Dune Oil Corp 6-K, filed Nov 30, 2023
Dune Oil Corp. (DUNXF)
About this 6-K
Dune Oil Corp filed this 6-K on November 30, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
November 2023
Commission File Number: 000-55539
TRILLION ENERGY INTERNATIONAL INC.
Suite 700, 838 W. Hastings Street, Vancouver, BC V6C 0A6
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
☒ Form 20-F ☐ Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ☐ No ☒
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
Exhibits:
| 99.1 | Consolidated Interim Financial Statements for the nine months ended September, 30, 2023 |
| 99.2 | Management discussion and Analysis |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TRILLION ENERGY INTERNATIONAL INC. | ||
| (Registrant) | ||
| Date: November 29, 2023 | By: | /s/ Ozge Karalli |
| Ozge Karalli | ||
| Chief Financial Officer | ||
Exhibit 99.1
Trillion Energy International Inc.
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited - Stated in United States dollars)
NOTICE OF NO AUDITOR REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated interim financial statements for Trillion Energy International Inc. (the “Company”) have been prepared by management in accordance with International Financing Reporting Standards (“IFRS”). These condensed consolidated interim financial statements, which are the responsibility of management, are unaudited and have not been reviewed by the Company’s auditors. The Company’s Audit Committee and Board of Directors have reviewed and approved these condensed consolidated interim financial statements. In accordance with the disclosure requirements of National Instrument 51-102 released by the Canadian Securities Administrators, the Company’s independent auditors have not performed a review of these condensed consolidated interim financial statements.
TRILLION ENERGY INTERNATIONAL INC.
Index to Condensed Consolidated Interim Financial Statements
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Financial Position
(Expressed in U.S. dollars)
| Notes | September 30, 2023 (Unaudited) | December 31, 2022 | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 758,694 | $ | 926,061 | ||||||||
| Amounts receivable | 3 | 1,910,866 | 4,337,825 | |||||||||
| Prepaid expenses and deposits | 4 | 1,255,340 | 962,812 | |||||||||
| Assets held for sale | 5 | 2,004,796 | - | |||||||||
| Total current assets | 5,929,696 | 6,226,698 | ||||||||||
| Oil and gas properties, net | 6 | 47,007,742 | 30,049,794 | |||||||||
| Property and equipment, net | 7 | 913,133 | 741,727 | |||||||||
| Total assets | $ | 53,850,571 | $ | 37,018,219 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable and accrued liabilities | 8,18 | $ | 14,429,291 | $ | 10,600,080 | |||||||
| RSU obligation | 17 | 95,360 | 295,747 | |||||||||
| Loans payable | 9 | 2,753,567 | 145,866 | |||||||||
| Convertible debt – accrued interest | 11 | 592,005 | - | |||||||||
| Lease liability | 10 | 27,395 | 4,057 | |||||||||
| Total current liabilities | 17,897,618 | 11,045,750 | ||||||||||
| Asset retirement obligation | 12 | 5,313,406 | 5,316,470 | |||||||||
| Loans payable | 9,18 | 610,267 | 20,689 | |||||||||
| Convertible debt | 11 | 9,644,009 | - | |||||||||
| Lease liability | 10 | 167,447 | 4,552 | |||||||||
| Derivative liability | - | 4,827 | ||||||||||
| Total liabilities | 33,632,747 | 16,392,288 | ||||||||||
| Stockholders’ equity: | ||||||||||||
| Share capital | 66,497,917 | 64,750,270 | ||||||||||
| Notes and amounts receivable for equity issued | 13,18 | (115,294 | ) | (1,062,062 | ) | |||||||
| Warrant and option reserve | 6,711,448 | 5,682,869 | ||||||||||
| Shares to be cancelled | 7,645 | 7,645 | ||||||||||
| Obligation to issue shares | 94,210 | 94,210 | ||||||||||
| Accumulated other comprehensive loss | (15,473,230 | ) | (4,009,997 | ) | ||||||||
| Accumulated deficit | (37,504,872 | ) | (44,837,004 | ) | ||||||||
| Total stockholders’ equity | 20,217,824 | 20,625,931 | ||||||||||
| Total liabilities and stockholders’ equity | $ | 53,850,571 | $ | 37,018,219 | ||||||||
Nature of operations (Note 1)
Subsequent events (Note 23)
| APPROVED BY THE BOARD OF DIRECTORS ON NOVEMBER 29, 2023: | ||
| “Arthur Halleran” | “David Thompson” | |
| Director | Director | |
See accompanying notes to condensed consolidated interim financial statements.
| 2 |
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)
(Expressed in U.S. dollars)
(Unaudited)
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||
| Notes | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
| Revenue | ||||||||||||||||||||
| Oil and gas revenue, net | 20 | $ | 5,028,124 | $ | 1,077,770 | $ | 14,074,877 | $ | 3,589,368 | |||||||||||
| Cost and expenses | ||||||||||||||||||||
| Production | 1,476,757 | 647,464 | 3,392,343 | 2,004,869 | ||||||||||||||||
| Depletion | 6 | 571,183 | 62,888 | 3,510,104 | 211,761 | |||||||||||||||
| Depreciation | 7 | 47,095 | 12,541 | 173,342 | 56,517 | |||||||||||||||
| Accretion of asset retirement obligation | 12 | 59,899 | 64,402 | 168,346 | 147,307 | |||||||||||||||
| Stock-based compensation | 15,17 | 599,493 | 1,410,291 | 1,750,326 | 1,495,012 | |||||||||||||||
| General and administrative | 19 | 1,956,069 | 1,925,921 | 5,453,843 | 4,620,573 | |||||||||||||||
| Geological and geophysical expenses | 74,077 | - | 324,377 | - | ||||||||||||||||
| Total expenses | 4,784,573 | 4,123,507 | 14,772,681 | 8,536,039 | ||||||||||||||||
| Income (Loss) before other income (expenses) | 243,551 | (3,045,737 | ) | (697,804 | ) | (4,946,671 | ) | |||||||||||||
| Other income (expense) | ||||||||||||||||||||
| Interest income | 19,437 | 8,992 | 46,342 | 44,067 | ||||||||||||||||
| Finance cost | 9,10,11 | (741,881 | ) | (22,767 | ) | (1,526,995 | ) | (80,523 | ) | |||||||||||
| Foreign exchange loss | (1,892,112 | ) | 907,864 | (6,765,374 | ) | 1,236,484 | ||||||||||||||
| Gain (loss) on debt settlement | 9,13,17 | (7,107 | ) | (105 | ) | (8,524 | ) | 71,131 | ||||||||||||
| Change in fair value of derivative liability | 16 | 17 | 66,797 | 4,842 | (294,373 | ) | ||||||||||||||
| Provision for debt settlement agreement | 18 | - | (379,919 | ) | - | (379,919 | ) | |||||||||||||
| (Loss) on impairment of assets held for sale | 5 | (859,198 | ) | - | (859,198 | ) | - | |||||||||||||
| Gain (loss) on net monetary position | 10,625,159 | - | 17,138,843 | - | ||||||||||||||||
| Total other income (expense) | 7,144,315 | 580,862 | 8,029,936 | 596,867 | ||||||||||||||||
| Net income (loss) | 7,387,866 | (2,464,875 | ) | 7,332,132 | (4,349,804 | ) | ||||||||||||||
| Other comprehensive income (loss) | ||||||||||||||||||||
| Foreign currency translation | (859,548 | ) | (1,631,932 | ) | (11,463,233 | ) | (2,356,818 | ) | ||||||||||||
| Comprehensive income (loss) | $ | 6,528,318 | $ | (4,096,807 | ) | $ | (4,131,101 | ) | $ | (6,706,622 | ) | |||||||||
| Income (Loss) per share – Basic and diluted | $ | 0.09 | $ | (0.03 | ) | $ | 0.09 | $ | (0.07 | ) | ||||||||||
| Weighted average shares outstanding – Basic | 77,841,478 | 74,306,082 | 77,314,593 | 58,056,336 | ||||||||||||||||
| Weighted average shares outstanding – Diluted | 78,404,758 | 74,306,082 | 78,019,169 | 58,056,336 | ||||||||||||||||
See accompanying notes to condensed consolidated interim financial statements.
| 3 |
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Stockholders’ Equity
(Expressed in U.S. dollars)
(Unaudited)
| Shares | Share capital | Warrant and option reserve |
Receivables for equity issued | Obligation to issue shares | Shares to be cancelled | Accumulated other comprehensive income (loss) | Accumulated deficit | Total | ||||||||||||||||||||||||||||
Balance, December 31, 2021 (Restated) | 37,033,958 | $ | 35,117,130 | $ | 1,165,170 | $ | (1,193,641 | ) | $ | 7,450 | $ | 5,323 | $ | (847,412 | ) | $ | (38,715,250 | ) | $ | (4,461,230 | ) | |||||||||||||||
| Impact of change in functional currency | - | - | 309,737 | - | - | - | - | - | 309,737 | |||||||||||||||||||||||||||
| Issuance of common stock | 35,838,968 | 29,097,585 | 2,253,535 | - | - | - | - | - | 31,351,120 | |||||||||||||||||||||||||||
| Stock issuance costs | - | (2,658,065 | ) | - | - | - | - | - | - | (2,658,065 | ) | |||||||||||||||||||||||||
| Stock issued for debt settlement | 600,000 | 391,021 | - | (18,168 | ) | - | - | - | - | 372,853 | ||||||||||||||||||||||||||
| Stock issued for prepaid services | 181,818 | 118,491 | - | - | - | - | - | - | 118,491 | |||||||||||||||||||||||||||
| Shares issued for RSUs | 140,000 | 92,171 | 27,789 | - | (7,450 | ) | - | - | - | 112,510 | ||||||||||||||||||||||||||
| Warrants exercised | 831,150 | 936,725 | (294,790 | ) | - | - | - | - | - | 641,935 | ||||||||||||||||||||||||||
| Options exercised | 145,000 | 120,147 | (57,716 | ) | - | 6,574 | 2,338 | - | - | 71,343 | ||||||||||||||||||||||||||
| Finder’s warrants issued | - | (1,782,560 | ) | 1,782,560 | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock to be issued for services | - | - | - | - | 51,209 | - | - | - | 51,209 | |||||||||||||||||||||||||||
| Options issued | - | - | 305,193 | - | - | - | - | - | 305,193 | |||||||||||||||||||||||||||
| Equity to be issued for settlement agreement | - | - | - | 49,800 | 174,093 | - | - | - | 223,893 | |||||||||||||||||||||||||||
| RSUs to be issued | - | - | - | - | 971,621 | - | - | - | 971,621 | |||||||||||||||||||||||||||
| Currency translation adjustment | - | - | - | - | - | - | (2,356,818 | ) | - | (2,356,818 | ) | |||||||||||||||||||||||||
| Comprehensive loss | - | - | - | - | - | - | - | (4,349,804 | ) | (4,349,804 | ) | |||||||||||||||||||||||||
| Balance, September 30, 2022 | 74,770,894 | $ | 61,432,645 | $ | 5,491,478 | $ | (1,162,009 | ) | $ | 1,203,497 | $ | 7,661 | $ | (3,204,230 | ) | $ | (43,065,054 | ) | $ | 20,703,988 | ||||||||||||||||
| Balance, December 31, 2022 | 76,775,071 | $ | 64,750,270 | $ | 5,682,869 | $ | (1,062,062 | ) | $ | 94,210 | $ | 7,645 | $ | (4,009,997 | ) | $ | (44,837,004 | ) | $ | 20,625,931 | ||||||||||||||||
| Warrants exercised | 5,000 | 2,215 | - | - | - | - | - | - | 2,215 | |||||||||||||||||||||||||||
| Options exercised | 440,000 | 972,085 | (429,221 | ) | - | - | - | - | - | 542,864 | ||||||||||||||||||||||||||
| Stock issued for RSUs | 565,355 | 560,945 | (340,510 | ) | - | - | - | - | - | 220,435 | ||||||||||||||||||||||||||
| Stock issued for debt settlement | 150,000 | 212,402 | - | - | - | - | - | - | 212,402 | |||||||||||||||||||||||||||
| Stock-based compensation - options | - | - | 118,202 | - | - | - | - | - | 118,202 | |||||||||||||||||||||||||||
| Stock-based compensation – RSU’s | - | - | 1,595,374 | - | - | - | - | - | 1,595,374 | |||||||||||||||||||||||||||
| RSU’s repurchased | - | - | (919,790 | ) | 604,537 | - | - | - | - | (315,253 | ) | |||||||||||||||||||||||||
| Convertible debt – Equity component | - | - | 1,004,524 | - | - | - | - | - | 1,004,524 | |||||||||||||||||||||||||||
| Reduction of notes receivables | - | - | - | 342,231 | - | - | - | - | 342,231 | |||||||||||||||||||||||||||
| Comprehensive income | - | - | - | - | - | - | (11,463,233 | ) | 7,332,132 | (4,131,101 | ) | |||||||||||||||||||||||||
| Balance, September 30, 2023 | 77,935,426 | $ | 66,497,917 | $ | 6,711,448 | $ | (115,294 | ) | $ | 94,210 | $ | 7,645 | $ | (15,473,230 | ) | $ | (37,504,872 | ) | $ | 20,217,824 | ||||||||||||||||
See accompanying notes to condensed consolidated interim financial statements
| 4 |
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities: | ||||||||
| Net income (loss) for the period | $ | 7,332,132 | $ | (4,349,804 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | 1,750,326 | 1,495,012 | ||||||
| Stock to be issued for services | - | 98,492 | ||||||
| Stock issued for services | - | 51,208 | ||||||
| Depletion | 3,510,104 | 211,761 | ||||||
| Depreciation | 173,342 | 56,517 | ||||||
| Accretion of asset retirement obligation | 168,346 | 147,307 | ||||||
| Accretion and accrued interest expense | 966,338 | 27,486 | ||||||
| Interest income | (16,845 | ) | (42,229 | ) | ||||
| Change in fair value of derivative liability | (4,842 | ) | 294,373 | |||||
| Unrealized foreign exchange (gain) loss | - | (60,062 | ) | |||||
| Provision for settlement | - | 379,919 | ||||||
| (Gain) loss on debt settlement | 8,524 | (71,131 | ) | |||||
| Loss on impairment of assets held for sale | 859,198 | - | ||||||
| Gain on net monetary position | (17,138,843 | ) | - | |||||
| Changes in non-cash working capital items: | ||||||||
| Restricted cash | - | 1,518 | ||||||
| Amounts receivable | 2,467,182 | (874,574 | ) | |||||
| Prepaid expenses and deposits | (204,012 | ) | (4,690,853 | ) | ||||
| Accounts payable and accrued liabilities | (2,180,211 | ) | 1,854,362 | |||||
| Net cash provided by (used in) operating activities | (2,309,261 | ) | (5,470,698 | ) | ||||
| Investing activities: | ||||||||
| Property and equipment expenditures | (60,444 | ) | (149,253 | ) | ||||
| Oil and gas properties expenditures | (20,791,190 | ) | (13,202,574 | ) | ||||
| Changes in non-cash working capital items: | ||||||||
| Amounts receivable | (546,089 | ) | - | |||||
| Prepaid expenses and deposits | (53,868 | ) | - | |||||
| Accounts payable and accrued liabilities | 10,239,239 | - | ||||||
| Net cash used in investing activities | (11,212,352 | ) | (13,351,827 | ) | ||||
| Financing activities: | ||||||||
| Proceeds from stock subscriptions received, net | - | 28,693,056 | ||||||
| Proceeds from exercise of options | 542,864 | 28,071 | ||||||
| Proceeds from exercise of warrants | 2,215 | 450,735 | ||||||
| Proceeds from loans payable | 4,833,409 | 91,651 | ||||||
| Repayments of loans payable | (2,482,417 | ) | (648,621 | ) | ||||
| Repayment of notes receivable | 80,991 | - | ||||||
| Proceeds from convertible debt | 10,359,397 | - | ||||||
| Lease payments | (47,776 | ) | (4,293 | ) | ||||
| Net cash provided by financing activities | 13,288,683 | 28,610,599 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 65,563 | 818,976 | ||||||
| Net increase (decrease) in cash and cash equivalents | (167,367 | ) | 10,607,050 | |||||
| Cash and cash equivalents, beginning of year | 926,061 | 1,026,990 | ||||||
| Cash and cash equivalents, end of year | $ | 758,694 | $ | 11,634,040 | ||||
| 5 |
TRILLION ENERGY INTERNATIONAL INC.
Condensed Consolidated Interim Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Supplemental information: | ||||||||
| Taxes paid | $ | - | $ | - | ||||
| Interest paid on credit facilities | $ | 70,699 | $ | 95,796 | ||||
| Non-cash investing and financing activities: | ||||||||
| Stock issued for debt settlement | $ | 212,402 | $ | 416,123 | ||||
| Stock issued for prepaid expenses | $ | - | $ | 62,955 | ||||
| Right-of-use asset additions | $ | 236,201 | $ | - | ||||
See accompanying notes to condensed consolidated interim financial statements.
| 6 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 1. | Organization |
Trillion Energy International Inc. and its consolidated subsidiaries, (collectively referred to as the “Company”) is a Canadian based oil and gas exploration and production company. Effective January 2022, the corporate headquarters moved to Suite 700, 838 West Hastings Street, Vancouver, B.C., Canada from Turan Gunes Bulvari, Park Oran Ofis Plaza, 180-y, Daire:54, Kat:14, 06450, Oran, Cankaya, Anakara, Turkey. The Company also has a registered office in Canada and Bulgaria. The Company was incorporated in Delaware in 2015. The Company’s shares trade on the OTCQB under the symbol “TRLEF” and trade on the Canadian Securities Exchange (the “Exchange”) under the symbol “TCF”.
