the first 3 years of the initial
term (the “Exploration and Geophysical Work Stage”), followed by drilling activities in years 4 and 5 of the initial
term (the “Data Evaluation and Drilling Stage”). The Company is required to drill 10,000 meters (approximately 32,800
feet) of new wellbore (which may be vertical, horizontal or diagonal) and conduct other exploration activities during the initial
term. The Company intends to commence its work program efforts once it receives all regular regulatory approvals of its work programs.
Turkey
The primary asset of the PPE Turkey
Companies is the offshore production license called the South Akcakoca Sub-Basin (“SASB”). The Company now owns a 36.75%
working interest in SASB. SASB has four producing fields, each with a production platform plus subsea pipelines that connect the
fields to an onshore gas plant. The four SASB fields are located off the north coast of Turkey towards the western end of the Black
Sea in water depths ranging from 60 to100 meters. Gas is produced from Eocene age sandstone reservoirs at subsea depths ranging
from 1100 to1800 meters.
Park Place also acquired two other
oil and gas assets: a 19.6% interest in the Cendere field, a producing oil field located in Central Turkey, and a 50% operated
interest in the Bakuk gas field located near the Syrian border. The Bakuk field is shut-in with no plans to revive production in
the near term.
7.
|
Property and equipment
|
|
|
Leasehold improvements
|
|
|
Other equipment
|
|
|
Total
|
|
January 1, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Expenditures
|
|
|
102,586
|
|
|
|
16,581
|
|
|
|
119,167
|
|
Depreciation
|
|
|
(20,517
|
)
|
|
|
(873
|
)
|
|
|
(21,390
|
)
|
December 31, 2017
|
|
$
|
82,069
|
|
|
$
|
15,708
|
|
|
$
|
97,777
|
|
In April 2015, the Company loaned
$38,570 to a Bulgarian company pursuant to a revolving credit facility, enabling such Bulgarian company to buy and manage land
in Bulgaria to be leased by the Company for future well sites. The credit facility has a maximum loan obligation of BGN 1,000,000
($535,980 at December 31, 2016), bears interest at 6.32%, has a five-year term and is secured by the land the Bulgarian company
buys. Payment on the facility is due the earlier of the end of the five-year term (April 6, 2020) or demand by the Company. As
of December 31, 2017, and 2016, the outstanding balance on the receivable was $46,109 and $40,453, respectively.
As at
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Interest bearing loans
|
|
$
|
903,262
|
|
|
$
|
899,000
|
|
Non-interest-bearing loans
|
|
|
62,025
|
|
|
|
-
|
|
Total
|
|
$
|
965,287
|
|
|
$
|
899,000
|
|
Loans bearing interest, accrue at
10% per annum are all unsecured. All loans are due on demand. No interest has been inputted on the non-interest-bearing loans as
it would be immaterial to the financial statements.
10.
|
Asset Retirement Obligations
|
Asset retirement obligations (“AROs”)
associated with the retirement of tangible long-lived assets are recognized as liabilities with an increase to the carrying amounts
of the related long-lived assets in the period incurred. The fair value of AROs is recognized as of the acquisition date for business
combination (see footnote 3). The cost of the tangible asset, including the asset retirement cost, is depleted over the life of
the asset. AROs are recorded at estimated fair value, measured by reference to the expected future cash outflows required to satisfy
the retirement obligations discounted at the Company’s credit-adjusted risk-free interest rate. Accretion expense is recognized
over time as the discounted liabilities are accreted to their expected settlement value. If estimated future costs of AROs change,
an adjustment is recorded to both the ARO and the long-lived asset. Revisions to estimated AROs can result from changes in retirement
cost estimates, revisions to estimated inflation rates and changes in the estimated timing of abandonment. 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.
