Dune Oil Corp 6-K/A, filed Jun 21, 2022
Dune Oil Corp. (DUNXF)
About this 6-K/A
Dune Oil Corp filed this 6-K/A on June 21, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
June
Commission
File Number:
(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):
Explanatory Note
| Exhibits: | ||
| 99.1 | CONSOLIDATED INTERIM FINANCIAL STATEMENTs FOR THE THREE MONTHS ENDED mARCH 31, 2022 AND 2021 | |
| 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: June 21, 2022 | By: | /s/ David Thompson |
| David Thompson | ||
| Chief Financial Officer | ||
Exhibit 99.1
Trillion Energy International Inc.
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(Unaudited -Stated in United States dollars)
TRILLION ENERGY INTERNATIONAL INC.
Index to Consolidated Interim Financial Statements
| 2 |
TRILLION ENERGY INTERNATIONAL INC.
Consolidated Interim Statements of Financial Position
(Expressed in U.S. dollars)
| Notes | March 31, 2022 (Unaudited) | December 31, 2021 | December 31, 2020 | |||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||||
| Amounts receivable | 4 | |||||||||||||
| Prepaid expenses and deposits | ||||||||||||||
| Total current assets | ||||||||||||||
| Oil and gas properties, net | 5 | |||||||||||||
| Evaluation and exploration assets | 6 | |||||||||||||
| Property and equipment, net | 7 | |||||||||||||
| Restricted cash | 3 | |||||||||||||
| Total assets | $ | $ | $ | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | |||||||||||
| Loans payable | 8 | |||||||||||||
| Lease liability | 9 | |||||||||||||
| Total current liabilities | ||||||||||||||
| Asset retirement obligation | 11 | |||||||||||||
| Loans payable | 8 | |||||||||||||
| Convertible debt | 12 | |||||||||||||
| Derivative liability | 15 | |||||||||||||
| Lease liability | 9 | |||||||||||||
| Total liabilities | ||||||||||||||
| Stockholders’ equity (deficiency): | ||||||||||||||
| Common stock | 13 | |||||||||||||
| Share premium | 13 | |||||||||||||
| Notes and amounts receivable for equity issued | 10 | ( | ) | ( | ) | |||||||||
| Warrant and option reserve | 14,15 | |||||||||||||
| Shares to be cancelled | ||||||||||||||
| Obligation to issue shares | 13 | |||||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||||
| Total stockholders’ equity (deficiency) | ( | ) | ( | ) | ||||||||||
| Total liabilities and stockholders’ equity (deficiency) | $ | $ | ||||||||||||
| Nature of operations and going concern | 1 | |||
| IFRS first-time adoption | 2 | |||
| Subsequent events | 22 |
APPROVED BY THE BOARD OF DIRECTORS:
| “Arthur Halleran” | “David Thompson” | ||
| Director | Director |
See accompanying notes to unaudited consolidated interim financial statements.
| 3 |
TRILLION ENERGY INTERNATIONAL INC.
Consolidated Interim Statements of Loss and Comprehensive Loss
(Expressed in U.S. dollars)
(Unaudited)
| Notes | 2022 | 2021 | ||||||||
| For the three months ended March 31 | ||||||||||
| Notes | 2022 | 2021 | ||||||||
| Revenue | ||||||||||
| Oil and gas revenue | 19 | $ | $ | |||||||
| Cost and expenses | ||||||||||
| Production | ||||||||||
| Depletion | 5 | |||||||||
| Depreciation | 7, 9 | |||||||||
| Accretion of asset retirement obligation | 11 | |||||||||
| Investor relations | ||||||||||
| Stock-based compensation | 16 | |||||||||
| General and administrative | 18 | |||||||||
| Total expenses | ||||||||||
| Loss before other income (expense) | ( | ) | ( | ) | ||||||
| Other income (expense) | ||||||||||
| Interest income | ||||||||||
| Interest expense | ( | ) | ( | ) | ||||||
| Finance cost | 8 | ( | ) | ( | ) | |||||
| Foreign exchange gain | ( | ) | ( | ) | ||||||
| Other income | ( | ) | ||||||||
| Change in fair value of derivative liability | 11 | ( | ) | ( | ) | |||||
| Gain (loss) on debt settlement | ( | ) | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss) | ||||||||||
| Foreign currency translation adjustments | ( | ) | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||||
| Loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares outstanding basic and diluted | ||||||||||
See accompanying notes to unaudited consolidated interim financial statements.
| 4 |
TRILLION ENERGY INTERNATIONAL INC.