On January 21, 2022, the Company redomiciled from Delaware to a British Columbia corporation by way of an amalgamation transaction with the Company’s British Columbian subsidiary, Trillion Energy Inc. (the “Repatriation Transaction”). Pursuant to the Repatriation Transaction, for every one common stock of Trillion Energy International Inc., the shareholders will receive one common stock of Trillion Energy Inc. The Company will continue to operate and report under the name of Trillion Energy International Inc.
As a result of the Repatriation Transaction, the Company meets the definition of a foreign private issuer, as defined under Rule 3b-4 of the Securities Exchange Act of 1934, as amended.
On September 18, 2023, the Company consolidated its issued share capital on a ratio of five old common shares for every one new post-consolidated common share. All current and comparative references to the number of common shares, weighted average number of common shares, loss per share, stock options and warrants have been restated to give effect to this share consolidation (the “Share Consolidation”).
| 2. | Basis of Presentation |
| (a) | Statement of Compliance |
The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) applicable to the preparation of condensed interim financial statements, including International Accounting Standards (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”), and the Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). Accordingly, certain disclosures included in annual financial statements have been condensed or omitted and these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022.
The Company’s management makes judgments in its process of applying the Company’s accounting policies in the preparation of its unaudited condensed consolidated interim financial statements. In addition, the preparation of the financial data requires that the Company’s management make assumptions and estimates of the effects of uncertain future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates as the estimation process is inherently uncertain. Estimates are reviewed on an ongoing basis based on historical experience and other factors that are considered to be relevant under the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. The critical judgments and estimates applied in the preparation of the Company’s condensed consolidated interim financial statements are consistent with those applied and disclosed in the Company’s consolidated financial statements for the year ended December 31, 2022. In addition, the accounting policies applied in these condensed consolidated interim financial statements are consistent with those applied and disclosed in the Company’s audited financial statements for the year ended December 31, 2022 except for the items below.
| 7 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Basis of Presentation (continued) |
Convertible debt
The components of the compound financial instrument (convertible debt) issued by the Company are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument. The conversion option that will be settled by the exchange of a fixed amount in cash for a fixed number of equity instruments of the Company is classified as an equity instrument. At the issue date, the liability component is recognized at fair value, which is estimated using the effective interest rate on the market for similar nonconvertible instruments. Subsequently, the liability component is measured at amortized cost using the effective interest rate until it is extinguished on conversion or maturity.
The value of the conversion option classified as equity is determined at the issue date, by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This amount is recognized in equity, net of tax effects, and is not revised subsequently. When the conversion option is exercised, the equity component of the convertible notes will be transferred to share capital. No profit or gain is recognized to the conversion or expiration of the conversion option.
Assets held for sale
Non-current assets are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is met when the sale is highly probable, the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification.
Non-current assets held for sale are presented separately in current assets within the consolidated statement of financial position. Assets held for sale are measured at the lower of carrying amount and fair value less cost to sell, and are not depreciated, depleted or amortized. An impairment loss is recognized for any initial or subsequent write-down of the assets held for sale to fair value less costs to dispose. The comparative period consolidated statement of financial position is not restated.
Change in the basis of reserves
During the nine months ended September 30, 2023, the Company determined that the use of proved and probable reserves would be more appropriate and changed its basis of reserves from proved to proved and probable. A change in the basis of reserves constitutes a change in accounting estimate under IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” and the effect of the change is recognised prospectively from the period in which the change has been made.
These condensed consolidated interim financial statements were authorized for issue by the board of directors of the Company (the “Board of Directors”) on November 29, 2023.
| (b) | Basis of Presentation |
These unaudited condensed consolidated interim financial statements have been prepared on a historical cost basis except for certain financial liabilities, warrants and options, which are measured at fair value. These condensed consolidated interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information. These condensed consolidated interim financial statements are presented in US dollars.
| 8 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Basis of Presentation (continued) |
| (c) | Basis of Consolidation |
These condensed consolidated interim financial statements include the accounts of the Company and the other entities that the Company controls in accordance with IFRS 10 – Consolidated Financial Statements. Control exists when the Company has power over an entity, when the Company is exposed, or has rights, to variable returns from the entity and when the Company has the ability to affect those returns through its power over the entity.
The Company’s subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition up to the effective date of disposition or loss of control of such entity. Where necessary, adjustments are made to the financial statements of subsidiaries to align their accounting policies with those used by the Company. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Park Place Energy Corp. (“PPE Corp.”), Park Place Energy Bermuda (“PPE Bermuda”), BG Exploration EOOD (“BG Exploration”), and Park Place Energy Turkey (“PPE Turkey”). All intercompany balances and transactions are eliminated on consolidation.
The Company’s functional currency is the Canadian dollar. The functional currency of BG Exploration is the Bulgarian Lev, the functional currency of PPE Turkey is the Turkish Lira and the functional currency of PPE Corp and PPE Bermuda is the US dollar.
A portion of the Company’s exploration and development activities are conducted jointly with others. The joint interests are accounted for on a proportionate consolidation basis and as a result the condensed consolidated interim financial statements reflect only the Company’s proportionate share of the assets, liabilities, revenues, expenses and cash flows from these activities.
| Name of the joint arrangement | Nature of the relationship with the joint arrangement | Principal place of operation of joint arrangement | Proportion of participating share | |||||
| South Akcakoca Sub-Basin (“SASB”) | Operator | Turkey | 49 | % | ||||
| Cendere | Participant | Turkey | 19.6 | % | ||||
| (d) | Hyperinflation |
Due to various qualitative factors and developments with respect to the economic environment in Turkey, including but not limited to, the acceleration of multiple local inflation indices, the three-year cumulative inflation rate of the local Turkish wholesale price index exceeding 100% at the end of February 2022 and the significant devaluation of the Turkish Lira, Turkey has been designated a hyper-inflationary economy as of April 1, 2022 for accounting purposes.
Accordingly, IAS 29, Financial Reporting in Hyper-Inflationary Economies was adopted by the Company in its financial statements and applied to these financial statements in relation to PPE Turkey which has a Turkish Lira functional currency. The financial statements are based on the historical cost approach in IAS 29.
The application of hyperinflation accounting requires restatement of PPE Turkey’s non-monetary assets and liabilities, equity and comprehensive income (loss) items from the original transaction date when they were first recognized into the current purchasing power which reflects a general price index current at the end of the reporting period. To measure the impact of inflation on its financial statements and results, the Company has elected to use the consumer price index (“CPI”) as published by the Turkish Statistical Institute “TURKSTAT”.
As per IAS 29, the condensed consolidated interim financial statements of the Company are presented in US dollars, a stable currency, and the comparative amounts do not require restatement.
| 9 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Basis of Presentation (continued) |
| (e) | Reclassification |
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.
| 3. | Amounts Receivable |
| September 30, 2023 | December 31, 2022 | |||||||
| Accounts receivable | $ | 1,819,967 | $ | 4,207,739 | ||||
| GST receivable | 15,073 | 71,284 | ||||||
| Interest receivable | 42,065 | 52,538 | ||||||
| Due from related parties | 31,439 | 3,913 | ||||||
| Other | 2,322 | 2,351 | ||||||
| 1,910,866 | 4,337,825 | |||||||
| 4. | Prepaid expenses |
| September 30, 2023 | December 31, 2022 | |||||||
| Exploration and production advances | $ | 961,989 | $ | 871,527 | ||||
| Prepaid expenses | 270,647 | 83,852 | ||||||
| Prepaid taxes | 22,704 | 7,433 | ||||||
| 1,255,340 | 962,812 | |||||||
| 5. | Assets held for sale |
In September 2023, management committed to a plan to sell left-over field equipment with a carrying amount of $2,863,994. Efforts to sell the equipment have started and a sale is expected by March 31, 2024. Accordingly, the equipment is presented as assets held for sale.
Impairment losses of $859,198 (2022 - $Nil) were recognized for the write-down of the assets held for sale to the lower of its carrying amount and its fair value less costs to sell. As at September 30, 2023, the value of the Company’s assets held for sale are $2,004,796 (December 31, 2022 - $Nil).
The non-recurring fair value measurement for the assets held for sale has been categorized as a Level 3 fair value and is based on management’s best estimate of the fair value of similar products in similar conditions in the marketplace.
| 10 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 6. | Oil and Gas Properties |
| SASB | Cendere | Total | ||||||||||
| Cost | ||||||||||||
| As at December 31, 2021 | $ | 1,398,676 | $ | 2,453,485 | $ | 3,852,161 | ||||||
| Additions | 44,369,191 | - | 44,369,191 | |||||||||
| JV Contribution | (6,656,785 | ) | - | (6,656,785 | ) | |||||||
| Change in ARO estimate | (3,865,772 | ) | (5,562 | ) | (3,871,334 | ) | ||||||
| Currency translation adjustment | (4,748,897 | ) | - | (4,748,897 | ) | |||||||
| Impact of hyperinflation | 837,908 | 110,090 | 947,998 | |||||||||
| As at December 31, 2022 | 31,334,321 | 2,558,013 | 33,892,334 | |||||||||
| Additions | 52,274,476 | - | 52,274,476 | |||||||||
| JV Contribution | (31,483,286 | ) | - | (31,483,286 | ) | |||||||
| Change in ARO estimate and additions | (163,835 | ) | - | (163,835 | ) | |||||||
| Currency translation adjustment | (14,713,197 | ) | - | (14,713,197 | ) | |||||||
| Impact of hyperinflation | 15,774,575 | 1,643,313 | 17,417,888 | |||||||||
| Reclassified as assets held for sale (Note 5) | (2,863,994 | ) | - | (2,863,994 | ) | |||||||
| As at September 30, 2023 | $ | 50,159,060 | $ | 4,201,326 | $ | 54,360,386 | ||||||
| Accumulated depletion | ||||||||||||
| As at December 31, 2021 | $ | 743,647 | $ | 1,687,901 | $ | 2,431,548 | ||||||
| Depletion | 1,263,556 | 187,476 | 1,451,032 | |||||||||
| Impact of hyperinflation | (34,215 | ) | (5,825 | ) | (40,040 | ) | ||||||
| As at December 31, 2022 | 1,972,988 | 1,869,552 | 3,842,540 | |||||||||
| Depletion | 3,444,974 | 65,130 | 3,510,104 | |||||||||
| As at September 30, 2023 | $ | 5,417,962 | $ | 1,934,682 | $ | 7,352,644 | ||||||
| Net book value | ||||||||||||
| As at December 31, 2022 | $ | 29,361,333 | $ | 688,461 | $ | 30,049,794 | ||||||
| As at September 30, 2023 | $ | 44,741,098 | $ | 2,266,644 | $ | 47,007,742 | ||||||
Cendere oil field
The Cendere onshore oil field, which is located in South East Turkey has a total of 25 wells. The Cendere Field was first discovered in 1988. Oil production commenced during 1990. The operator of the Cendere Field is Türkiye Petrolleri Anonim Ortaklığı (“TPAO”). The Company’s interest is 19.6% for all wells except for wells C-13, C-15 and C-16, for which its interest is 9.8%.
The South Akcakoca Sub-Basin (“SASB”)
The Company owns offshore production licenses called the South Akcakoca Sub-Basin (“SASB”). The Company now owns a 49% working interest in SASB in partnership with TPAO. 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.
Management assesses each field for impairment indicators at each reporting date. As at September 30, 2023, no impairment indicators were identified.
| 11 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 7. | Property and Equipment |
Right-of-use asset | Leasehold improvements | Other Equipment | Motor Vehicles | Furniture | Total | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| As at December 31, 2021 | $ | 53,143 | $ | 138,450 | $ | 2,102 | $ | 140,365 | $ | 9,685 | $ | 343,745 | ||||||||||||
| Additions | - | 42,699 | 289,640 | 332,528 | 32,061 | 696,928 | ||||||||||||||||||
| Disposals | - | - | - | (64,588 | ) | - | (64,588 | ) | ||||||||||||||||
| Currency translation adjustment | (5,293 | ) | (2,890 | ) | (31,002 | ) | (37,147 | ) | (2,147 | ) | (78,479 | ) | ||||||||||||
| Impact of hyperinflation | 2,599 | 8,103 | 72,597 | 87,626 | 5,318 | 176,243 | ||||||||||||||||||
| As at December 31, 2022 | 50,449 | 186,362 | 333,337 | 458,784 | 44,917 | 1,073,849 | ||||||||||||||||||
| Additions | 236,201 | 15,434 | 11,791 | 14,221 | 18,998 | 296,645 | ||||||||||||||||||
| Currency translation adjustment | (70,395 | ) | (8,760 | ) | (55,058 | ) | (66,454 | ) | (7,268 | ) | (207,935 | ) | ||||||||||||
| Impact of hyperinflation | 79,438 | 12,771 | 69,765 | 82,753 | 11,311 | 256,038 | ||||||||||||||||||
| As at September 30, 2023 | $ | 295,693 | $ | 205,807 | $ | 359,835 | $ | 489,304 | $ | 67,958 | $ | 1,418,597 | ||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||
| As at December 31, 2021 | $ | 35,758 | $ | 115,109 | $ | 1,922 | $ | 41,377 | $ | 2,445 | $ | 196,611 | ||||||||||||
| Depreciation | 4,549 | 12,324 | 47,423 | 74,622 | 6,117 | 145,035 | ||||||||||||||||||
| Impact of hyperinflation | (140 | ) | (438 | ) | (3,923 | ) | (4,735 | ) | (288 | ) | (9,524 | ) | ||||||||||||
| As at December 31, 2022 | 40,167 | 126,995 | 45,422 | 111,264 | 8,274 | 332,122 | ||||||||||||||||||
| Depreciation | 34,388 | 12,084 | 53,231 | 64,187 | 9,452 | 173,342 | ||||||||||||||||||
| As at September 30, 2023 | $ | 74,555 | $ | 139,079 | $ | 98,653 | $ | 175,451 | $ | 17,726 | $ | 505,464 | ||||||||||||
| Net Book Value | ||||||||||||||||||||||||
| As at December 31, 2022 | $ | 10,282 | $ | 59,367 | $ | 287,915 | $ | 347,520 | $ | 36,643 | $ | 741,727 | ||||||||||||
| As at September 30, 2023 | $ | 221,138 | $ | 66,728 | $ | 261,182 | $ | 313,853 | $ | 50,232 | $ | 913,133 | ||||||||||||
| 8. | Accounts Payable and Accrued Liabilities |
| September 30, 2023 | December 31, 2022 | |||||||
| Accounts payable | $ | 13,820,109 | $ | 8,376,620 | ||||
| Accrued liabilities | 29,657 | 886,324 | ||||||
| Payroll, withholding and sales tax liabilities | 579,525 | 420,072 | ||||||
| Cash calls received from JV partner | - | 917,064 | ||||||
| 14,429,291 | $ | 10,600,080 | ||||||
| 12 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 9. | Loans Payable |
| As at | September 30, 2023 | December 31, 2022 | ||||||
| Unsecured, interest-bearing loans at 10% per annum1 | $ | - | $ | 12,107 | ||||
| Unsecured, interest-bearing loan at 45.33% per annum2 | 21,353 | 56,537 | ||||||
| Unsecured, interest-bearing loan at TLREF + 3.5944% per annum3 | 12,152 | 97,911 | ||||||
| Unsecured, interest-bearing loan at 37.7% per annum4 | 40,091 | - | ||||||
| Unsecured, interest-bearing loan at 6% per annum7,8 | 610,267 | - | ||||||
| Unsecured, interest-bearing loan at 1% per month6 | 2,679,971 | - | ||||||
| Total loans payable | 3,363,834 | 166,555 | ||||||
| Current portion of loans payable | (2,753,567 | ) | (145,866 | ) | ||||
| Long-term portion of loans payable | $ | 610,267 | $ | 20,689 | ||||
| (1) | Loans bearing interest accrue at 10% per annum are all unsecured. The loans matured between January and April 1, 2021 and thereafter were due on demand. During the nine months ended September 30, 2023, the Company made principal payments of $Nil (2022 - $135,868) and $Nil (2022 - $3,515) in interest payments. During the nine months ended September 30, 2023, the Company wrote off the remaining balance of $12,107. | |
| (2) | On May 25, 2022, Garanti Bank extended a long-term loan to Park Place Turkey Limited in the amount of ₺1,500,000 (or approximately US$91,961). The loan matures on May 23, 2024, and bears interest at 45.33% per annum. Principal and accrued interest are paid monthly. During the nine months ended September 30, 2023, the Company made $21,795 (2022 - $20,183) in principal payments and $13,647 (2022 - $13,169) in interest payments. | |
| (3) | On November 23, 2022, Garanti Bank extended a short-term loan to Park Place Turkey Limited in the amount of ₺2,000,000 (or approximately US$107,356). The loan matures on November 23, 2023, and bears interest at the Turkish Lira Overnight Reference Rate (“TLREF”) plus 3.5944% per annum. Principal and accrued interest are paid monthly. During the nine months ended September 30, 2023, the Company made $69,131 (2022 - $nil) in principal payments and $4,539 (2022 - $nil) in interest payments. | |
| (4) | On March 13, 2023, Garanti Bank extended a long-term loan to Park Place Turkey Limited in the amount of ₺2,000,000 (or approximately US$105,386). The loan matures on March 12, 2024, and bears interest at 37.67% per annum. Principal and accrued interest are paid monthly. During the nine months ended September 30, 2023, the Company made $41,491 (2022 - $nil) in principal payments and $15,803 (2022 - $nil) in interest payments. | |
| (5) | On February 1, 2023, the Company entered into an agreement with TR1 Master Fund to borrow $2,200,000. The loan was issued with a $200,000 discount and bears interest at a rate of 1% per month. The maturity date is April 1, 2024. In the event that the loan is repaid in full prior to the maturity date, the minimum interest payment on the loan is $100,000. Upon repayment of the loan at any time, the Company has to pay an exit fee of $50,000. The minimum interest payment and exit fee have been recorded on the consolidated statement of comprehensive loss as finance costs. If, during the period that any amount of the loan remains outstanding, the Company issues any equity, the Lender may demand repayment of all or part of the principal amount of the loan in an amount equal to the aggregate subscription price of the equity offering. On April 26, 2023, the Company repaid the loan in its entirety, including the minimum interest and exit fee. |
| 13 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 9. | Loans Payable (continued) |
| (6) | On July 1, 2023, the Company entered into agreements with TR1 Master Fund to borrow US$1,065,000 and US$1,597,500. The loans were issued with a US$65,000 and US$97,500 discount, respectively, and bear an interest rate of 1% per month. The maturity date is December 31, 2023. In the event that the loan is repaid in full prior to the maturity date, the minimum interest payments on the loans are US$40,000 and US$60,000, respectively. The minimum interest payments have been recorded on the consolidated statement of comprehensive loss as finance costs. If, during the period that any amount of the loan remains outstanding, the Company issues any equity, the Lender may demand repayment of all or part of the principal amount of the loan in an amount equal to the aggregate subscription price of the equity offering. As at September 30, 2023, no repayments had been made. | |
| (7) | On July 20, 2023, the Company entered into a promissory note with 1324025 BC Ltd for CAD$300,000 (USD$228,023). The promissory note bears an interest rate of 6% per annum. The principal plus all accrued unpaid interest is to be repaid no later than December 31, 2024. During the 9 month period ended September 30, 2023, CAD$20,864 (USD$15,361) of the principle had been applied against amounts owed by the note holder. | |
| (8) | On September 1, 2023, the Company entered into a promissory note with 2476393 Alberta Ltd for CAD$546,000 (USD$402,115). The promissory note bears an interest rate of 6% per annum. The principal plus all accrued unpaid interest is to be repaid no later than December 31, 2024. As at September 30, 2023, no repayments had been made. |
| 10. | Leases |
The Company leases certain assets under lease agreements. During the nine months ended September 30, 2023, the Company entered into three new office leases in Turkey, commencing January 1, 2023, February 15, 2023 and March 1, 2023, respectively. The leases all have a five-year term.