The following is a description of
the Company’s asset retirement obligations:
|
|
December 31, 2017
|
|
|
|
|
|
Asset retirement obligations at beginning of year
|
|
$
|
—
|
|
Additions
|
|
|
2,302,500
|
|
Accretion expense
|
|
|
224,759
|
|
Asset retirement obligations at end of year
|
|
$
|
2,527,259
|
|
For the year ended December 31, 2017
|
(a)
|
In January 2017, the Company received subscriptions for 550,000 shares of common stock at $0.20 per share for gross proceeds of $110,000. The Company paid a finder fee of $4,000 and 20,000 broker warrants. On January 17, 2017, the Company issued 5,075,000 shares of common stock for stock subscriptions received during 2017 and 2016. The Company paid a finder’s fee of $4,000.
|
|
|
|
|
(b)
|
On December 12, 2017, the Company closed a brokered private placement for 1,000,000 shares of common stock at $0.10 per share for total proceeds of $100,000. The Company paid a finder’s fee of $4,985.
|
|
|
|
|
(c)
|
During the year ended December 31, 2017, 887,422 restricted stock units vested and were issued.
|
|
|
|
|
(d)
|
As part of a deposit toward the additional 12.25% of the South Akcakoca Sub Basin gas field, 1,000,000 shares were issued as a deposit. The shares were valued at the market rate of $0.09 per share for a total value of $90,000.
|
|
(e)
|
The Company issued restricted stock in the amount of 670,000 shares for services rendered. The shares were valued at $0.12 based on the price of the stock at the close on the last trading day of the effective date of the contract. The fair value assigned was $80,400.
|
For the year ended December 31, 2016
|
(f)
|
In March 2016, the Company received subscriptions for 250,000 shares of common stock at $0.10 per share for total proceeds of $25,000.
|
|
|
|
|
(g)
|
In April 2016, the Company received subscriptions for 500,000 shares of common stock at $0.10 per share for total proceeds of $50,000.
|
|
|
|
|
(h)
|
In April 2016, the Company issued 4,250,000 shares of common stock for the stock subscriptions received during 2015, the quarter ended March 31, 2016 and in April 2016.
|
|
|
|
|
(i)
|
In quarter ended December 31, 2016, the Company received subscriptions for 4,525,000 shares of common stock at $0.20 per share for total proceeds of $905,000.
|
Stock options (and other stock-based
awards) have been issued pursuant to the Incentive Plans. The 2013 Plan permits grants of stock options, stock appreciation rights,
restricted stock awards and other stock-based awards. Under the 2013 Plan, the maximum number of shares of authorized stock that
may be delivered is 10% of the total number of shares of common stock issued and outstanding of the Company as determined on the
applicable date of grant of an award under the 2013 Plan. Under the 2013 Plan, the exercise price of each option (or other stock-based
award) shall not be less than the market price of the Company’s stock as calculated immediately preceding the day of the
grant. The vesting schedule for each option (or other stock-based award) shall be specified by the Board of Directors at the time
of grant. The maximum term of options (or other stock-based award) granted is ten years or such lesser time as determined by the
Board of Directors at the time of grant.
The following table summarizes the
continuity of the Company’s stock options:
|
|
|
|
Outstanding, December 31, 2015
|
|
|
2,250,000
|
|
Granted
|
|
|
165,000
|
|
Exercised
|
|
|
(300,000
|
)
|
Expired
|
|
|
(850,000
|
)
|
Outstanding, December 31, 2016
|
|
|
1,265,000
|
|
Granted
|
|
|
2,600,000
|
|
Exercised
|
|
|
-
|
|
Forfeited
|
|
|
(200,000
|
)
|
Expired
|
|
|
(350,000
|
)
|
Outstanding, December 31, 2017
|
|
|
3,315,000
|
|
As at December 31, 2017, all stock options have fully
vested. The weighted average remaining life of the stock options are 2.99 years (December 31, 2016: 0.7). The weighted average
exercise price at the year ended December 31, 2017 is $0.14 (December 31, 2016: $0.14). The aggregate intrinsic value of the stock
options at December 31, 2017 is $103,050 (December 31, 2016: $173,450).