Consolidated Interim Statements of Stockholders’ Deficiency
(Expressed in U.S. dollars)
(Unaudited)
| Shares | Amount | premium | reserve | issued | shares | cancelled | income (loss) | deficit | Total | |||||||||||||||||||||||||||||||
| Common stock | Share | Warrant and option | Receivables for equity | Obligation to issue | Shares to be | Accumulated other comprehensive | Accumulated | |||||||||||||||||||||||||||||||||
| Shares | Amount | premium | reserve | issued | shares | cancelled | income (loss) | deficit | Total | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Impact of change in functional currency | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Stock issued for debt settlement | ||||||||||||||||||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit grants and vesting | ||||||||||||||||||||||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||||||||||||||||||||||
| Options exercised | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Conversion of debentures | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued for loan | ||||||||||||||||||||||||||||||||||||||||
| Finder’s warrants issued | ||||||||||||||||||||||||||||||||||||||||
| Finder’s warrants issued, shares | ||||||||||||||||||||||||||||||||||||||||
| Stock subscribed for services | ||||||||||||||||||||||||||||||||||||||||
| Stock subscribed for services, shares | ||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance, December 31, 2021 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Impact of change in functional currency | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||||||
| Stock issuance costs | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Stock issued for debt settlement | ||||||||||||||||||||||||||||||||||||||||
| Stock issued for prepaid services | ||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit grants and vesting | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Warrants exercised | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Options exercised | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Finder’s warrants issued | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Stock to be issued for services | ||||||||||||||||||||||||||||||||||||||||
| Currency translation adjustment | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated interim financial statements.
| 5 |
TRILLION ENERGY INTERNATIONAL INC.
Consolidated Interim Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
| Note | 2022 | 2021 | ||||||||
| Three Months Ended March 31, | ||||||||||
| Note | 2022 | 2021 | ||||||||
| Operating activities: | ||||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||
| Stock-based compensation | 16 | |||||||||
| Stock to be issued for services | 13 | |||||||||
| Stock issued for services | 13 | |||||||||
| Depletion | 5 | |||||||||
| Depreciation | 7 | |||||||||
| Accretion of asset retirement obligation | 11 | |||||||||
| Accretion and accrued interest expense | 8, 9 | |||||||||
| Change in fair value of derivative liability | 11 | |||||||||
| Interest income | 4 | ( | ) | |||||||
| Foreign exchange loss | ||||||||||
| Gain (loss) on debt settlement | ( | ) | ||||||||
| Changes in operating assets and liabilities: | ||||||||||
| Restricted cash | ||||||||||
| Accounts receivable | ( | ) | ( | ) | ||||||
| Prepaid expenses and deposits | ( | ) | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||
| Investing activities: | ||||||||||
| Property and equipment expenditures | ( | ) | ( | ) | ||||||
| Oil and gas properties expenditures | ( | ) | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||||
| Financing activities: | ||||||||||
| Proceeds from stock subscriptions received | ||||||||||
| Stock issuance costs on subscriptions received | ( | ) | ||||||||
| Proceeds from exercise of options | ||||||||||
| Proceeds from exercise of warrants | ||||||||||
| Proceeds from loans payable | ||||||||||
| Repayments of loans payable | ( | ) | ( | ) | ||||||
| Lease payments | ( | ) | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||||
| Net increase in cash and cash equivalents | ||||||||||
| Cash and cash equivalents, beginning of period | ||||||||||
| Cash and cash equivalents, end of period | $ | |||||||||
See accompanying notes to unaudited consolidated interim financial statements.
| 6 |
TRILLION ENERGY INTERNATIONAL INC.
Consolidated Interim Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Supplemental information: | ||||||||
| Taxes paid | $ | - | $ | - | ||||
| Interest paid on credit facilities | $ | 1,627 | $ | 4,033 | ||||
| Non-cash investing and financing activities: | ||||||||
| Stock issued for prepaid services | $ | 79,013 | - | |||||
| Stock issued for debt settlement | $ | 391,021 | $ | 98,446 | ||||
| Stock issued for debt conversion | $ | - | $ | 522,519 | ||||
See accompanying notes to unaudited consolidated interim financial statements.
| 7 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(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 April 10, 2020, the corporate headquarters moved from Suite 700, 838 West Hastings Street, Vancouver, B.C., Canada to 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.
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.
2. Summary of Significant Accounting Policies
(a) Basis of Presentation and Going Concern
Consolidation
The unaudited consolidated interim financial statements (“Financial Statements”) of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and International Accounting Standards (“IAS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”), effective for the Company’s reporting for the quarter ended March 31, 2022. These Financial Statements are the first that the Company has prepared in accordance with IFRS. Refer to Note 2(r) for details on the impact of IFRS first-time adoption. The Financial Statements are expressed in U.S. dollars. These 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. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. Certain comparative information has been reclassified to conform with the financial statement presentation adopted in the current period.