Lease liabilities are measured at the commencement date based on the present value of future lease payments. As the Company’s lease did not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company used a discount rate of 35% in determining its lease liabilities. The discount rate was derived from the Company’s assessment of its borrowings in Turkey.
| Lease liability | September 30, 2023 | December 31, 2022 | ||||||
| Beginning balance | $ | 8,609 | $ | 15,324 | ||||
| Additions, cost | 236,201 | - | ||||||
| Interest expense | 36,710 | 1,378 | ||||||
| Lease payments | (84,486 | ) | (5,499 | ) | ||||
| Foreign exchange impact | (2,192 | ) | (2,594 | ) | ||||
| Ending balance | $ | 194,842 | $ | 8,609 | ||||
As at September 30, 2023, the Company’s lease liability is as follows:
| Lease liability | September 30, 2023 | December 31, 2022 | ||||||
| Current portion of operating lease liability | $ | 27,395 | $ | 4,057 | ||||
| Long-term portion of operating lease liability | 167,447 | 4,552 | ||||||
| 194,842 | $ | 8,609 | ||||||
Future minimum lease payments to be paid by the Company as a lessee as of September 30, 2023 are as follows:
| 14 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 10. | Leases (continued) |
| Operating lease commitments and lease liability | ||||
| 2023 | $ | 27,820 | ||
| 2024 | 86,175 | |||
| 2025 | 84,488 | |||
| 2026 | 86,163 | |||
| 2027 | 60,921 | |||
| Total future minimum lease payments | 345,567 | |||
| Discount | (150,725 | ) | ||
| Total | $ | 194,842 | ||
During the nine months ended September 30, 2023, $25,610 (2022 - $13,224) of short-term leases were expensed to the statements of loss and comprehensive loss.
| 11. | Convertible debentures |
On April 20, 2023, the Company entered into an agreement to issue 15,000 units of the Company (the “Units”) at a price of CAD$1,000 per unit, for gross proceeds of CAD$15,000,000. Each Unit will consist of CAD$1,000 principal amount secured convertible debenture (“Debenture”) and 333 common share purchase warrants of the Company (the “Warrants”). Each Warrant will be exercisable for one common share of the Company at an exercise price of CAD$2.50 and shall have an expiry date of June 29, 2025.
The Debentures will mature on April 30, 2025 (the “Maturity Date”) and will accrue interest at the rate of 12% per annum, payable semi-annually. The Company has the ability to redeem the Debentures at any time between the dates if April 30, 2024 and April 30, 2025 at a redemption price of 105% of the principal amount plus any accrued interest. At the holders’ option, the Debentures may be converted into common shares of the Company at any time, up to the earlier of the Maturity Date and the redemption of the Debentures, at a conversion price of CAD$3.00 per common share.
The convertible debentures were determined to be a financial instrument comprising a host debt component, a conversion feature classified as equity, and freestanding warrants classified as equity. The warrants and conversion features were determined to be equity components because the exercise prices are denominated in the functional currency of the Company. Thus, the instrument meets the criterion of an equity instrument.
The Company paid an underwriting fee of CAD$1,045,000 (US$775,748) and issued 300,000 broker warrants (the ‘Broker Warrants”) in conjunction with the financing. The Broker Warrants are exercisable for one common share of the Company at an exercise price of CAD$2.50 and shall have an expiry date of April 20, 2025. The fair value of the Broker Warrants was estimated to be $216,777 and was determined using the Black-Scholes Option Pricing Model using the following assumptions: risk-free interest rate: 3.77%, expected volatility: 100.96%, dividend yield: 0% and expected life: 2 years.
On initial recognition, the proceeds were first allocated to the fair value of the host debt component, calculated using a market interest rate of 16%, which is the market interest rate of a debt instrument with similar terms but without the equity conversion feature. The residual proceeds were then allocated to the conversion feature and warrant equity components using the relative fair value method.
The relative fair value of the warrants and conversion features were determined using the Black-Scholes Option Pricing Model using the assumptions set out as follows:
| 15 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 11. | Convertible debentures (continued) |
| April 20, 2023 | ||||
| Risk-free interest rate | 3.86 | % | ||
| Expected volatility | 101.71 – 119.94 | % | ||
| Dividend yield | 0 | % | ||
| Expected life | 2.03 - 2.19 years | |||
A continuity schedule of the Company’s convertible debt is as follows:
| Balance as at January 1, 2023 | $ | - | ||
| Issued | 11,135,145 | |||
| Transaction costs | (992,525 | ) | ||
| Transaction costs allocated to equity | 77,086 | |||
| Relative fair value of conversion feature | (369,181 | ) | ||
| Relative fair value of Warrants | (495,653 | ) | ||
| Accretion | 367,363 | |||
| Interest | 598,975 | |||
| Impact of foreign currency adjustment | (85,196 | ) | ||
| Balance as at September 30, 2023 | $ | 10,236,014 | ||
| Current | $ | 592,005 | ||
| Long-term | $ | 9,644,009 |
| 12. | Asset Retirement Obligations |
The following is a continuity of the Company’s asset retirement obligations:
| September 30, 2023 | December 31, 2022 | |||||||
| Beginning balance | $ | 5,316,470 | $ | 8,993,108 | ||||
| Additions | 598,358 | - | ||||||
| Accretion expense | 164,947 | 264,075 | ||||||
| Impact of hyperinflation | (4,177 | ) | (69,379 | ) | ||||
| Change in estimate | (762,192 | ) | (3,871,334 | ) | ||||
| Ending balance | $ | 5,313,406 | $ | 5,316,470 | ||||
The Company’s asset retirement obligations (“ARO”) result from its interest in oil and gas assets including well sites. The total ARO is estimated based on the Company’s net ownership interest in all sites, estimated costs to reclaim and abandon these wells and the estimated timing of the costs to be included in future years. The Company estimated the total undiscounted amount required to settle the ARO as at September 30, 2023 is $15.9 million (December 31, 2022 - $14.4 million). The ARO is calculated using an inflation rate of 2.5% (December 31, 2022 – 2.5%) and discounted using an interest free rate of 4% (December 31, 2022 – 3.91%) between 10 and 20 years.
| 13. | Notes and Amounts Receivable for Equity Issued |
| September 30, 2023 | December 31, 2022 | |||||||
| Notes receivable | $ | 1,189 | $ | 1,000,122 | ||||
| Amounts receivable | 114,105 | 61,940 | ||||||
| 115,294 | $ | 1,062,062 | ||||||
| 16 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 13. | Notes and Amounts Receivable for Equity Issued (continued) |
The notes receivable bear interest at 5% and are due between September 30, 2021, and July 31, 2023.
The amounts receivable are non-interest bearing and due on demand.
The following is a continuity of the Company’s notes and other receivables:
Notes receivable | Amounts receivable |
Total | ||||||||||
| Balance, December 31, 2021 | $ | 1,158,832 | $ | 34,809 | $ | 1,193,641 | ||||||
| Additions | - | 51,659 | 51,659 | |||||||||
| Repayments | (136,611 | ) | (24,528 | ) | (161,139 | ) | ||||||
| Write-off | (22,099 | ) | - | (22,099 | ) | |||||||
| Balance, December 31, 2022 | 1,000,122 | 61,940 | 1,062,062 | |||||||||
| Repayments | (281,480 | ) | (46,640 | ) | (328,120 | ) | ||||||
| Settled through RSU repurchase (Note 17) | (604,537 | ) | - | (604,537 | ) | |||||||
| Write-off | - | (14,111 | ) | (14,111 | ) | |||||||
| Balance, September 30, 2023 | $ | 114,105 | $ | 1,189 | $ | 115,294 | ||||||
During the nine months ended September 30, 2023, the interest income totaled $15,304 (2022 - $39,424). As at September 30, 2023, accrued interest of $42,065 (December 31, 2022 - $52,538) was included in amounts receivable (Note 4).
| 14. | Common Stock |
The Company has an unlimited number of common shares authorized with no par value. As at September 30, 2023, 77,935,426 common shares were issued and outstanding (December 31, 2022 – 76,775,071).
For the nine months ended September 30, 2023
During the nine months ended September 30, 2023, the Company issued 150,000 shares with a fair value of $212,402 to settle debt of $195,290 and recognized a loss on the settlement of $17,112.
During the nine months ended September 30, 2023, the Company issued 565,355 shares for RSU’s which were granted and vested in previous periods.
During the nine months ended September 30, 2023, 5,000 warrants with an exercise price of $0.60 CAD (approximately US$0.50) were exercised for gross proceeds of $3,000 CAD (US$2,215).
During the nine months ended September 30, 2023, the Company issued shares for the exercise of options as follows:
| ● | 40,000 common shares for the exercise of 40,000 options at $0.75 CAD (approximately US$0.60) for cash proceeds of $30,000 CAD (US$21,872). As a result, $18,475 was transferred from option reserves to share capital; and | |
| ● | 70,000 common shares for the exercise of 70,000 options at $2.20 CAD (approximately US$1.65) for cash proceeds of $154,000 CAD (US$113,717). As a result, $72,050 was transferred from option reserves to share capital. | |
| ● | 70,000 common shares for the exercise of 70,000 options at $0.80 CAD (approximately US$0.60) for cash proceeds of $56,453 (US$42,000). As a result, $35,174 was transferred from option reserves to share capital. | |
| ● | 60,000 common shares for the exercise of 60,000 options at $0.75 CAD (approximately US$0.55) for cash proceeds of $45,000 (US$33,479). As a result, $29,939 was transferred from options reserves to share capital. |
| 17 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 14. | Common Stock (continued) |
| ● | 200,000 common shares for the exercise of 200,000 options at $2.20 CAD (approximately US$1.65) for cash proceeds of $440,000 CAD (US$331,796). As a result, $273,583 was transferred from options reserves to share capital. |
For the nine months ended September 30, 2022
During the nine months ended September 30, 2022, the Company issued shares for the exercise of warrants as follows:
| ● | 122,650 common shares for the exercise of 122,650 warrants at $0.50 CAD (approximately US$0.40) for cash proceeds of $61,325 CAD (US$48,120). As a result, $70,995 was transferred from warrant reserves to common stock and share premium; | |
| ● | 150,000 common shares for the exercise of 150,000 warrants at $0.40 for cash proceeds of $60,000; | |
| ● | 9,500 common shares for the exercise of 9,500 warrants at $2.25 CAD (approximately US$1.65) for cash proceeds of $21,375 CAD (US$16,101). As a result, $1,159 was transferred from warrant reserves to common stock and share premium; | |
| ● | 49,000 common shares for the exercise of 49,000 warrants at $1.00 CAD (approximately US$0.80) for cash proceeds of $49,000 CAD (US$37,225); and | |
| ● | 250,000 common shares for the exercise of 250,000 warrants at $1.55 CAD (approximately US$1.15) for cash proceeds of $387,500 CAD (US$289,289). As a result, $222,636 was transferred from warrant reserves to common stock and share premium. |
During the nine months ended September 30, 2022, the Company issued shares for the exercise of options as follows:
| ● | 40,000 common shares pursuant to the exercise of 40,000 options at $0.80 CAD (approximately US$0.60). In lieu of cash, debt owed to the equity holder was settled in the amount of $31,137 CAD (US$24,000). Pursuant to the issuance, $30,085 CAD (US$23,190) was transferred from option reserves to common stock and share premium; | |
| ● | 55,000 common shares for the exercise of 55,000 options at $0.50 CAD (approximately US$0.40) for $36,500 CAD (US$28,071). As a result, $31,920 was transferred from option reserves to common stock and share premium. As at September 30, 2022, common shares had not been issued for the exercise of 90,000 stock options and $6,574 is recorded as an obligation to issue shares. 6,000 common shares were issued in error as it pertains to the exercise of these options. As a result, $2,338 was recorded in shares to be cancelled; and | |
| ● | 50,000 common shares pursuant to the exercise of 50,000 options at $0.50 CAD (approximately US$0.40). In lieu of cash, debt in the amount of $25,000 CAD (US$19,270) was settled. Pursuant to the issuance, $18,473 CAD (US$14,239) was transferred from option reserves to common stock and share premium. |
In March 2022, the Company issued 21,331,588 units at $0.825 CAD per unit for gross proceeds of $17,598,610 CAD ($13,886,226 USD) pursuant to the closing of a non-brokered private placement. Each unit comprises one common share and one half of one share purchase warrant. Each whole warrant entitles the holder to purchase one common share for $2.25 CAD for two years from the date of the closing of the offering. As the fair value of the common shares on the same date exceeded the issuance price, no residual value was assigned to the warrants. Cash finder’s fee of $1,397,495 CAD ($1,108,790 USD) were paid and 1,501,357 finder’s warrants were issued with a fair value of $995,775. The finder’s warrants have the same terms as the warrants attached to the units. The Company also issued 600,000 units for debt settlement of $472,001 CAD ($391,021 USD) under the same terms of the private placement financing with no loss or gain recognized.
On March 1, 2022, the Company entered into a consulting agreement with a third party. Pursuant to the consulting agreement, the Company would issue 40,000 common shares for the consulting services received in March 2022. The amount of $51,208 was expensed and included in consulting services on the consolidated statement of loss and comprehensive loss for the nine months ended September 30, 2022.
| 18 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 14. | Common Stock (continued) |
On March 17, 2022, the Company issued 181,818 units for prepaid services valued at $150,000 CAD ($118,491 USD). During the nine months ended September 30, 2022, $150,000 ($118,491 USD) was expensed and included in investor relations on the consolidated statements of loss and comprehensive loss.
On March 17, 2022, the Company issued 140,000 shares, 10,000 of which relate to the vesting of restricted stock units granted in 2021 and 130,000 relating to the granting and vesting of restricted stock units during the period ended June 30, 2022. The value of the restricted stock units granted during the period ended June 30, 2022 is $107,250 CAD ($92,171 USD). $7,450 of the share-based compensation was recorded in the prior year. The share-based compensation for the six months ended September 30, 2022 totaled $84,721.