The fair values for stock options
granted have been estimated using the Black-Scholes option pricing model assuming no expected dividends and the following weighted
average assumptions:
|
|
2017
|
|
|
2016
|
|
Risk-free interest rate
|
|
|
1.45
|
%
|
|
|
1.10
|
%
|
Expected life (in years)
|
|
|
2.5
|
|
|
|
3.0
|
|
Expected volatility
|
|
|
314
|
%
|
|
|
330
|
%
|
Weighted average fair value per share
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
The fair value of stock options
vested during the year ended December 31, 2017 and 2016 was $142,267 and $5,696, respectively, that was recorded as stock-based
compensation and included in general and administrative expenses. At December 31, 2017, the Company has no unrecognized compensation
expense related to stock options.
During the quarter ended March 31,
2016, the Company amended and restated the terms of the 11,000,000 stock purchase warrants with an exercise price of $0.20 per
share issued in 2013 to extend the expiration date one year from August 27, 2016 to August 27, 2017. No other conditions of the
warrants were amended. The amended and restated warrants vested immediately. The Company recognized expense of $3,421,501 related
to the amendment and restatement of the warrants.
On January 17, 2017, the Company
issued 5,395,000 stock purchase warrants with an exercise price of $0.40 per share with an expiration date of January 17, 2018.
On March 27, 2017, the Company amended
the expiration date on 5,500,000 of the 11,000,000 stock purchase warrants from August 27, 2017 to August 27, 2018. No other conditions
of the warrants were amended. The Company recognized expense of $278,870 related to the amendment of the warrants.
The following table summarizes the
share purchase warrants:
|
|
Number of
warrants
|
|
|
Weighted
average
exercise
price
|
|
|
Expire
|
|
Outstanding, December 31, 2016
|
|
|
11,000,000
|
|
|
$
|
0.20
|
|
|
|
2017
|
|
Issued
|
|
|
5,395,000
|
|
|
$
|
0.40
|
|
|
|
2018
|
|
Expired
|
|
|
(5,500,000
|
)
|
|
$
|
0.20
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
10,895,000
|
|
|
$
|
0.30
|
|
|
|
|
|
14.
|
Restricted Stock Units
|
No new RSU grants were issued in
2017. During 2016, the Company granted 593,796 restricted units (“RSUs”) with vesting periods ranging from fourteen
to nineteen months and a fair value of $68,775 to officers of the Company. In addition, the Company extended the vesting date for
2,118,001 RSUs to April 30, 2017.
For the years ended December 31,
2017 and 2016, restricted stock expense recorded as stock-based compensation was $7,294 and $54,190, respectively, and capitalized
stock-based compensation was $8,214 and $46,803, respectively.
|
|
Number of
restricted
stock units
|
|
|
Weighted
average
fair value per
award
|
|
Balance, December 31, 2015
|
|
|
2,118,001
|
|
|
$
|
0.18
|
|
Granted
|
|
|
593,796
|
|
|
$
|
0.15
|
|
Vested
|
|
|
–
|
|
|
|
–
|
|
Balance, December 31, 2016
|
|
|
2,711,797
|
|
|
$
|
0.17
|
|
Granted
|
|
|
–
|
|
|
$
|
–
|
|
Forfeited
|
|
|
(1,265,049
|
)
|
|
|
0.15
|
|
Vested
|
|
|
(1,446,748
|
)
|
|
|
0.15
|
|
Balance, December 31, 2017
|
|
|
–
|
|
|
$
|
–
|
|
On February 23, 2017, the Company
changed the vesting date for the RSUs issued in 2014 to February 23, 2017 and changed the vesting date for the RSUs issued in 2015
to December 1, 2017.
559,326 RSUs owed to a consultant
vested during the year and were not issued. These were settled for cash on April 1
st
, 2018 for $37,463.
15.
|
Related party transactions
|
At December 31, 2017, $132,249 of
accounts payable were to related parties as compared to $212,738 at December 31, 2016. The amounts owed, and owing are unsecured,
non-interest bearing, and due on demand.