Going Concern
The
Company has suffered recurring losses and negative cash flows from operations and as at March 31, 2022 has an accumulated deficit of
$
| 8 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
(b) Use of Estimates and Judgements
In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the Financial Statements:
Going Concern
The assessment of the Company’s ability to continue as a going concern and to raise sufficient funds to pay its ongoing operating expenditures and to meet its liabilities for the ensuing year involves significant judgment based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances.
Functional Currency
The functional currency for the Company and each of its subsidiaries is the currency of the primary economic environment in which the entity operates. Determination of the functional currency involves certain judgments to determine the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.
Determination of Cash Generating Units (CGUs)
A CGU is the lowest grouping of integrated assets that generate identifiable cash inflows that are largely independent of the cash inflows of other assets or groups of assets. The allocation of assets into CGUs requires significant judgment and interpretations with respect to the integration between assets, the existence of active markets, similar exposure to market risks, shared infrastructure, and the way in which management monitors the operations.
In the process of applying the Company’s accounting policies, management has made the following estimates, which have the most significant effect on the amounts recognized in the Financial Statements:
Oil and Gas Reserves
The company’s estimate of oil and gas reserves is considered in the measurement of depletion, depreciation, impairment, and decommissioning and restoration obligations. The estimation of reserves is an inherently complex process and involves the exercise of professional judgment. All reserves are evaluated annually, by independent qualified reserves evaluators. Oil and gas reserves estimates are based on a range of geological, technical and economic factors, including projected future rates of production, projected future commodity prices, engineering data, and the timing and amount of future expenditures, all of which are subject to uncertainty. Estimates reflect market and regulatory conditions existing at the evaluation date, which could differ significantly from other points in time throughout the period, or future periods. Changes in market and regulatory conditions and assumptions, as well as climate change, and the evolving worldwide demand for energy and global advancement of alternative sources of energy that are not sourced from fossil fuels can materially impact the estimation of net reserves.
| 9 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
Allowance for doubtful accounts
Estimates are inherent in the on-going assessment of the recoverability of trade and other receivables. The Company maintains an allowance for doubtful accounts to reflect the expected credit losses. Uncertainty relates to the actual collectability of customer balances that can vary from the Company’s estimation.
Asset Retirement Obligation
The company recognizes obligation for the future decommissioning and restoration of the Company’s exploration and evaluation assets and oil and gas properties based on estimated future decommissioning and restoration costs. Management applies judgment in assessing the existence and extent as well as the expected method of reclamation of the company’s decommissioning and restoration obligations at the end of each reporting period. Management also uses judgment to determine whether the nature of the activities performed is related to decommissioning and restoration activities or normal operating activities.
Actual costs are uncertain and estimates may vary as a result of changes to relevant laws and regulations related to the use of certain technologies, the emergence of new technology, operating experience, prices and closure plans. The estimated timing of future decommissioning and restoration may change due to certain factors, including reserves life. Changes to estimates related to future expected costs, discount rates, inflation assumptions, and timing may have a material impact on the amounts presented.
Impairment of Assets
Management applies judgment in assessing the existence of impairment indicators based on various internal and external factors. The recoverable amount of assets is determined based on the higher of fair value less costs of disposal or value-in-use calculations. The key estimates the company applies in determining the recoverable amount normally include estimated future commodity prices, discount rates, expected production volumes, future operating and development costs, income taxes, and operating margins. In determining the recoverable amount, management may also be required to make judgments regarding the likelihood of occurrence of a future event. Changes to these estimates and judgments will affect the recoverable amounts of assets and may then require a material adjustment to their related carrying value.
Share-based Compensation
The cost of share-based transactions with directors, officers and employees are measured by reference to the fair value of the equity instruments. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility, risk-free interest rate, expected forfeiture rate and dividend yield of the stock option. Changes to these estimates and judgments will affect the operating result and may then require a material adjustment.
| 10 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
Fair Value of Derivative Liability
The Company’s warrants and conversion features with exercise prices denominated in a currency other the Company’s functional currency are recognized as derivatives measured at fair value through the consolidated interim statement of loss and comprehensive loss. Estimating fair value for derivative liability requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the issuance. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility, risk-free interest rate, expected forfeiture rate and dividend yield of the derivatives. Changes to these estimates and judgments will affect the operating result and may then require a material adjustment.