On June 29, 2022, the Company completed a short form prospectus, issuing 14,507,380 units of the Company at a price of $1.55 CAD (approximately US$1.20) per unit for aggregate gross proceeds of up to $22,486,439 CAD (approximately US$17,408,856). Each unit consists of one common share of the Company and one half of one common share purchase warrant. Each warrant will be exercisable to purchase one common share of the Company at an exercise price of $2.50 CAD (approximately USD$1.95) until June 29, 2025. A value of $0.20 CAD was allocated to each warrant based on the residual method.
Cash finder’s fee of $1,994,906 CAD ($1,549,196 USD) were paid and 850,288 finder’s warrants were issued with a fair value of $1,014,290 CAD ($787,785 USD). The finder’s warrants are exercisable to purchase units, with each unit consisting of one common share and one-half share purchase warrant of the Company at an exercise price of $1.55 CAD (approximately USD$1.20) until June 29, 2025. Each warrant is exercisable at $2.50 CAD (approximately USD$1.80) until June 29, 2025.
On July 18, 2022, the Company issued 250,000 common shares for the exercise of 250,000 warrants at $0.40 for prepaid services valued at $100,000. During the nine months ended September 30, 2022, $37,045 was expensed and included in investor relations on the consolidated statement of loss and comprehensive loss. As at September 30, 2022, $62,955 was included in prepaid expenses and deposits on the consolidated statement of financial position. As the warrants were liability classified, the fair value of the shares of $121,604 was transferred to share premium
On August 18, 2022, the Company entered into a settlement agreement with the former Chief Financial Officer of the Company upon resignation, whereupon the Company will issue/pay:
| ● | 65,000 common shares with a fair value of $94,300 (not issued as at September 30, 2022); | |
| ● | $210,000 in cash to be paid as follows: |
| ○ | $110,000 paid upon execution of the agreement (Paid); | |
| ○ | $50,000 to be paid on or before January 31, 2023 (Unpaid as at September 30, 2022); | |
| ○ | $50,000 to be paid on or before March 31, 2023 (Unpaid as at September 30, 2022); |
| ● | 40,000 RSUs with a fair value of $58,031 for services rendered as a director (not issued as at September 30, 2022); | |
| ● | 15,000 RSUs with a fair value of $21,761 for services rendered as an audit committee member (Not issued as at September 30, 2022); |
| 19 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 15. | Stock Options |
The Board of Directors adopted the Trillion Energy International Inc. 2022 Long-Term Incentive Equity Plan (the “2022 Plan”) effective as of December 1, 2022. The 2022 Plan permits grants of stock options and restricted stock awards and other stock-based awards.
Under the 2022 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 2022 Plan. Under the 2022 Plan, the exercise price of each option shall be determined by the Board, subject to any applicable Exchange approval or rules, at the time any option or other stock-based award is granted. In no event shall such exercise price be lower than the exercise price permitted by the Exchange. The vesting schedule for each option or other stock-based award shall be specified by the Board of Directors at the time of grant, subject to any applicable Exchange approval or rules.
A continuity of the Company’s outstanding stock options for the nine months ended September 30, 2023 and the year ended December 31, 2022 is presented below:
| Number of options | Weighted average exercise price (USD) | |||||||
| Outstanding, December 31, 2021 | 1,528,000 | $ | 0.60 | |||||
| Granted | 1,442,000 | 1.35 | ||||||
| Exercised | (669,000 | ) | 1.00 | |||||
| Expired | (1,000 | ) | 3.70 | |||||
| Outstanding, December 31, 2022 | 2,300,000 | $ | 0.95 | |||||
| Exercised | (440,000 | ) | 1.22 | |||||
| Outstanding, September 30, 2023 | 1,860,000 | $ | 0.87 | |||||
| Exercisable, September 30, 2023 | 1,860,000 | $ | 0.87 | |||||
At September 30, 2023 the Company had the following outstanding stock options:
| Outstanding | Exercise Price (USD) | Expiry Date | Vested | ||||||||
| 240,0000 | 0.60 | October 24, 2023 | 240,000 | ||||||||
| 660,000 | 0.55 | September 19, 2024 | 660,000 | ||||||||
| 128,000 | 0.29 | July 31, 2025 | 128,000 | ||||||||
| 512,000 | 1.10 | July 26, 2025 | 512,000 | ||||||||
| 50,000 | 1.40 | June 6, 2026 | 50,000 | ||||||||
| 150,000 | 1.62 | October 27, 2025 | 150,000 | ||||||||
| 70,000 | 1.62 | December 9, 2024 | 70,000 | ||||||||
| 150,000 | 1.62 | December 9, 2025 | 150,000 | ||||||||
| 1,860,000 | 1,860,000 | ||||||||||
As at September 30, 2023, the weighted average remaining contractual life of outstanding stock options is 1.33 years (December 31, 2022 – 2.09 years).
For the nine months ended September 30, 2023, the Company recognized $118,202 (2022 - $Nil) in stock-based compensation expense for options granted and vested. At September 30, 2023, the Company has $Nil (December 31, 2022 - $123,873) in unrecognized compensation expense related to stock options.
No stock options were granted during the nine months ended September 30, 2023.
| 20 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 16. | Warrants |
A continuity of the Company’s outstanding share purchase warrants for the nine months ended September 30, 2023 and the year ended December 31, 2022 is presented below:
| Number of warrants | Weighted average exercise price (USD) | |||||||
| Outstanding, December 31, 2021 | 1,568,866 | $ | 0.50 | |||||
| Issued | 21,011,038 | 1.70 | ||||||
| Exercised | (2,185,366 | ) | 0.65 | |||||
| Expired | (7,000 | ) | 0.35 | |||||
| Outstanding, December 31, 2022 | 20,387,538 | $ | 1.72 | |||||
| Issued | 5,306,000 | 1.84 | ||||||
| Exercised | (5,000 | ) | 0.45 | |||||
| Expired | (10,000 | ) | 1.60 | |||||
| Outstanding, September 30, 2023 | 25,678,538 | $ | 1.74 | |||||
At September 30, 2023, the Company had the following outstanding share purchase warrants:
| Outstanding | Exercise Price | Expiry Date | |||||
| 4,341,088 | 2.25 CAD | March 15, 2024 | |||||
| 676,788 | 2.25 CAD | March 16, 2024 | |||||
| 590,909 | 2.25 CAD | March 17, 2024 | |||||
| 2,122,825 | 2.25 CAD | March 18, 2024 | |||||
| 4,286,351 | 2.25 CAD | March 24, 2024 | |||||
| 530,600 | 2.25 CAD | March 28, 2024 | |||||
| 300,000 | 2.50 CAD | April 20, 2025 | |||||
| 12,529,690 | 2.50 CAD | June 29, 2025 | |||||
| 300,288 | 1.55 CAD | June 29, 2025 | |||||
| 25,678,539 | |||||||
As at September 30, 2023, the weighted average remaining contractual life of outstanding warrants is 1.12 years (December 31, 2022 – 1.71 years).
The Company had previously issued warrants in connection with private placements, or debt settlements where the exercise price of such warrants was denominated in USD. As such the warrants were classified as derivate liabilities. As at September 30, 2023, the fair value of the warrants were remeasured at $Nil as all the warrants had expired. The Company recognized a gain on the fair value change of $4,827 (2022 - loss of $294,373) for the nine months ended September 30, 2023.
The following is a continuity of the Company’s derivative warrant liability:
| Total | ||||
| Balance, December 31, 2021 | $ | 472,899 | ||
| Effect of change in functional currency | (309,006 | ) | ||
| Exercise of warrants | (822,950 | ) | ||
| Change in fair value of derivative | 686,504 | |||
| Foreign currency translation | (22,620 | ) | ||
| Balance, December 31, 2022 | $ | 4,827 | ||
| Change in fair value of derivative | (4,827 | ) | ||
| Balance, September 30, 2023 | $ | - | ||
| 21 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 17. | Restricted Stock Units |
During the 9 months ended September 30, 2023, the Company granted RSUs as follows:
| ● | On January 1, 2023, the Company granted 110,400 RSU’s which vest quarterly beginning January 1, 2023. | |
| ● | On May 11, 2023, the Company granted 601,000 RSU’s which vested immediately. | |
| ● | On July 6, 2023, the Company granted 75,000 RSU’s, which vested immediately. | |
| ● | On September 2, 2023, the Company granted 75,464 RSU’s, which vested immediately. | |
| ● | On September 15, 2023, the Company granted 452,785 RSU’s, which vested immediately. |
For the nine months ended September 30, 2023, the Company recognized $1,632,124 (2022 - $1,323,671) in stock-based compensation expense for RSUs granted and vested.
| Number of unvested restricted stock units | Weighted average fair value per award | |||||||
| Balance, December 31, 2021 | – | $ | – | |||||
| Granted | 885,012 | 0.80 | ||||||
| Vested | (885,012 | ) | 0.80 | |||||
| Balance, December 31, 2022 | – | – | ||||||
| Granted | 1,314,649 | 2.00 | ||||||
| Vested | (1,287,049 | ) | 2.00 | |||||
| Balance, September 30, 2023 | 27,600 | 2.00 | ||||||
The Company previously granted certain RSU’s whereby the holder has the right and option to require the Company to withhold up to one third of the RSU shares awarded to pay the cash equivalent of the market price of the shares on the date of vesting. As a result, a portion of the value of the RSU’s is recorded as a RSU obligation liability. As at September 30, 2023, the balance of the RSU obligation was $95,360.
During the nine months ended September 30, 2023, the Company repurchased 667,868 RSU’s for $993,136, equaling the fair value of the Company’s shares at the time of repurchase and did not recognize any gain or loss on the transaction. As a result of the transaction, the Company recognized a reduction to equity of $919,789 and a reduction to the RSU obligation liability of $73,346. Outstanding notes receivable of $604,537 were settled through the RSU’s repurchased (Note 13).
As at September 30, 2023, the Company had 580,850 RSU’s (December 31, 2022 – 3,375,062) outstanding.
| 18. | Related Party Transactions |
At September 30, 2023, accounts payable and accrued liabilities included $195,004 (December 31, 2022 - $210,070) due to related parties. The amounts are unsecured, non-interest bearing and due on demand.
During the nine months ended September 30, 2023, management fees and salaries of $637,116 (2022 - $537,227), director fees of $122,400 (2022 - $54,000), and stock-based compensation of $1,233,552 (2022 - $1,401,090) were incurred to related parties.
During the nine months ended September 30, 2022, the Company issued 202,000 shares to directors for RSU’s which were granted and vested in previous periods.
During the nine months ended September 30, 2023, the Company issued 80,000 shares with a fair value of $115,304 to a director to settle debt of CAD$160,000 (US$ $118,261) and recognized a gain on the settlement of $2,957. During the nine months ended September 30, 2022, the Company issued 400,000 units for the settlement of accounts payable owed to related parties in the amount of $242,513, resulting in no gain or loss.
| 22 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 18. | Related Party Transactions (continued) |
During the nine months ended September 30, 2023, the Company repurchased 586,868 RSU’s from directors and recognized a reduction to equity of $799,212 on the transaction. $473,331 of the RSU’s repurchased was applied against outstanding notes receivable.
As at September 30, 2023, notes receivable included $Nil (December 31, 2022 - $450,325) due from related parties. The amounts previously receivable were unsecured, bear interest at 5% per annum and mature one to two years from issuance.
As at September 30, 2023, notes payable included CAD$546,000 (USD$402,115) (December 31, 2022 - $Nil) due to related parties. The note payable wis unsecured, bears interest at 6% per annum and matures on December 31, 2024.
| 19. | General and Administrative |
| For the nine months ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Salaries and compensation | $ | 4,244,413 | $ | 2,431,533 | ||||
| Professional fees | 555,396 | 525,971 | ||||||
| Investor relations | 174,364 | 511,576 | ||||||
| Office | 170,795 | 630,662 | ||||||
| Advertising | 121,374 | 353,143 | ||||||
| Filing and transfer fees | 86,686 | 92,574 | ||||||
| Travel | 77,041 | 33,160 | ||||||
| Penalties | 19,819 | 30,652 | ||||||
| Bank charges and other | 3,955 | 11,302 | ||||||
| $ | 5,453,843 | $ | 4,620,573 | |||||
| 20. | Segmented Information |
During the nine months ended September 30, 2023 and the year ended December 31, 2022, the Company’s operations were in the resource industry in Turkey with head offices in Canada and a satellite office in Sofia, Bulgaria.
| Canada | Turkey | Bulgaria | Total | |||||||||||||
| Nine months ended September 30, 2023 | ||||||||||||||||
| Revenue | $ | - | $ | 14,074,877 | $ | - | $ | 14,074,877 | ||||||||
| Finance cost | 1,500,066 | 26,929 | - | 1,526,995 | ||||||||||||
| Depletion | - | 3,510,104 | - | 3,510,104 | ||||||||||||
| Depreciation | 6,374 | 166,968 | - | 173,342 | ||||||||||||
| Accretion of asset retirement obligation | - | 168,346 | - | 168,346 | ||||||||||||
| Stock-based compensation | 1,750,326 | - | - | 1,750,326 | ||||||||||||
| Loss on debt extinguishment | 8,524 | - | - | 8,524 | ||||||||||||
| Loss on impairment of assets held for sale | - | 859,198 | - | 859,198 | ||||||||||||
| Gain on net monetary position | - | (17,138,843 | ) | - | (17,138,843 | ) | ||||||||||
| Net income (loss) | (6,048,983 | ) | 13,387,193 | (6,078 | ) | 7,332,132 | ||||||||||
| As at September 30, 2023 | ||||||||||||||||
| Non-current assets | $ | 36,293 | $ | 47,884,582 | $ | - | $ | 47,920,875 | ||||||||
| 23 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 20. | Segmented Information (continued) |
| Canada | Turkey | Bulgaria | Total | |||||||||||||
| Nine months ended September 30, 2022 | ||||||||||||||||
| Revenue | $ | - | $ | 3,589,368 | $ | - | $ | 3,589,368 | ||||||||
| Financing cost | 52,097 | 28,426 | - | 80,523 | ||||||||||||
| Depletion | - | 211,761 | - | 211,761 | ||||||||||||
| Depreciation | 2,687 | 53,830 | - | 56,517 | ||||||||||||
| Accretion of asset retirement obligation | - | 147,307 | - | 147,307 | ||||||||||||
| Stock-based compensation | 1,495,012 | - | - | 1,495,012 | ||||||||||||
| Gain on debt settlement | (71,131 | ) | - | - | (71,131 | ) | ||||||||||
| Net income (loss) | (4,744,762 | ) | 396,467 | (1,509 | ) | (4,349,804 | ) | |||||||||
| As at December 31, 2022 | ||||||||||||||||
| Non-current assets | $ | 42,762 | $ | 30,748,759 | $ | - | $ | 30,791,521 | ||||||||
The Company’s breakdown of net revenue by product segment is as follows:
| For the nine months ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Oil | $ | 2,145,495 | $ | 3,107,151 | ||||
| Gas | 11,929,382 | 482,217 | ||||||
| $ | 14,074,877 | $ | 3,589,368 | |||||
The Company incurs royalties of 12.5%. During the nine months ended September 30, 2023, the Company paid royalties totaling $1,976,338 (2022 - $412,233).
| 21. | Capital Management |
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern to support its business plan, as well as to ensure that the Company is able to meet its financial obligations as they become due.
The basis for the Company’s capital structure is dependent on the Company’s expected business growth and changes in business environment. To maintain or adjust the capital structure, the Company may issue new shares through private placement, incur debt or return capital to members.
The Company is dependent upon external financings to fund activities. In order to carry future projects and pay administrative costs, the Company will utilize its existing working capital and raise additional funds as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The Company is not subject to externally imposed capital requirements.
| 22. | Financial Instruments and Risk Management |
The Company is exposed, through its operations, to the following financial risks:
| a) | Market risk |
| b) | Credit risk |
| c) | Liquidity risk |
| 24 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 22. | Financial Instruments and Risk Management (continued) |
The Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s objectives, policies, and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these Financial Statements.
There have been no substantive changes in the Company’s exposure to financial instrument risks, its objectives, polices and processes for managing those risks or the methods used to measure them from previous reported periods unless otherwise stated in the note. The overall objective of management is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. Further details regarding these policies are set out below.
| a) | Market risk |
Market risk is the risk of loss that may arise from changes in market factors such as foreign currency exchange, interest rates and equity price risk.
Foreign currency risk:
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company and its subsidiaries are exposed to currency risk as it has transactions denominated in currencies that are different from their functional currencies. The Company does not hedge its exposure to fluctuations in foreign exchange rates.
As at September 30, 2023, the Company’s significant foreign exchange currency exposure on its financial instruments, expressed in USD was as follows:
If the CAD strengthened or weakened against the USD by 10% the exchange rate fluctuation would impact net loss by $1,229,491 at September 30, 2023 (December 31, 2022 - $30,435).
Interest rate risk:
Interest rate risk is the risk that future cash flows will fluctuate because of changes in market interest rates. The interest earned on cash is insignificant and the Company does not rely on interest income to fund its operations. The Company does not have significant debt facilities and is therefore not exposed to interest rate risk.
Other price risk:
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company does not hold equity investments in other entities and therefore is not exposed to a significant risk.
| b) | Credit risk |
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.