During 2017, the Company’s
operations were in the resource industry in Bulgaria, and Turkey with head offices in the United States and a satellite office
in Sofia, Bulgaria. The Company operated a few segments, a head office in Canada, an oil and gas operations in Turkey and its oil
and gas properties are located in Bulgaria.
During the 2016, the Company operated
as a single reportable segment and its oil and gas properties were only located in Bulgaria.
For the year ended December 31, 2017
|
|
Bulgaria
|
|
|
North America
|
|
|
Turkey
|
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,883,059
|
|
|
$
|
3,883,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
-
|
|
|
|
-
|
|
|
|
2,814,672
|
|
|
|
2,814,672
|
|
Depletion
|
|
|
-
|
|
|
|
-
|
|
|
|
774,547
|
|
|
|
774,547
|
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
|
|
21,390
|
|
|
|
21,390
|
|
Accretion of asset retirement obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
224,759
|
|
|
|
224,759
|
|
General and administrative
|
|
|
382
|
|
|
|
1,279,430
|
|
|
|
1,230,128
|
|
|
|
2,509,940
|
|
Total expenses
|
|
$
|
382
|
|
|
$
|
1,279,430
|
|
|
$
|
5,065,496
|
|
|
$
|
6,345,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before other income (expenses)
|
|
$
|
(382
|
)
|
|
$
|
(1,279,430
|
)
|
|
$
|
(1,182,437
|
)
|
|
$
|
(2,462,249
|
)
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-
|
|
|
|
(84,208
|
)
|
|
|
8,182
|
|
|
|
(76,026
|
)
|
Foreign exchange loss
|
|
|
-
|
|
|
|
5,957
|
|
|
|
(21,469
|
)
|
|
|
(15,512
|
)
|
Other gain
|
|
|
-
|
|
|
|
-
|
|
|
|
63,023
|
|
|
|
63,023
|
|
Taxes
|
|
|
-
|
|
|
|
(11,767
|
)
|
|
|
-
|
|
|
|
(11,767
|
)
|
Gain on bargain purchase option
|
|
|
-
|
|
|
|
15,695
|
|
|
|
-
|
|
|
|
15,695
|
|
Total other income (expense)
|
|
$
|
-
|
|
|
$
|
(74,323
|
)
|
|
$
|
49,736
|
|
|
$
|
(24,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(382
|
)
|
|
$
|
(1,353,753
|
)
|
|
$
|
(1,132,701
|
)
|
|
$
|
(2,486,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Lived Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
2,737,340
|
|
|
|
2,737,340
|
|
The Company has net operating losses
carried forward of $13,772,292 available to offset taxable income in future years which expire beginning in fiscal 2024.
The Company is subject to United
States federal and state income taxes at a rate of 34%. The reconciliation of the provision for income taxes at the United States
federal statutory rate compared to the Company’s income tax expense as reported is as follows:
|
|
2017
|
|
|
2016
|
|
Benefit at statutory rate
|
|
$
|
(845,524
|
)
|
|
$
|
(1,359,691
|
)
|
Permanent differences and other:
|
|
|
-
|
|
|
|
237
|
|
Change in tax rates
|
|
|
2,383,436
|
|
|
|
|
|
Valuation allowance change
|
|
|
(1,537,912
|
)
|
|
|
1,359,454
|
|
Income tax provision
|
|
$
|
–
|
|
|
$
|
–
|
|
The significant components of deferred
income tax assets and liabilities as at December 31, 2017 and 2016 are as follows:
|
|
2017
|
|
|
2016
|
|
Net operating losses carried forward
|
|
$
|
2,892,181
|
|
|
$
|
4,010,057
|
|
Oil and gas properties
|
|
|
77,556
|
|
|
|
125,566
|
|
Stock compensation expense
|
|
|
880,197
|
|
|
|
1,252,079
|
|
Other
|
|
|
233
|
|
|
|
377
|
|
Total deferred income tax assets
|
|
|
3,850,167
|
|
|
|
5,388,079
|
|
Valuation allowance
|
|
|
(3,850,167
|
)
|
|
|
(5,388,079
|
)
|
Net deferred income tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
On February 28, 2018, Park Place
Energy Inc. closed a private placement with the issuance of 11,750,000 shares of common stock, with each common share having ½
of one share purchase warrant attached, resulting in the issuance of 5,875,000 share purchase warrants. Each whole share purchase
warrant is exercisable for a period of 24 months at an exercise price of $0.30 per share of common stock. Of the shares issued,
7,550,000 were issued to fourteen investors at a price of $0.10 per share for gross proceeds of $755,000, and 4,200,000 shares
were issued in settlement of debts in the amount of $420,000 with two creditors.