The Company is subject to credit risk on its cash and amounts receivable which consists primarily of trade receivables and GST receivable and notes and amounts receivable for equity issued. The Company limits its exposure to credit loss on cash by placing its cash with a high-quality financial institution. Exposure to credit loss notes and amounts receivable for equity issued is limited by entering into these types of transactions with related parties and entities that are well known to the Company.
| 25 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Condensed Consolidated Interim Financial Statements
For the nine months ended September 30, 2023 and 2022
(Expressed in U.S. dollars)
(Unaudited)
| 22. | Financial Instruments and Risk Management (continued) |
The Company only has two customers. The Company mitigates credit risk by evaluating the creditworthiness of customers prior to conducting business with them and monitoring its exposure for credit losses with existing customers. One of the customers is the largest oil refinery in Turkey. The other customer provides letters of credit to be used by the Company in the event of default. As at September 30, 2023, all of the Company’s trade receivables are current (< 30 days outstanding).
The Company’s maximum credit exposure is $2,669,560 (December 31, 2022 - $5,263,886).
| c) | Liquidity risk |
Liquidity risk arises from the Company’s general and capital financing needs. The Company continuously monitors and reviews both actual and forecasted cash flows, and also matches the maturity profile of financial assets and liabilities, when feasible. The Company anticipates increases in revenue in future periods resulting from the completion of an additional well subsequent to the period end. Historically, the Company’s sources of funding has been through equity and debt financings. The Company’s access to financing is uncertain. There can be no assurance of continued access to significant debt or equity funding.
The table below summarizes the maturity profile of the Company’s contractual cashflows.
| As at September 30, 2023 | Less than 1 year | 1 – 2 years | Later than 2 years | Total | ||||||||||||
| Accounts payable and accrued liabilities | $ | 14,429,291 | $ | $ | - | $ | 14,429,291 | |||||||||
| Loans payable | 2,753,567 | 610,267 | - | 3,363,834 | ||||||||||||
| Lease liability | 27,395 | 167,477 | - | 194,872 | ||||||||||||
| RSU obligation | 95,360 | - | - | 95,360 | ||||||||||||
| Convertible debt | 592,005 | 9,644,009 | - | 10,236,014 | ||||||||||||
| Total liabilities | $ | 17,897,618 | $ | 10,421,753 | $ | - | $ | 28,319,371 | ||||||||
| As at December 31, 2022 | Less than 1 year | 1 - 2 years | Later than 2 years | Total | ||||||||||||
| Accounts payable and accrued liabilities | $ | 10,600,080 | $ | - | $ | - | $ | 10,600,080 | ||||||||
| Loans payable | 145,866 | 20,689 | - | 166,555 | ||||||||||||
| Lease liability | 4,807 | 4,807 | - | 9,614 | ||||||||||||
| RSU obligation | 295,747 | - | - | 295,747 | ||||||||||||
| Derivative liability | - | 4,827 | - | 4,827 | ||||||||||||
| Total liabilities | $ | 11,046,500 | $ | 30,323 | $ | - | $ | 11,076,823 | ||||||||
| 23. | Subsequent Events |
Subsequent to September 30, 2023, the Company issued common shares pursuant to the following:
| ● | 1,257,450 common shares relating to the vesting of RSUs. |
On November 28, 2023, the Company completed a short form prospectus, issuing 36,057,934 common shares of the Company at a price of $0.30 CAD (approximately US$0.22) per common share for aggregate gross proceeds of $10,817,380 CAD (approximately US$7,896,474).
Cash finder’s fee of $630,518 CAD ($460,266 USD) were paid and 2,101,726 finder’s warrants were issued. The finder’s warrants are exercisable to purchase one common share of the Company at an exercise price of $0.30 CAD (approximately USD$0.22) until November 28, 2025.
| 26 |
Exhibit 99.2
TRILLION ENERGY INTERNATIONAL INC.
MANAGEMENT’S DISCUSSION & ANALYSIS
For the three and nine months ended September 30, 2023 and 2022
(Stated in United States dollars)
TRILLION ENERGY INTERNATIONAL INC.
MANAGEMENT DISCUSSION & ANALYSIS
For the three and nine months ended September 30, 2023 and 2022
(Expressed in United States Dollars)
This Management’s Discussion & Analysis (“MD&A”) of financial condition and results of operations of Trillion Energy International Inc. (“Trillion Energy” or the “Company”) for the three and nine months ended September 30, 2023 and 2022 should be read in conjunction with the unaudited condensed consolidated interim financial statements and notes for the three and nine months ended September 30, 2023 and 2022 and the audited consolidated financial statements and notes together with the MD&A for the year ended December 31, 2022 and 2021. This MD&A was prepared effective November 29, 2023.
Unless otherwise noted, all currency amounts are in US dollars. The unaudited condensed interim consolidated financial statements for the quarter ended September 30, 2023, are prepared in accordance with IFRS.
Certain measures in this MD&A do not have any standardized meaning prescribed under IFRS and therefore are considered non-GAAP financial measures. Readers are cautioned that this MD&A should be read in conjunction with Trillion’s disclosure under the headings “Non-GAAP and Other Financial Measures” and “Forward Looking Statements” at the end of this MD&A.
Overview
Trillion Energy International Inc. and its consolidated subsidiaries, (collectively referred to as the “Company”) is a Canadian based oil and gas exploration and production company with operations primarily in Turkiye. The Company’s shares trade on the Canadian Securities Exchange under the symbol “TCF” where it was recently added the CSE 25 Index. The Company also trades on the OTCQB under the symbol “TRLEF” and the Frankfurt exchange under the symbol Z620. A class of the Company’s warrants trade on the CSE under the symbol TCF.WT.
The Company is focused on oil and gas exploration in Turkiye. During the year, it had drilled six successful development gas wells at its conventional natural gas project, the SASB gas field located in the Black Sea, Turkiye, where it has initiated a multi-well development program. Trillion has a 49% interest in the SASB gas field. In addition, the Company produces oil from the Cendere field in Turkiye, a long-term low decline oil field where it holds a 19.6% (except three wells with 9.8%) interest.
The Company recently entered into a farm-in agreement on three oil exploration blocks (M47, M46c,d) (the “Oil Blocks”) totalling acres 374,325 within the newly defined Cudi-Gabar petroleum province, Southeastern Turkiye. The Company is currently negotiating a joint operating agreement in respect of the Oil Blocks..
Strategic Focus
Trillion’s strategy is to increase production and reserves at its 12,385 hectare SASB natural gas field and capitalize on high regional gas prices to generate cash flow and build shareholder value through a multi-well drilling program.
After drilling five successful long reach directional wells and one re-completion at SASB, Trillion will continue to perform several new perforations of existing wells and install pumps, gas lift and the like, to optimize production and reduce well downtime.
Trillions short term focus is on increasing production on the existing six wells, to achieve parity with past well performance at the SASB gas field. As in most oil and gas fields, the past production history is a useful analog for predicting future production trends and results, and as such, our focus is on repeating the production rates previously achieved from the eight legacy wells drilled over 10 years ago. The pre-2022 production history of the legacy wells at the three tripod gas fields, Akkaya, East Ayazli and Ayazli were evaluated and assumed to represent a middle case for Trillion’s 5 newly drilled wells and the one re-completion. The historic tripod production averaged 15.4 MMcf/d for 34 months (gross), after which production went into a hyperbolic decline and averaged a daily production of 12.95 MMcf/d for the next 12 months, and averaged a daily production of 6.88 MMcf/d for the following 12 months, and 4.1 MMcf/d for the next 12 months and then continued for a few more years at >2 MMcf/d.
 | 2 |
Once optimization of the existing wells are completed which is expected over the next few months, the next Phase of development is expected to resume during the last half of 2024 and which includes several re-entry wells, where pumps will be installed and or sidetrack well extensions drilled, or a combination of both.
Trillion is currently undertaking work programs to optimize production and reduce downtime on the SASB Field to ensure all 6 previously drilled and completed wells are able to produce concurrently and with less than 90% downtime on a managed basis.
During October 2023, additional perforations to existing wells were made and a booster compressor was added to the field to reduce back pressure for gas entering the Cayagzi gas processing facility. During November, 2023, the Company received a report from a third party consulting firm on how to increase production on the six wells. The Company is evaluating the report and intends to put many of the recommendations into action plans.
On For the 2024 SASB drilling program, five sidetrack wells have been engineered and are drill ready. These wells are expected to be drilled first, followed by several stratigraphic exploration prospects. New re-processing of 3D seismic is expected to be completed by October 2023 to facilitate the 2024 drilling program. The new 3D seismic re-processing is expected to define stratigraphic exploration targets as well as to delineate reserves in structural traps.
In addition, the Company has entered into a farm-in agreement with Derkim Poliüretan Sanayi ve Ticaret A.S. to earn a 50% working & revenue interest in three oil exploration blocks (the “Oil Blocks”) comprised of 151,484 hectares (374,325 acres) within the newly defined Cudi-Gabar petroleum province, Southeastern Turkiye. To earn the 50% the Company must acquire 351 km of 2D seismic in 2023 and drill 4 wells in 2024.
FINANCIAL AND OPERATING SUMMARY
| As at and Three Months Ended September 30, | As at and Nine Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Financial | ||||||||||||||||||||||||
| (Expressed in $000’s, unless otherwise indicated) | ||||||||||||||||||||||||
| Natural gas and oil sales | 5,028 | 1,078 | 366 | 14,075 | 3,589 | 292 | ||||||||||||||||||
| Cash flows (used in) from operating activities | (3,019 | ) | 328 | (1,021 | ) | (2,309 | ) | (5,471 | ) | (58 | ) | |||||||||||||
| Net (loss)/income | 7,388 | (2,465 | ) | (400 | ) | 7,332 | (4,350 | ) | (269 | ) | ||||||||||||||
| Per share - basic and diluted | 0.09 | (0.03 | ) | N/A | 0.09 | (0.07 | ) | N/A | ||||||||||||||||
| Capital expenditures | 3,374 | 13,192 | (74 | ) | 20,852 | 13,352 | 56 | |||||||||||||||||
| Working capital (deficit)/surplus | (11,968 | ) | 14,546 | (182 | ) | (11,968 | ) | 14,546 | (182 | ) | ||||||||||||||
| Weighted average shares outstanding – basic | 77,841,478 | 74,306,382 | N/A | 77,314,593 | 58,056,336 | N/A | ||||||||||||||||||
| Weighted average shares outstanding – diluted | 78,404,758 | 74,306,382 | N/A | 78,019,169 | 58,056,336 | N/A | ||||||||||||||||||
| Operations | ||||||||||||||||||||||||
| Average daily production | ||||||||||||||||||||||||
| Crude oil (bbls/d) | 86 | 109 | (21 | ) | 84 | 101 | (17 | ) | ||||||||||||||||
| Natural gas (Mcf/d) | 2,570 | 49 | 5,168 | 3,063 | 108 | 2,743 | ||||||||||||||||||
| Average daily production (boe/d) | 515 | 117 | 341 | 594 | 119 | 402 | ||||||||||||||||||
| Average realized prices | ||||||||||||||||||||||||
| Crude oil ($/bbl) | 140.14 | 100.15 | 40 | 93.75 | 113.20 | (17 | ) | |||||||||||||||||
| Natural gas ($/mcf) | 16.57 | 17.27 | (4 | ) | 14.26 | 16.40 | (13 | ) | ||||||||||||||||
| Operating netback (Expressed in $000’s, unless otherwise indicated) | ||||||||||||||||||||||||
| Natural gas and oil sales | 5,028 | 1,078 | 367 | 14,075 | 3,589 | 292 | ||||||||||||||||||
| Royalties | (521 | ) | (153 | ) | 242 | (1,938 | ) | (408 | ) | 374 | ||||||||||||||
| Production expenses | (956 | ) | (495 | ) | 93 | (1,454 | ) | (1,596 | ) | (9 | ) | |||||||||||||
| Operating netback | 3,551 | 430 | 725 | 10,683 | 1,585 | 574 | ||||||||||||||||||
| Operating netback margin (%) | 70.6 | 39.9 | 77 | 75.9.7 | 44.1 | 72 | ||||||||||||||||||
Notes:
| (1) | See “Non-GAAP and Other Financial Measures” section within this MD&A. |
| (2) | Per share amounts are based on weighted average shares outstanding other than dividends per share, which is based on the number of common shares outstanding at each dividend record date. The weighted average number of diluted common shares outstanding in the computation of funds flow from operations and cash flows from operating activities per share is the same as for net income per share. |
| 3 |
FINANCIAL AND OPERATING HIGHLIGHTS ($USD)
| ● | During Q3 the Company completed its six well drilling program and is now focused on improving production from the six production wells through pump installation, gas lift and other engineering tweaks | |
| ● | Gross gas production to Trillion for the SASB gas field averaged 5.46 MMcf/d (100% interest before royalties) in Q3 2023, a decrease of 2.7 MMcfd (33%) compared to Q2 2023 (8.16 MMcfd). | |
| ● | By the end of Q3 2023, the Company had 6 producing wells online and an average Q3 2023 production rate of 5.46 MMcf/d (100% interest). Each well produced for an average of 2 months during the quarter representing 49% downtime on average due to water loading and pipeline pressure imbalances which the Company intends to remedy through pump installation and gas lift in the near term targeting to reduce well downtime to under 10% . | |
| ● | Total Q3 2023 revenue of US $5.0 million (C$6.7 million) an increase of 367% from Q3 2022. | |
| ● | Operating income of US$243,551 for the three months ended September 30, 2023, compared to an operating loss of US$3,045,737 for the three months ended September 30, 2022. | |
| ● | For the 3 months ended September 30, 2023, oil and gas capital expenditures totaled $3.4 million, net of JV contributions, and including well costs for Alapi-2 wells, seismic reprocessing costs and long-lead purchases. | |
| ● | During Q3 2023, the Company completed a share consolidation of its outstanding common shares on the basis of five (5) pre-consolidation common Shares for one (1) post-consolidation common share. | |
| ● | Subsequent to the quarter end, the Company completed a CAD $10.8 million-dollar financing and conducted additional perforations of West Akcakoca and South Akcakoca wells |
NATURAL GAS AND OIL PROPERTIES
Turkiye
The Company primarily operates in Turkiye, where it owns varying interests in two key assets; a natural gas field located in the South Akcakoca Sub-Basin (“SASB” or the “SASB Gas Field”) and an interest in the producing Cendere oil field (“Cendere”). The SASB Gas Field is a producing shallow water development to which the Company is currently focused on increasing production by drilling new wells. Cendere is a mature long-term low decline oil field.
SASB
The Company’s interest in SASB is 49%. SASB is made up of >10 discrete natural gas fields, four production platforms plus 18 kilometers of subsea pipelines connecting the gas fields to an onshore gas processing facility. SASB is located off the Southwest coast of Turkiye in the Black Sea, approximately 14 kilometres from shore in water depth of less than 100 meters. Total gross production to date is over 44 billion cubic feet (“Bcf”).
| 4 |
In Q2 2023, the Company successfully drilled the Bayhanli-2 well which discovered 43 metres of gas pay. Eight intervals of gas pay with a true thickness of about 21 metres were perforated and tested at a combined rate of 11.9 MMcf/d (gross 100% interest). Bayhanli-2 entered production with an initial rate of 8.0 MMcf/d (gross 100% interest).
In Q3, the Company put on production the Alapi-2 well, which was a twin of an unproduced exploration well with significant reserves. Alapi-2 discovered 40+ metres of gas pay and flow tested at an initial rate of 8.7 MMcf/d (gross 100% interest).
The Company has now successfully drilled 5 wells and re-entered one well as part of its multi well drilling program and is currently optimizing production through engineering tweaks to reduce well downtime at the field. The Company believes that its current downtime rate of 58% can be reduced to less than 10% with pump and or gas lift installation thereby significantly increasing overall production for future quarters.
Cendere
The Company has a 19.6% interest in the Cendere oil field located in Southeast Turkiye all except certain wells. At September 30, 2023, the gross oil production rate for the producing wells in Cendere was 595 bbls/day (barrels per day); the average daily 2023 Q3 gross production rate for the field was 573 bbls/day. At the end of September 2023, oil was sold at a price of approximately US$99 per barrel (“bbl”). At September 30, 2023, the Cendere field was producing 90 barrels of oil per day net to the Company; and averaged 86 barrels per day during Q3 2023 net to the Company. On October 13, 2022, the joint production lease the Company holds in the region was extended to July 6, 2031.
RESULTS OF OPERATIONS
Sales Volumes
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Total sales volumes by product | ||||||||||||||||||||||||
| Natural gas (Mcf) | 236,445 | 4,488 | 5,168 | 836,274 | 29,412 | 2,743 | ||||||||||||||||||
| Oil (bbls) | 7,928 | 9,988 | (21 | ) | 22,885 | 27,449 | (17 | ) | ||||||||||||||||
| Total sales (boe) | 47,336 | 10,736 | 341 | 162,264 | 32,351 | 402 | ||||||||||||||||||
| Average daily sales by product | ||||||||||||||||||||||||
| Natural gas (Mcf/d) | 2,570 | 49 | 5,168 | 3,063 | 108 | 2,743 | ||||||||||||||||||
| Oil (bbl/d) | 86 | 109 | (21 | ) | 84 | 101 | (17 | ) | ||||||||||||||||
| Average daily sales (boe/d) | 515 | 117 | 341 | 594 | 119 | 402 | ||||||||||||||||||
Average daily sales increased to 515 boe/d, 341% higher than Q3 2022.