On February 20, 2018, Park Place
Energy Inc. acquired an additional 12.25% of the South Akcakoca Sub Basin (“SASB”) gas field bringing our total interest
to 49%. The purchase price for the additional interest was US$265,000 and 1.5 million shares of the company’s common stock.
1 million were previously issued and disclosed in note 11(d) and a further 500,000 shares were issued subsequent to year end and
fair valued at $67,500. The company completed the purchase on February 8, 2018. Approval was received by regulators in late 2017,
thereby allowing for the acquisition to proceed. The Company issued 1.5 million common shares as consideration for the acquisition.
On March 5, the Company settled
note payables of $250,000 for 2,500,000. The market price of the stock on the date of settlement was $0.141 and loss of $102,500
was recorded.
On June 20, 2018, Park Place Energy
Inc. closed a private placement with the issuance of 2,000,000 shares of common stock at $0.10 per common share with each common
share having ½ of one share purchase warrant attached, resulting in the issuance of 1,000,000 share purchase warrants. Each
whole share purchase warrant is exercisable for a period of 24 months at an exercise price of $0.30 per share of common stock.
We issued the above 2,000,000 common shares to five (5) non-US persons (as that term is defined in Regulation S of the Securities
Act of 1933) in an offshore transaction relying on Regulation S of the Securities Act of 1933, as amended. See 8-k dated June 20,
2018
On July 10, 2018 the Company closed
a private placement with the issuance of 1,500,000 shares of common stock at $0.10 per common share with each common share having
½ of one share purchase warrant attached, resulting in the issuance of 1,000,000 share purchase warrants. Each whole share
purchase warrant is exercisable for a period of 24 months at an exercise price of $0.30 per share of common stock. We are obligated
to issue 1,500,000 common shares to eight (8) non-US persons (as that term is defined in Regulation S of the Securities Act of
1933) in an offshore transaction relying on Regulation S of the Securities Act of 1933, as amended.
Supplemental Information
(unaudited)
Supplemental oil and natural gas reserves
information (unaudited)
As required by the FASB and the SEC, the standardized
measure of discounted future net cash flows (the “Standardized Measure”) presented below is computed by applying first-day-of-the-month
average prices, year-end costs and legislated tax rates and a discount factor of 10% to proved reserves. We do not believe the
Standardized Measure provides a reliable estimate of our expected future cash flows to be obtained from the development and production
of its oil and natural gas properties or of the value of its proved oil and natural gas reserves. The Standardized Measure is prepared
on the basis of certain prescribed assumptions including first-day-of-the-month average prices, which represent discrete points
in time and therefore may cause significant variability in cash flows from year-to-year as prices change.
Users of this information should be aware that
the process of estimating quantities of proved and proved developed oil and natural gas reserves is very complex, requiring significant
subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data
for a given reservoir also may change substantially over time as a result of numerous factors, including additional development
activity, evolving production history and continual reassessment of the viability of production under varying economic conditions.