Well Operational Efficiency
| Gross Well Production (MMcf) (100%) | Jan. 2023 | Feb. 2023 | Mar. 2023 | Apr. 2023 | May 2023 | Jun. 2023 | ||||||||||||||||||
| Total Production | 177.50 | 156.91 | 188.29 | 254.38 | 169.96 | 318.66 | ||||||||||||||||||
| Gross Well Production (MMcf) (100%) | Jul. 2023 | Aug. 2023 | Sept. 2023 | |||||||||||||||||||||
| Total Production | 150.12 | 269.49 | 79.38 | |||||||||||||||||||||
| 5 |
During Q3 2023, water loading caused excessive well downtime at 49%. The Company is actively working on solutions to the production issues, including the potential installation of a gas lift, pumps (ESP, PCP or plunger) to improve well productivity. The following chart illustrates the productivity of the wells relative to downtime:
| Well | On Days | Total Days in Q3 | % Up Time | % Downtime | ||||||||||||
| S.AKC-2 | 3 | 92 | 3 | % | 97 | % | ||||||||||
| W.AKC-1 | 69 | 92 | 75 | % | 25 | % | ||||||||||
| AKC-3 | 1 | 92 | 1 | % | 99 | % | ||||||||||
| GUL-2 | 81 | 92 | 88 | % | 12 | % | ||||||||||
| ALA-2 | 63 | 92 | 68 | % | 32 | % | ||||||||||
| BAY-2 | 65 | 92 | 71 | % | 29 | % | ||||||||||
| Total | 282 | 552 | 51 | % | 49 | % | ||||||||||
Average Realized Sales Prices
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Average realized prices | ||||||||||||||||||||||||
| Natural gas ($/Mcf) | 16.57 | 17.27 | (4 | ) | 14.26 | 16.40 | (13 | ) | ||||||||||||||||
| Oil ($/bbl) | 140.14 | 100.15 | 40 | 93.75 | 113.20 | (17 | ) | |||||||||||||||||
| (1) | See “Non-GAAP and Other Financial Measures” section within this MD&A. |
Natural gas is currently being sold at about US$12.2/Mcf domestically in Turkiye. The average monthly natural gas sale price during Q3 2023 as calculated using our reported revenue was approximately US$16.57 per Mcf. Our reported revenue for Q3 2023 include adjustments due to hyperinflation accounting which adjusts revenue previously reported during Q1 and Q2 2023. Excluding the impact of hyperinflation from prior quarters impacting Q3 revenue, the average natural gas sale price during Q3 would have been approximately US$10.10 per Mcf. Gas prices increased in Q3 compared to Q2 2023 by 20% mainly due to seasonal factors.
Oil sales from the Cendere field are sold at Brent. The average monthly oil sale price during Q3 2023 as calculated using our reported revenue was approximately US$140.14 per bbl. Our reported revenue for Q3 2023 include adjustments due to hyperinflation accounting which adjusts revenue previously reported during Q1 and Q2 2023. Excluding the impact of hyperinflation from prior quarters impacting Q3 revenue, the average oil sale price during Q3 would have been approximately US$89.2 per bbl.
Natural Gas and Oil Sales Revenue
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Natural gas | 3,917,095 | 77,490 | 4,955 | 11,929,382 | 482,217 | 2,374 | ||||||||||||||||||
| Oil | 1,111,029 | 1,000,280 | 11 | 2,145,495 | 3,107,151 | (31 | ) | |||||||||||||||||
| Total revenues | 5,028,124 | 1,077,770 | 367 | 14,074,877 | 3,589,368 | 292 | ||||||||||||||||||
Trillion’s total revenues increased by $3,950,354 and $10,485,509 for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022, respectively. The increase is primarily due to an increase in the natural gas revenues due to continued production from Akcakoca South-2 and the Akcakoca-3 wells. In addition, the West Akcakoca 1, Guluc-2 and Bayhanli-2 wells entered production.
| 6 |
Royalties
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Royalties | 520,852 | 152,384 | 242 | 1,937,727 | 408,913 | 374 | ||||||||||||||||||
| Royalties per boe ($)(2) | 11.00 | 14.19 | (22 | ) | 11.94 | 12.64 | (6 | ) | ||||||||||||||||
| Royalties as a % of sales | 9.39 | 12.39 | (24 | ) | 12.10 | 10.23 | 18 | |||||||||||||||||
| (1) | See “Non-GAAP and Other Financial Measures” section within this MD&A. |
| (2) | Trillion’s oil and gas sales are subject to a 12.5% flat royalty rate. Variances may in royalty expense realized as a result of hyperinflation accounting being applied. |
Production Expenses
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Production Expenses | 1,476,757 | 647,464 | 128 | 3,392,343 | 2,004,869 | 69 | ||||||||||||||||||
Production expenses increased by $829,293 and $1,387,474 for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022, respectively. This is a result of the Company commencing production on newly drilled wells in Q1 of 2022 and a corresponding increase in total production year over year.
Operating Netback
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Operating netback | ||||||||||||||||||||||||
| Natural gas and oil sales | 5,028,124 | 1,077,770 | 367 | 14,074,877 | 3,589,368 | 292 | ||||||||||||||||||
| Royalties | (520,852 | ) | (152,384 | ) | 242 | (1,937,727 | ) | (408,913 | ) | 374 | ||||||||||||||
| Production expenses (excluding royalties) | (955,905 | ) | (495,080 | ) | 93 | (1,454,616 | ) | (1,595,956 | ) | (9 | ) | |||||||||||||
| Operating netback | 3,551,367 | 430,306 | 725 | 10,682,534 | 1,584,499 | 574 | ||||||||||||||||||
| Total sales volume (boe) | 47,336 | 10,736 | 341 | 162,264 | 32,351 | 402 | ||||||||||||||||||
| Operating netback (per boe) | 75.03 | 40.08 | 87 | 65.83 | 48.98 | 34 | ||||||||||||||||||
| Operating netback (%) | 70.6 | 39.9 | 77 | 75.9 | 44.1 | 72 | ||||||||||||||||||
| (1) | See “Non-GAAP and Other Financial Measures” section within this MD&A. |
The Company’s operating netback increased by 725% in Q3 2023 compared to Q3 2022 due to increased production.
General and Administrative (“G&A”) Expenses
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| G&A expenses, by type: | 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | ||||||||||||||||||
| Personnel | 1,634,949 | 899,991 | 82 | 4,244,413 | 2,431,533 | 75 | ||||||||||||||||||
| Office and other | 214,673 | 851,061 | (75 | ) | 555,396 | 1,663,069 | (61 | ) | ||||||||||||||||
| Professional and consulting | 106,447 | 174,869 | (39 | ) | 654,034 | 525,971 | 6 | |||||||||||||||||
| Gross G&A | 1,956,069 | 1,925,921 | 2 | 5,453,843 | 4,620,573 | 18 | ||||||||||||||||||
| Capitalized G&A | - | - | - | - | - | - | ||||||||||||||||||
| G&A expenses | 1,956,069 | 1,925,921 | 2 | 5,453,843 | 4,620,573 | 18 | ||||||||||||||||||
Overall gross G&A expenses for the three and nine months ended September 30, 2023 were higher than the three and nine months ended September 30, 2022 by 2% and 18%, respectively, due to higher activity levels and production ramping up at SASB.
| 7 |
Depletion and Depreciation
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Depletion expense | 571,183 | 62,888 | 808 | 3,510,104 | 211,761 | 1,558 | ||||||||||||||||||
| Depreciation expense | 47,095 | 12,541 | 276 | 173,342 | 56,517 | 207 | ||||||||||||||||||
| Depletion and depreciation expense | 618,278 | 75,429 | 720 | 3,683,446 | 268,278 | 1,273 | ||||||||||||||||||
For the three months ended September 30, 2023, depletion increased by $508,295 as a result of changes to estimates in reserve reports that increased the depletion base of the O&G asset. Depreciation increased by $34,554 primarily as a result of additions made to property and equipment during the period.
For the nine months ended September 30, 2023, depletion increased by $3,298,343 as a result of changes to estimates in reserve reports that increased the depletion base of the O&G asset. Depreciation increased by $116,825 primarily as a result of additions made to property and equipment during the period.
Share-Based Compensation Expense
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Share based compensation expense | 599,493 | 1,410,291 | (57 | ) | 1,750,326 | 1,495,012 | 17 | |||||||||||||||||
For the three and nine months ended September 30, 2023, the Company recorded stock-based compensation of $599,493 and $1,750,326, respectively, compared to $1,410,291 and $1,495,012 for the three and nine months ended September 30, 2022, respectively, related to the vesting of stock options and RSU’s during the period.
Finance costs
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Interest on convertible debentures | 340,178 | - | 100 | 598,975 | - | 100 | ||||||||||||||||||
| Accretion on convertible debentures | 210,150 | - | 100 | 367,363 | - | 100 | ||||||||||||||||||
| Interest on loans and other | 91,731 | 118 | 77,638 | 208,494 | 28,426 | 633 | ||||||||||||||||||
| Accretion on loans and other | 99,822 | 22,649 | 341 | 302,163 | 52,097 | 480 | ||||||||||||||||||
| Financing bonuses | - | - | - | 50,000 | - | 100 | ||||||||||||||||||
| Finance costs | 741,881 | 22,767 | 3,159 | 1,526,995 | 80,523 | 1,796 | ||||||||||||||||||
Finance costs increased for the three and nine months ended September 30, 2023 due to the Company closing a Convertible Debenture financing in April 2023, bearing interest at 12.0% per annum, resulting in interest and accretion being recognized in the current periods. Pursuant to the closing of the convertible debenture financing, the Company also recognized a bonus to the CEO of the Company. There were no such convertible debenture financing in the comparable periods. Further, the Company entered into and paid off a loan during the current period resulting in the recognition of mandatory interest and exit fees pursuant to the loan agreement. The Company also entered into additional loans during the period which remain outstanding as at September 30, 2023. These loans also resulted in the recognition of mandatory interest.
Other (Expenses)/Income
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Other (Expenses)/Income | 7,144,315 | 580,862 | 1,130 | 8,029,936 | 596,867 | 1,245 | ||||||||||||||||||
For the three months ended September 30, 2023, other income increased primarily due to a $10,625,159 gain recognized as a result of hyperinflationary accounting. This is partially offset by a foreign exchange loss of $1,892,112 recognized in the period as a result of the weakening Turkish currency compared to the US dollar. In the comparable period, other income primarily consisted of a foreign exchange gain of $907,864 partially offset by a provision for settlement of $379,919, resulting from the settlement of certain obligations to a former director.
| 8 |
For the nine months ended September 30, 2023, other income increased primarily due to a $17,138,843 gain recognized as a result of hyperinflationary accounting. This is partially offset by a foreign exchange loss of $6,765,374 recognized in the period as a result of the weakening Turkish currency compared to the US dollar. In the comparable period, other income primarily consisted of a foreign exchange gain of $1,236,484 partially offset by a loss on the change in fair value of derivative liabilities of $294,373 and a provision for settlement of $379,919.
Net (loss)/income
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | |||||||||||||||||||
| Net (loss)/income | 7,387,866 | (2,464,875 | ) | (400 | ) | 7,332,132 | (4,349,804 | ) | (269 | ) | ||||||||||||||
| Per share - basic and diluted | 0.09 | (0.03 | ) | 0.09 | (0.07 | ) | ||||||||||||||||||
The net income for the three months ended September 30, 2023 increased by $9,852,741, with a net income of $7,387,866 recognized during the three months ended September 30, 2023 as compared to a net loss of $2,464,875 for the three months ended September 30, 2022. The change is primarily due to an increase in revenues of $3,950,354 as a result of increased drilling in the SASB fields starting in September 2022. Further, a $10,625,159 gain was recognized during the period as a result of hyperinflationary accounting in which the CPI of Turkey increased by 25%. This is partially offset by a foreign exchange loss of $1,892,112 recognized in Q3 2023 as a result of the weakening Turkish currency compared to the US dollar.
The net income for the nine months ended September 30, 2023 increased by $11,681,936, with a net income of $7,332,132 recognized during the nine months ended September 30, 2023 as compared to a net loss of $4,349,804 for the nine months ended September 30, 2022. The change is primarily due to an increase in revenues of $10,485,509 as a result of increased drilling in the SASB fields starting in September 2022. Further, a $17,138,843 gain was recognized during the period as a result of hyperinflationary accounting in which the CPI of Turkey increased by 50%. This is partially offset by a foreign exchange loss of $6,765,374 recognized in Q3 2023 as a result of the weakening Turkish currency compared to the US dollar.
Capital Expenditures
| Three Months Ended Sept. 30, | Nine Months Ended Sept. 30, | |||||||||||||||||||||||
| Capital Expenditures by Type | 2023 | 2022 | Change (%) | 2023 | 2022 | Change (%) | ||||||||||||||||||
| O&G | ||||||||||||||||||||||||
| Drilling, completions and well testing | 3,353,182 | 6,396,490 | (48 | ) | 20,267,588 | 6,396,490 | 217 | |||||||||||||||||
| Capitalized G&G | 18,770 | - | 100 | 406,831 | - | 100 | ||||||||||||||||||
| Other | 2,950 | 6,806,084 | (100 | ) | 116,771 | 6,806,084 | (98 | ) | ||||||||||||||||
| Total E&E | 3,374,902 | 13,202,574 | (74 | ) | 20,791,190 | 13,202,574 | 57 | |||||||||||||||||
| PP&E | ||||||||||||||||||||||||
| Leasehold improvements | (1,499 | ) | 14,755 | (110 | ) | 15,434 | 32,343 | (52 | ) | |||||||||||||||
| Other | 773 | (25,505 | ) | (103 | ) | 45,010 | 116,910 | (62 | ) | |||||||||||||||
| Total PP&E | (726 | ) | (10,750 | ) | (93 | ) | 60,444 | 149,253 | (60 | ) | ||||||||||||||
| Total Capital Expenditures | 3,374,176 | 13,191,824 | (74 | ) | 20,851,634 | 13,351,827 | 56 | |||||||||||||||||
| 9 |
summary of quarterly results
The financial information in the following tables summarizes selected financial information for the Company for the last eight quarters which was derived from annual financial statements prepared in accordance with IFRS for 2023 and in US GAAP for the prior periods and are expressed in United States dollars.
| Three months ended | Sep. 30, 2023 | Jun. 30, 2023 | Mar. 31, 2023 | Dec. 31, 2022 | Sept. 30, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Dec. 31, 2021 | ||||||||||||||||||||||||
| Revenue | 5,028,124 | 2,992,142 | 6,054,611 | 5,785,661 | 1,077,770 | 1,497,973 | 1,013,625 | 863,703 | ||||||||||||||||||||||||
| Net Operating Income (loss) | 243,551 | (1,057,730 | ) | 116,375 | (3,360,325 | ) | (3,045,737 | ) | (616,661 | ) | (1,284,273 | ) | (855,233 | ) | ||||||||||||||||||
| Net Income (Loss) | 7,387,866 | (2,280,386 | ) | 2,224,652 | (1,771,950 | ) | (2,464,875 | ) | 46,246 | (1,931,175 | ) | (2,897,691 | ) | |||||||||||||||||||
| Net Income (Loss) per Share (Basic and Diluted) | 0.09 | (0.03 | ) | 0.03 | (0.02 | ) | (0.03 | ) | 0.00 | (0.05 | ) | (0.08 | ) | |||||||||||||||||||
| Net and Comprehensive Income (Loss) | 6,528,318 | (13,628,606 | ) | 2,969,187 | (3,049,017 | ) | (4,096,807 | ) | (823,358 | ) | (1,789,064 | ) | (3,135,281 | ) | ||||||||||||||||||
Summary of Results During Prior Eight Quarters
Discussion of December 2021 to September 2023 Financial results
| ● | Net income increased for the three months ended September 30, 2023, by $9,668,252 compared to the three months ended June 30, 2023, from a net loss of $2,280,386 to a net income of $7,387,866. The change is primarily due a foreign exchange loss of $1,892,112 recognized in Q3 of as a result of the weakening Turkish currency compared to the US dollar. Further, a gain of $10,625,159 was recognized during Q3 as a result of hyperinflationary accounting compared to a gain of $3,804,714 for the three months ended June 30, 2023. |
| ● | Net loss increased for the three months ended June 30, 2023, by $4,505,038 compared to the three months ended March 31, 2023, from a net income of $2,224,652 to a net loss of $2,280,386. The change is primarily due a foreign exchange loss of $4,475,689 recognized in Q2 of as a result of the weakening Turkish currency compared to the US dollar. |
| ● | Net income increased for the three months ended March 31, 2023, by $3,996,602 compared to the three months ended December 31, 2022, from a net loss of $1,771,950 to a net income of $2,224,652. The change is primarily due an impairment charge of $3,101,343 recognized in Q4 of 2022 on the Bulgaria license due to inactivity and to an increase in revenues during the quarter due to production increases at the SASB gas fields. |
| ● | Net loss decreased for the three months ended December 31, 2022, by $692,925 compared to the three months ended September 30, 2022, from a net loss of $2,464,875 to a net loss of $1,771,950. The increase is primarily due to an increase in revenues during the quarter due to an increase in the price of oil and gas in 2022 compared to 2021 coupled with production increases at the SASB gas fields. |
| ● | Net loss increased for the three months ended September 30, 2022, by $2,511,121 compared to the three months ended June 30, 2022, from a net income of $46,246 to a net loss of $2,464,875. The increase is primarily due to $1,410,291 in stock-based compensation recognized in the three months ended September 30, 2022 as a result of the grant of options and accrual of RSUs compared to $Nil for the three months ended June 30, 2022. This is coupled with a decrease of $420,203 in revenue as a result of reduced gas production in the month of September. |
| ● | Net loss decreased for the three months ended June 30, 2022 by $1,977,421 compared to the three months ended March 31, 2022 from a net loss of $1,931,175 to a net income of $46,246. The decrease is primarily due to a loss from the change in fair value of derivative liabilities of $568,773 recognized for the three months ended March 31, 2022 compared to a gain of $207,603 from the change in fair value of derivative liabilities recognized for the three months ended June 30, 2022, representing a total change of $776,376. Foreign exchange rates also fluctuated such that a gain of $449,745 was recognized for the three months ended June 30, 2022 compared to a loss of $121,125 was recognized for the three months ended March 31, 2022. Revenues increased by $484,348 primarily as a result of fluctuating oil sales prices between Q1 2022 and Q2 2022. |
| ● | Net loss decreased for the three months ended March 31, 2022 by $966,516 compared to the three months ended December 31, 2021 from a net loss of $2,897,691 to a net loss of $1,931,175. The increase is primarily due to a loss from the change in fair value of derivative liabilities of $2,098,208 recognized for the three months ended December 31, 2021 and a loss of $568,773 from the change in fair value of derivative liabilities recognized for the three months ended March 31, 2022, representing a total change of $1,529,435. The loss from the change in the fair value of derivative liabilities for the quarter ended December 31, 2022 includes the adjustment for the prior period restatement – see Note 25 to the audited consolidated financial statements. |
| 10 |
liquidity and capital resources
The following table summarizes our liquidity position in USD:
| September 30, 2023 | December 31, 2022 | |||||||
| Cash | 758,694 | 926,061 | ||||||
| Working capital (deficit) | (11,967,922 | ) | (4,819,052 | ) | ||||
| Total assets | 53,850,571 | 37,018,219 | ||||||
| Total liabilities | 33,632,747 | 16,392,288 | ||||||
| Stockholders’ equity (deficiency) | 20,217,824 | 20,625,931 | ||||||
As at September 30, 2023, working capital deficit was $11,967,922 in comparison to a working capital deficit of $4,819,052 as at December 31, 2022. The $7,148,870 decrease in working capital is primarily attributable to a significant increase in O&G expenditures over the first nine months of 2023 for the six well drilling program concluding early July 31, 2023. The increase of $3,829,211 in accounts payable, increase of $2,607,701 in current loans payable all were incurred to pay for the work program. $592,005 in accrued interest on long-term convertible debt also became current during the period and which was paid in November 2023.
On April 20, 2023, the Company closed a convertible debenture unit offering for gross proceeds of CAD$15,000,000 with interest payable semi-annually at 12%. The Company made its first interest payment of CAD $962,487.38 on the convertible debt during November 2023.
To improve its working capital position, on November 28, 2023, the Company closed a short form prospectus offering issuing 36,057,934 common shares of the Company at a price of CAD$0.30 per common share for aggregate gross proceeds of CAD $10,817,380. (the “Offering”). The net proceeds of the offering, after deducting the Agent Fee and agent’s legal fees, sundry expenses and the expenses of the Offering payable by Trillion (including the reasonable expenses of the Agent) amounted to approximately CAD $10,000,000.
Trillion intends to use the net proceeds from the Offering As follows:
| $ CAD | ||||
| Paydown current liabilities and improve working capital balance | $ | 7,500,000 | ||
| SASB Optimization Program | $ | 1,600,000 | ||
| Other | $ | 900,000 | ||
| Total | $ | 10,000,000 |
Additional information about the Company’s plan in respect to its plan to reduce its working capital deficit are as follows.
Current liabilities include approximately USD $2,960,000 in amounts recorded to which the Company has determined may be eligible for offset under the applicable services contract to amounts owing from the supplier for a breach of the the services contract.
The Company has engaged in a payment plan with one supplier, who has extended USD $5 million trade credit and who will receive US $3.5m of the proceeds of the Offering and thereafter, defer receiving further payments until March 2024 and thereafter, will receive $500,000 per month, which the Company expects will be obtained from operating cashflows.
The Company is in the final stages of negotiating an oil and gas sales and production related loan for approximately USD $5 million dollars from a local party in Turkey. There is no guarantee that such a loan will occur as the loan is subject to further negotiations by parties. If the loan occurs, a portion of the proceeds will be used to pay down current liabilities. Additionally, the Company intends to use netbacks and net operating revenues / netbacks to paydown accounts payable as the company generates funds from its existing six wells.
| 11 |
Debenture Loan
In April 2022, the Company closed an offering of C$15.0 million in convertible debenture units. Each convertible debenture unit consisted of 1 convertible debenture (“Debenture”) in the principal amount of $1,000 and 333 common share purchase warrants (“Warrants”).
The Debentures have a maturity date of April 30, 2025 and bear interest at a rate of 12.0% per annum. The Debentures are convertible into common shares of the Company at a price of $3.00. Each Warrant is exercisable into one common share of the Company until June 29, 2025, at a price of $2.50.
Operating, Investing and Financing Activities
The chart below highlights the Company’s cash flows:
September 30, 2023 | September 30, 2022 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | (2,309,261 | ) | (5,470,698 | ) | ||||
| Investing activities | (11,212,352 | ) | (13,351,827 | ) | ||||
| Financing activities | 13,288,683 | 28,610,599 | ||||||
| Effect of exchange rate on cash and cash equivalents | 65,563 | 818,976 | ||||||
| (Decrease)/Increase in cash, cash equivalents, and restricted cash | (167,367 | ) | 10,607,050 | |||||
Cash Used in Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2023, was $2,309,261, compared to $5,470,698 cash used in operating activities for nine months ended September 30, 2022. The current period net income of $7,332,132 was coupled with $82,959 in changes in working capital items and offset by $9,724,352 in net non-cash items for the nine months ended September 30, 2023. This compares to a net loss of $4,349,804, coupled with $3,709,547 in changes in working capital items and partially offset by $2,588,653 in net non-cash items for the nine months ended September 30, 2022.
Cash Used in Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2023, was $11,212,352 compared to $13,351,527 used for the nine months ended September 30, 2022. Oil and gas properties expenditures increased to $20,791,190 from $13,202,574 in the comparative period and property and equipment expenditures decreased to $60,444 from $149,253 in the comparative period.
Cash Provided by Financing Activities
We have funded our business to date from sales of our common stock through private placements, convertible debt financings, and loans from shareholders.
Net cash provided by financing activities for the nine months ended September 30, 2023, was $13,288,683, compared to $28,610,599 for the nine months ended September 30, 2022. Cash provided by financing activities in the current period was primarily related to $10,359,397 in gross proceeds from convertible debt financing net of transaction costs, $4,833,409 in proceeds from loans entered into in the period, and $545,079 in proceeds for the issuance of stock related to option exercises. This is partially offset by loan and lease repayments. In the comparative period cash from financing activities was primarily related to $29,171,862 in proceeds, net of stock issuance costs, for the issuance of stock related to private placements and warrant and option exercises offset by note repayments.
| 12 |
In April 2022, the Company closed an offering of C$15.0 million in convertible debenture units. Each convertible debenture unit consisted of 1 convertible debenture (“Debenture”) in the principal amount of $1,000 and 333 common share purchase warrants (“Warrants”).
The Debentures have a maturity date of April 30, 2025 and bear interest at a rate of 12.0% per annum. The Debentures are convertible into common shares of the Company at a price of $3.00. Each Warrant is exercisable into one common share of the Company until June 29, 2025, at a price of $2.50.
Future Operating Requirements
The Company has completed its’ 12-month 2022-2023 drilling program and is currently focusing on improving production from its existing six wells at SASB, as well as reducing its overhead costs and improving efficiencies. The major drivers of future operating requirements are the components of the Company’s 2024 capital program, which includes the Oil Blocks as well as the Phase II work program at the SASB gas field. The 2024 Capital program extent will largely be determined by the availability of additional capital resources. The Company is pursuing non-dilutive capital sources to Company, in respect to several of its exploration and development assets held.
As of September 30, 2023, the Company had unrestricted cash of $758,694 and current liabilities of $17,897,618. The Company intends to pay down the current liabilities through the net proceeds of the Offering (approximately CAD $10,000,000), contractual offset of up to US $2.9 million of trade payables, future cashflows from netbacks on its oil and gas properties, trade credit extended by suppliers, , the sale of US $2 million in inventory and a potential $5 million line of credit that the company is currently negotiating.
The Company expects that natural gas production revenues will significantly increase once the SASB optimization program is substantially complete thus providing additional means of providing funds for future operating requirements, the cost of which we estimate to be CAD $1.6 million.
Based on the above information and plan, we believe that we have sufficient funds to meet our minimum operational requirements for the next 12 months including the payment of our current liabilities/payables.
The timing of commencing Phase II development program at SASB for new wells is dependent upon when the best selection of future gas wells can be made, availability of a drilling rig and also when optimization of production from existing wells will occur thereby increasing production.
Our current plan is to commence the Phase II development program in Q3 2024, however, we may commence certain operations earlier that do not require a drilling rig, such as recompletions and pump installation. The Phase II development program is expected to cost approximately $11,600,000 incurred within the next 12 months, remainder thereafter.
The Company also is planning to conduct seismic on the Oil Blocks and to drill up to three wells. As no proceeds were allocated from the Offering to these activities, these activities are entirely subject to receiving additional funds for same and may also be contributed to and paid for through cashflows, as such funds become available. Each oil exploration well is expected to cost $2.5 to $3 million and seismic between USD $4 and 6 million.
As a result of recent gas prices trending downwards and production engineering challenges including unexpected well downtime increases, we have generated less revenue than previously expected from our initial wells.
Management is confident that the current production challenges may successfully be addressed through various engineering tweaks and strategies to increase and maintain more consistent production rates to increase revenues and production. As such, our future operating requirements are substantially dependent upon the timing and success of increasing current production from the existing wells to parity to well analogs drilled historically at the SASB gas field.
| 13 |
Based on our current plan of operations over the next 12 months (October 2023 to September 2024), as above, our current minimum and maximum capital requirements are as below:
| CAPEX Item | Minimum | Maximum | ||||||
| SASB Optimization of 6 wells | $ | 1.3 | $ | 1.3 | ||||
| SASB 5 Well Development Program | $ | 2 | (1) | $ | 11.6 | (2) | ||
| Oil Block | $ | - | (3) | $ | 15 | (4) | ||
| Total | $ | 3.3 | m | $ | 27.9 | m | ||
| (1) | New development through three re-entries without new drilling |
| (2) | New development includes three re-entries and two wells re-entered and drilled with sidetrack wellbore |
| (3) | No work on oil property |
| (4) | Includes three wells and seismic on oil property. |
Our cash on hand of $758,694 along with future revenue generated from existing wells at SASB, assuming we successfully implement our intended production increases are anticipated to cover a significant part of the cost of improving our working capital deficit and future capital program works. Any cash deficit will have to be resolved through cashflow from operations, trade credit, future debt and or equity raises.
RECONCILIATION OF USE OF PROCEEDS FROM FINANCING ACTIVITIES
The following table sets out a comparison of how the Company intended to use the net proceeds from the convertible debenture financing completed on April 20, 2023, and its actual use of proceeds as at September 30, 2023, as well as an explanation of variances and the impact of variances on the ability of the Company to achieve its business objectives and milestones.
| Intended Use of Proceeds of financing (CAD) | Actual Use of Proceeds (CAD) | Variance – (Over) / Under Expenditure (CAD) | Explanation of Variance and Impact on Business Objectives | |||||||||||
| Capital Expenditures/working capital/general corporate expenses and offering costs | $ | 15,000,000 | $ | 15,000,000 | N/A | The Company is on track with expected capital expenditures. | ||||||||
| Total | $ | 15,000,000 | $ | 15,000,000 | - | |||||||||
The following table sets out a comparison of how the Company intended to use the net proceeds from the short form prospectus completed on June 29, 2022, and its actual use of proceeds as at September 30, 2023, as well as an explanation of variances and the impact of variances on the ability of the Company to achieve its business objectives and milestones.
| Intended Use of Proceeds of financing (USD) | Actual Use of Proceeds (USD) | Variance – (Over) / Under Expenditure (USD) | Explanation of Variance and Impact on Business Objectives | |||||||||||
| Initial Drilling Program (development of SASB gas fields) and offering costs | $ | 17,920,000 | $ | 17,920,000 | N/A | The Company is on track with expected capital expenditures. | ||||||||
| General working capital purposes | 279,962 | 279,962 | N/A | The Company is on track with expected capital expenditures. | ||||||||||
| Total | $ | 18,199,962 | $ | 18,199,962 | - | |||||||||
| 14 |
TRANSACTIONS WITH RELATED PARTIES
As at September 30, 2023, accounts payable and accrued liabilities included $195,004 (December 31, 2022 - $210,070) due to related parties. The amounts are unsecured, non-interest bearing and due on demand and is as follows:
| Name | Relationship | September 30, 2023 (‘000) | December 31, 2022 (‘000) | |||||||
| Arthur Halleran | Chief Executive Officer (“CEO”)and director | $ | 11 | $ | 48 | |||||
| Ozge Karalli | Chief Financial Officer (“CFO”) | 36 | 14 | |||||||
| David M. Thompson | Director and former CFO | 19 | 108 | |||||||
| Kubilay Yildirim | Chief Operating Officer (“COO”) and Director | 79 | 34 | |||||||
| Barry Wood | Director | 20 | 6 | |||||||
| Sean Stofer | Director | 30 | - | |||||||
As at September 30, 2023, notes payable included CAD $546,000 (USD$402,115) (December 31, 2022 - $Nil) due from related parties.
| Name | Relationship | September 30, 2023 (‘000) | December 31, 2022 (‘000) | |||||||
| 2476393 Alberta Ltd. | Company controlled by Arthur Halleran, CEO and director | $ | 402 | $ | - | |||||
SUBSEQUENT EVENTS
Subsequent to September 30, 2023, the Company issued common shares pursuant to the following:
| ● | 1,257,450 common shares relating to the vesting of RSUs. |
On November 28, 2023, the Company completed a short form prospectus, issuing 36,057,934 common shares of the Company at a price of $0.30 CAD (approximately US$0.22) per common share for aggregate gross proceeds of $ $10,817,380, CAD (approximately US$7,796,474).
Cash finder’s fee of $630,518 CAD ($460,266 USD) were paid and 2,101,726 finder’s warrants were issued. The finder’s warrants are exercisable to purchase one common share of the Company at an exercise price of $0.30 CAD (approximately USD$0.22) until November 27, 2025.
| 15 |
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
OUTSTANDING SHARE DATA
The Company is authorized to issue an unlimited number of common shares. As of the date of this MD&A, there were 115,250,810 common shares, 1,620,000 stock options, 27,780,265 warrants and Nil RSUs outstanding. Furthermore, there are 15,000 convertible debentures outstanding convertible at $3.00 per share, which if all converted would result in the issuance of 5,000,000 common shares. There are no preferred shares outstanding.