Consequently, revisions to existing reserves estimates may occur from time to time. Although every reasonable effort is made to
ensure reserves estimates reported represent the most accurate assessments possible, the subjective decisions and variances in
available data for various reservoirs make these estimates generally less precise than other estimates included in the financial
statement disclosures. Proved reserves are those quantities of oil and natural gas that by analysis of geoscience and engineering
data can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs,
and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts
providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic
or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator
must be reasonably certain that it will commence the project within a reasonable time. We engaged GLJ Petroleum Consultants to
prepare our reserves estimates in Turkey.
The following unaudited schedules are presented
in accordance with required disclosures about oil and natural gas producing activities to provide users with a common base for
preparing estimates of future cash flows and comparing reserves among companies.
All of our proved reserves are located in Turkey
and all prices are held constant in accordance with SEC rules.
Oil and natural gas prices used to estimate
reserves were computed by applying the volume-weighted, arithmetic average of the closing price on the first day of each month
for the 12-month period prior to December 2017, 2016 and 2015. The oil and natural gas prices used to estimate reserves are shown
in the table below.
|
|
12- Month Average Price
|
|
|
|
Oil per (Bbl)
|
|
|
Natural Gas per (Mcf)
|
|
Turkey
|
|
|
|
|
|
|
2017
|
|
$
|
51.69
|
|
|
$
|
3.00
|
|
2016
|
|
$
|
44.68
|
|
|
$
|
2.57
|
|
2015
|
|
$
|
50.82
|
|
|
$
|
2.67
|
|
The following table sets forth our estimated
net proved reserves, including changes therein, and proved developed reserves:
Disclosure of reserves quantities
|
|
Oil per (Bbl)
|
|
|
Gas per (Mcf)
|
|
|
Oil per Boe
|
|
Proved producing reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchased
|
|
|
220,400
|
|
|
|
1,029,300
|
|
|
|
391,950
|
|
Production
|
|
|
(45,030
|
)
|
|
|
(292,359
|
)
|
|
|
(93,757
|
)
|
Revisions of estimates
|
|
|
24,630
|
|
|
|
-
|
|
|
|
24,630
|
|
December 31, 2018
|
|
|
200,000
|
|
|
|
736,941
|
|
|
|
322,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed producing
|
|
|
200,000
|
|
|
|
736,941
|
|
|
|
322,824
|
|
Proved developed non-producing
|
|
|
7,000
|
|
|
|
-
|
|
|
|
7,000
|
|
Total
|
|
|
207,000
|
|
|
|
736,941
|
|
|
|
329,824
|
|
Standardized measure of discounted future
net cash flows
The Standardized Measure relating to estimated
proved reserves as of December 31, 2017 is shown in the table below. In our calculation of Standardized Measure, we have utilized
statutory tax rates of 20% for Turkey. GLJ Petroleum Consultants did not estimate the Standardized Measure or future income tax
expense.
|
|
(in thousands)
|
|
As of and for the year ended December 31, 2017
|
|
|
|
Future cash inflows
|
|
$
|
13,668
|
|
Future production costs
|
|
|
(8,834
|
)
|
Future development costs
|
|
|
-
|
|
Future income tax expense
|
|
|
(966
|
)
|
Future net cash flows
|
|
|
3,868
|
|
10% annual discount for estimated timing of cash flows
|
|
|
(1,033
|
)
|
Standardized measure of discounted future net cash flows related to proved reserves
|
|
$
|
2,835
|
|
A summary of the changes in the standardized
measure of discounted future net cash flows applicable to proved oil and natural gas reserves is as follows:
|
|
(in thousands)
|
|
Balance, beginning of period
|
|
|
-
|
|
Additions during the year
|
|
|
3,414
|
|
Net change in sales and transfer prices and in production (lifting) costs related to future production
|
|
|
663
|
|
Sales and transfers of oil and gas produced during the period
|
|
|
(1,076
|
)
|
Accretion of discount
|
|
|
63
|
|
Other
|
|
|
683
|
|
Net change in income taxes
|
|
|
(912
|
)
|
Balance, end of period
|
|
$
|
2,835
|
|