As at September 30, 2023, the following stock options were outstanding, entitling the holders thereof the right to purchase one common share for each option held as follows:
| Outstanding | Exercise Price | Expiry Date | Vested | |||||||||
| 240,000 | 0.60 USD | October 24, 2023 | 240,000 | |||||||||
| 660,000 | 0.55 USD | September 19, 2024 | 660,000 | |||||||||
| 128,000 | 0.29 USD | July 31, 2025 | 128,000 | |||||||||
| 512,000 | 1.10 USD | July 26, 2025 | 512,000 | |||||||||
| 50,000 | 1.40 USD | June 6, 2026 | 50,000 | |||||||||
| 150,000 | 1.62 USD | October 27, 2025 | 150,000 | |||||||||
| 70,000 | 1.62 USD | December 9, 2024 | 70,000 | |||||||||
| 50,000 | 1.62 USD | December 9, 2025 | 50,000 | |||||||||
| 1,860,000 | 1,860,000 | |||||||||||
As of the date of this MD&A, the following stock options were outstanding, entitling the holders thereof the right to purchase one common share for each option held as follows:
| Outstanding | Exercise Price | Expiry Date | Vested | |||||||||
| 660,000 | 0.55 USD | September 19, 2024 | 660,000 | |||||||||
| 128,000 | 0.29 USD | July 31, 2025 | 128,000 | |||||||||
| 512,000 | 1.10 USD | July 26, 2025 | 512,000 | |||||||||
| 50,000 | 1.40 USD | June 6, 2026 | 50,000 | |||||||||
| 150,000 | 1.62 USD | October 27, 2025 | 150,000 | |||||||||
| 70,000 | 1.62 USD | December 9, 2024 | 70,000 | |||||||||
| 50,000 | 1.62 USD | December 9, 2025 | 50,000 | |||||||||
| 1,620,000 | 1,620,000 | |||||||||||
As at September 30, 2023, the following warrants were outstanding, entitling the holders thereof the right to purchase one common share for each warrant held as follows:
| Outstanding | Exercise Price | Expiry Date | ||||||
| 4,341,088 | 1.66 USD | March 15, 2024 | ||||||
| 676,788 | 1.66 USD | March 16, 2024 | ||||||
| 590,909 | 1.66 USD | March 17, 2024 | ||||||
| 2,122,825 | 1.66 USD | March 18, 2024 | ||||||
| 4,286,351 | 1.66 USD | March 24, 2024 | ||||||
| 530,600 | 1.66 USD | March 28, 2024 | ||||||
| 300,000 | 1.84 USD | April 20, 2025 | ||||||
| 12,529,690 | 1.84 USD | June 29, 2025 | ||||||
| 300,288 | 1.14 USD | June 29, 2025 | ||||||
| 25,678,539 | ||||||||
| 16 |
As at the date of this MD&A, the following warrants were outstanding, entitling the holders thereof the right to purchase one common share for each warrant held as follows:
| Outstanding | Exercise Price | Expiry Date | ||||||
| 4,341,088 | 1.66 USD | March 15, 2024 | ||||||
| 676,788 | 1.66 USD | March 16, 2024 | ||||||
| 590,909 | 1.66 USD | March 17, 2024 | ||||||
| 2,122,825 | 1.66 USD | March 18, 2024 | ||||||
| 4,286,351 | 1.66 USD | March 24, 2024 | ||||||
| 530,600 | 1.66 USD | March 28, 2024 | ||||||
| 300,000 | 1.84 USD | April 20, 2025 | ||||||
| 12,529,690 | 1.84 USD | June 29, 2025 | ||||||
| 300,288 | 1.14 USD | June 29, 2025 | ||||||
| 2,101,726 | 0.22 USD | November 28, 2025 | ||||||
| 27,780,265 | ||||||||
Forward-looking statementS
Certain statements in this report are forward-looking statements which reflect management’s expectations regarding future growth, results of operations, performance, business prospects and opportunities, the Company’s ability to meet financial commitments and its ability to raise funds when required. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations, or intentions regarding the future. Such statements are subject to risks and uncertainties that may cause actual results, performance, or developments to differ materially from those contained in the statements. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them. These forward-looking statements reflect management’s current views and are based on certain assumptions and speak only as of the date of this report. These assumptions, which include management’s current expectations, the global economic environment, and the Company’s ability to manage its operating costs, may prove to be incorrect. Several risks and uncertainties could cause actual results to differ materially from those expressed or implied by the forward-looking statements.
There is a significant risk that such forward-looking statements will not prove to be accurate. Investors are cautioned not to place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future results. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Actual performance, achievement or other realities could differ materially from those expressed in, or implied by, any forward-looking statements or information in this MD&A and, accordingly, investors should not place undue reliance on any such forward-looking statements or information. Further, any forward-looking statement or information speaks only as of the date on which such statement is made, and the Company does not undertake any obligation to update any forward-looking statements or information to reflect information, events, results, circumstances, realities or otherwise after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by law, including securities laws. All forward-looking statements and information contained in this MD&A and other documents of the Company are qualified by such cautionary statements. New factors emerge from time to time, and it is not possible for management to predict all such factors and to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual realities to differ materially from those contained in any forward-looking statements.
In addition, forward-looking statements, and information herein, including financial information, is based on certain assumptions relating to the business and operations of the Company. Although the Company has attempted to identify important factors that could cause actual actions, events, or results to differ materially from those described in forward-looking statements and forward-looking information in this MD&A, and the documents incorporated by reference herein, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There is no assurance that such statements and information will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements or information. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information contained in this MD&A.
| 17 |
Significant Accounting Estimates, Judgements and Assumptions
The preparation of financial statements in conformity with IFRS requires management to make estimates, judgements, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from estimates, and those differences may be material. The estimates, judgements and assumptions used are subject to updates based on experience and the application of new information. Estimates and underlying assumptions are reviewed on an ongoing basis, and any revisions to accounting estimates are recognized in the period in which the estimates are revised.
A full list of the significant estimates and judgements made by management in the preparation of the interim financial statements and the audited 2022 financial statements is included in Note 2 “ Summary of Significant Accounting Policies” of our audited 2022 financial statements.
The Company has hired individuals who have the skills required to make such estimates and ensures that individuals or departments with the most knowledge of the activity are responsible for the estimates. Furthermore, past estimates are reviewed and compared to actual results, and actual results are compared to budgets in order to make more informed decisions on future estimates.
RISKS MANAGEMENT
The Company is exposed to varying degrees to a variety of financial instrument and other risks:
Exploration and Development Risk
The exploration for, and production of, hydrocarbons is a highly speculative activity which involves a high degree of risk. The Company’s current reserves will decline as reserves are produced unless the Company is able to discover and develop new reserves which involves exploration and development risk. The long-term commercial success of Trillion depends on its ability to find, acquire, develop and commercially produce hydrocarbon reserves. There can be no assurance that Trillion’s future exploration activities will result in material additions to reserves or that such activities will lead to future cash flows.
The exploration and development of hydrocarbons involve a number of uncertainties that even thorough evaluation, experience and knowledge of the industry cannot eliminate. Trillion’s exploration and possible development activities in Trillion’s properties will depend in part on the evaluation of data obtained through geophysical testing and geological analysis. The results of such studies and tests are often subject to varying interpretations and no assurance can be given that such activities will produce hydrocarbons in commercial quantities. The exploration, evaluation and development activities that will be undertaken by Trillion are subject to greater risks than those normally associated with the acquisition and ownership of producing properties. Trillion’s properties may fail to produce hydrocarbons in commercial quantities.
Commodity Price Risk
Commodity prices are unstable and are subject to wide fluctuations in response to relatively minor changes in the supply and demand for oil and natural gas, market uncertainty and a variety of additional factors beyond the control of the Company. These factors include, but are not limited to, expectations regarding global supply and demand, government regulations, actions of Organization of Petroleum Exporting Countries (“OPEC”) and other oil and gas exporting countries, international conflicts, weather conditions, risks of supply disruption, availability of alternative fuel sources, political conditions, actions of governmental authorities, and the impacts of worldwide pandemics or other events.
Any material decline in prices will result in a reduction of Trillion’s future revenue and cash flows from operations. The economics of producing from some wells may change as a result of lower prices, which could result in a reduction in the volumes of Trillion’s reserves. Trillion might also elect not to produce from certain wells at lower prices. All of these factors could result in a sustained and material decrease in Trillion’s future net production revenue which would have an adverse effect on the carrying value of the Company’s reserves, its borrowing capacity, profitability and cash flows from operations, and may have a material adverse effect on the Company’s business, financial condition, results or operations, and its acquisition and development activities.
| 18 |
Foreign Currency Risk
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company and its subsidiaries are exposed to currency risk as it has transactions denominated in currencies that are different from their functional currencies. The Company does not hedge its exposure to fluctuations in foreign exchange rates.
As at September 30, 2023, the Company’s significant foreign exchange currency exposure on its financial instruments, expressed in USD was as follows:
If the CAD strengthened or weakened against the USD by 10% the exchange rate fluctuation would impact net loss by $1,229,491 at September 30, 2023 (December 31, 2022 - $30,435).
In addition, the Company is subject to the risk of hyperinflation. When hyperinflation is deemed to exist, the subsidiary’s financial statements are first restated before being translated into the consolidated financial statements. Comparative amounts are excluded from the restatement requirement when the presentation currency of the ultimate financial statements into which they will be included (USD) is non-hyperinflationary.
Credit Risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.
The Company is subject to credit risk on its cash, amounts receivable which consists primarily of trade receivables and GST receivable and notes and amounts receivable for equity issued. The Company limits its exposure to credit loss on cash by placing its cash with a high-quality financial institution. Exposure to credit loss notes and amounts receivable for equity issued is limited by entering into these types of transactions with related parties and entities that are well known to the Company.
The Company only has two customers. The Company mitigates credit risk by evaluating the creditworthiness of customers prior to conducting business with them and monitoring its exposure for credit losses with existing customers. One of the customers is the largest oil refinery in Turkiye. The other customer provides letters of credit to be used by the Company in the event of default. As at September 30, 2023, all of the Company’s trade receivables are current (< 30 days outstanding).
The Company’s maximum credit exposure is $2,669,560 (December 31, 2022 - $5,263,886).
Liquidity Risks
Liquidity risk arises from the Company’s general and capital financing needs. The Company continuously monitors and reviews both actual and forecasted cash flows, and also matches the maturity profile of financial assets and liabilities, when feasible. The Company anticipates increases in revenue in future periods resulting from the completion of an additional well subsequent to the period end. Historically, the Company’s sources of funding has been through equity and debt financings. The Company’s access to financing is uncertain. There can be no assurance of continued access to significant debt or equity funding.
The table below summarizes the maturity profile of the Company’s contractual cashflows.
| As at September 30, 2023 | Less than 1 year | 1 - 2 years | Later than 2 years | Total | ||||||||||||
| Accounts payable and accrued liabilities | $ | 14,429,291 | $ | $ | - | $ | 14,429,291 | |||||||||
| Loans payable | 2,753,567 | 610,267 | - | 3,363,834 | ||||||||||||
| Lease liability | 27,395 | 167,477 | - | 194,872 | ||||||||||||
| RSU obligation | 95,360 | - | - | 95,360 | ||||||||||||
| Convertible debt | 592,005 | 9,644,009 | - | 10,236,014 | ||||||||||||
| Total liabilities | $ | 17,897,618 | $ | 10,421,753 | $ | - | $ | 28,319,371 | ||||||||
| 19 |
| As at December 31, 2022 | Less than 1 year | 1 - 2 years | Later than 2 years | Total | ||||||||||||
| Accounts payable and accrued liabilities | $ | 10,600,080 | $ | - | $ | - | $ | 10,600,080 | ||||||||
| Loans payable | 145,866 | 20,689 | - | 166,555 | ||||||||||||
| Lease liability | 4,807 | 4,807 | - | 9,614 | ||||||||||||
| RSU obligation | 295,747 | - | - | 295,747 | ||||||||||||
| Derivative liability | - | 4,827 | - | 4,827 | ||||||||||||
| Total liabilities | $ | 11,046,500 | $ | 30,323 | $ | - | $ | 11,076,823 | ||||||||
General Risks
Petroleum and natural gas exploration and production can involve environmental risks such as litigation, physical and regulatory risks. Physical risks include the pollution of the environment, climate change and destruction of natural habitat, as well as safety risks such as personal injury. The Company works hard to identify the potential environmental impacts of its new projects in the planning stage and during operations. The Company conducts its operations with high standards in order to protect the environment, its employees and consultants, and the general public. We maintain current insurance coverage for comprehensive and general liability as well as limited pollution liability. The amount and terms of this insurance are reviewed on an ongoing basis and adjusted as necessary to reflect current corporate requirements, as well as industry standards and government regulations. Without such insurance, and if the Company becomes subject to environmental liabilities, the payment of such liabilities could reduce or eliminate its available funds or could exceed the funds the Company has available and result in financial distress.
Climate Change Risks
Our exploration and production infrastructure and other operations and activities emit greenhouse gasses (“GHG”) which may require us to comply with emissions legislation in Turkiye. Climate change policy is evolving at regional, national and international levels, and political and economic events may significantly affect the scope and timing of climate change measures that are ultimately put in place to prevent climate change or mitigate our effects. The direct or indirect costs of compliance with GHG-related regulations may have a material adverse effect on our business, financial condition, results of operations and prospects. Some of our significant facilities may ultimately be subject to future regional, and/or national climate change regulations to manage GHG emissions. In addition, climate change has been linked to long-term shifts in climate patterns and extreme weather conditions both of which pose the risk of causing operational difficulties.
Non-GAAP and Other Financial Measures
Non-GAAP Financial Measures
Operating Netback
Operating netback is calculated as natural gas, oil and condensate sales revenues less royalties and production expenses. This calculation is provided in the “Operating Netback” section of this MD&A using our IFRS measures. Operating netback is a common metric used in the oil and gas industry to demonstrate profitability from operations.
Non-GAAP Financial Ratios
Operating Netback per Boe
Operating netback is calculated as production revenue less production, transportation and royalty expenses, on a per unit basis, which is per barrel of oil equivalent (“boe”). It is a common non-GAAP measure used in the oil and gas industry and management believes this measurement assists in evaluating the operating performance of the Company. It is a measure of the economic quality of the Company’s producing assets and is useful for evaluating variable costs as it provides a reliable measure regardless of fluctuations in production. Trillion calculated operating netback per boe as operating netback divided by total sales volumes (barrels of oil equivalent). This calculation is provided in the “Operating Netback” section of this MD&A using our IFRS measures.
| 20 |
Operating Netback Margin
Operating netback margin is calculated as operating netback divided by natural gas and oil sales. Operating netback margin is a measure of the profitability per boe relative to natural gas, oil and condensate sales revenues per boe.
| Three Months Ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Natural gas and oil sales | 5,028,124 | 1,077,770 | ||||||
| Operating netback | 3,551,367 | 430,306 | ||||||
| Operating netback margin | 70.6 | % | 39.9 | % | ||||
| Nine Months Ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Natural gas and oil sales | 14,074,877 | 3,589,368 | ||||||
| Operating netback | 10,682,534 | 1,584,499 | ||||||
| Operating netback margin | 75.9 | % | 44.1 | % | ||||
Capital Management Measures
Funds Flow from Operations
Funds flow from operations is included in the Company’s consolidated statements of cash flows. Trillion considers funds flow from operations to be a key measure of operating performance as it demonstrates the Company’s ability to generate the funds necessary to finance capital expenditures and repay debt. Management believes that by excluding the temporary impact of changes in non-cash operating working capital, funds flow from operations provides a useful measure of the Company’s ability to generate cash that is not subject to short-term movements in non-cash operating working capital. A reconciliation of funds flow from operations to cash flows from operating activities is as follows:
| Nine Months Ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Cash flows from operating activities | (2,309,261 | ) | (5,470,698 | ) | ||||
| Add back changes in non-cash working capital | (82,959 | ) | 3,709,547 | |||||
| Funds flow from operations | (2,392,220 | ) | (1,761,151 | ) | ||||
Net Working Capital
Net working capital is computed as current assets less current liabilities. Net working capital is a measure of liquidity, is used to evaluate financial resources, and is calculated as follows:
| As at | ||||||||
| September 30, 2023 | Dec, 31, 2022 | |||||||
| Total current assets | 5,929,696 | 6,226,698 | ||||||
| Total current liabilities | (17,897,618 | ) | (11,045,750 | ) | ||||
| Net working capital deficit | (11,967,922 | ) | (4,819,052 | ) | ||||
Supplementary Financial Measures
“Average realized natural gas price - $/Mcf” is comprised of natural gas sales as determined in accordance with IFRS, divided by the Company’s natural gas sales volumes.
“Average realized oil price - $/bbl” is comprised of oil sales as determined in accordance with IFRS, divided by the Company’s oil sales volumes.
| 21 |
“Average realized price - $/boe” is comprised of natural gas and oil sales as determined in accordance with IFRS, divided by the Company’s total natural gas, and oil sales volumes (barrels of oil equivalent).
“Royalties per boe” is comprised of royalties, as determined in accordance with IFRS, divided by the total natural gas and oil sales volumes (barrels of oil equivalent).
“Royalties as a percentage of sales” is comprised of royalties, as determined in accordance with IFRS, divided by the total natural gas and oil sales, as determined in accordance with IFRS.
“Production expenses per boe” is comprised of production expenses, as determined in accordance with IFRS, divided by the total natural gas and oil sales volumes (barrels of oil equivalent).
“G&A expenses per boe” is comprised of net G&A expense, as determined in accordance with IFRS, divided by the total natural gas and oil sales volumes (barrels of oil equivalent).
“DD&A expense per boe” is comprised of DD&A expense, as determined in accordance with IFRS, divided by the total natural gas and oil sales volumes (barrels of oil equivalent).
Abbreviations
The following is a list of abbreviations that may be used in this MD&A:
| Oil and Natural Gas Measurement | Other | |||||
| bbl(s) | barrel(s) | C$ | Canadian dollar | |||
| bbls/d | barrels per day | CSE | Canadian Securities Exchange | |||
| Mbbls | thousand barrels | TL | Turkish Lira | |||
| Mcf | thousand cubic feet | TPAO | Turkish Petroleum Corporation | |||
| Mcf/d | thousand cubic feet per day | $ or US$ | United States dollar | |||
| MMcf | million cubic feet | |||||
| MMcf/d | million cubic feet per day | |||||
| MMBtu | million British Thermal Units | |||||
| boe | barrels of oil equivalent | |||||
| boe/d | barrels of oil equivalent per day | |||||
| Mboe | thousand barrels of oil equivalent | |||||
BOE Disclosure. The term barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6 Mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this MD&A are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.
| 22 |