Deferred Income Tax
Judgments are made by management at the end of the reporting period to determine the likelihood that deferred income tax assets will be realized from future taxable earnings. Assessing the recoverability of deferred income tax assets requires the Company to make judgments related to the expectations of future cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that assumptions regarding future profitability change, there can be an increase or decrease in the amounts recognized in consolidated interim statement of loss and comprehensive loss in the period in which the change occurs.
(c) Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
(d) Revenue Recognition
Revenue from Contracts with Customers
The Company recognizes revenue when it satisfies its performance obligation(s) by transferring control over a product to a customer. Revenue is measured based on the consideration the Company expects to receive in exchange for those products.
Performance Obligations and Significant Judgments
The Company sells oil and natural gas products in Turkey. The Company enters into contracts that generally include one type of distinct product in variable quantities and priced based on a specific index related to the type of product.
The oil and natural gas are typically sold in an unprocessed state to processors and other third parties for processing and sale to customers. The Company recognizes revenue at a point in time when control of the oil is transferred. For oil sales, control is typically transferred to the customer upon receipt at the wellhead or a contractually agreed upon delivery point. Under the Company’s natural gas contracts with processors, control transfers upon delivery at the wellhead or the inlet of the processing entity’s system. For the Company’s other natural gas contracts, control transfers upon delivery at the inlet or to a contractually agreed upon delivery point. In the cases where the Company sells to a processor, the Company has determined that the Company is the principal in the arrangement and the processors are the Company’s customers. The Company recognizes the revenue in these contracts based on the net proceeds received from the processor.
| 11 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
For the Company’s product sales that have a contract term greater than one year, the Company uses the practical expedient in IFRS 15 Paragraph 121(a) which states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to an unsatisfied performance obligation. Under these sales contracts, each unit of product represents a separate performance obligation; therefore, future volumes are unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required. The Company has no unsatisfied performance obligations at the end of each reporting period.
The Company does not believe that significant judgments are required with respect to the determination of the transaction price, including any variable consideration identified. There is a low level of uncertainty due to the precision of measurement and use of index-based pricing with predictable differentials. Additionally, any variable consideration identified is not constrained.
(e) Accounts Receivable
Accounts receivable consist primarily of oil and gas receivables. The Company has classified these as short-term assets in the consolidated statement of financial position because the Company expects repayment or recovery within the next 12 months. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company deems all accounts receivable to be collectable and has not recorded any allowance for doubtful accounts.
(f) Exploration and Evaluation Assets
Pre-license exploration costs are recognized in the consolidated statement of operations and comprehensive loss as incurred.
The costs to acquire non-producing oil and gas properties or licenses to explore, drill exploratory wells and the costs to evaluate the commercial potential of underlying resources, including related borrowing costs, are initially capitalized as exploration and evaluation assets.
Exploration and evaluation assets are subject to technical, commercial and management review to confirm the continued intent to develop and extract the underlying resources. If an area or exploration well is no longer considered commercially viable, the related capitalized costs are charged to exploration expense.
Exploration and evaluation assets are not subject to depreciation, depletion and amortization.
When management determines with reasonable certainty that an exploration and evaluation asset will be developed, as evidenced by the classification of proved or probable reserves and the appropriate internal and external approvals, the asset is transferred to oil and gas properties.
(g) Oil and Gas Properties
Oil and gas properties (“O&G”) include exploration and evaluation expenditures, development and productions costs, less accumulated depletion and depreciation and accumulated impairment loss. O&G are grouped into cash generating units for impairment testing. The Company has grouped its O&G into two CGUs: the Cendere Oil Field and SASB Gas Field.
When significant parts of an item of O&G have different useful lives, they are accounted for as separate items (major components).
| 12 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing parts of O&G are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in consolidated interim statement of loss and comprehensive loss as incurred.
Such capitalized items generally represent costs incurred in developing proved and/or probable reserves and bringing on or enhancing production from such reserves, and are accumulated on a field or geotechnical area basis. The carrying amount of any replaced or sold component is derecognized. The costs of the day-to-day servicing of oil ang gas properties are recognized in consolidated interim statement of loss and comprehensive loss as incurred.
The net carrying value of oil and gas properties is depleted using the unit-of-production method by reference to the ratio of production in the year to the related proved reserves, taking into account estimated future development costs necessary to bring those reserves into production. These estimates are reviewed by independent reservoir engineers at least annually.
(h) Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives are: other assets are depreciated over 20 years; and leasehold improvements are depreciated over the term of the lease.
(i) Impairment of Non-financial Assets
Exploration and evaluation assets, oil and gas properties, and property and equipment are reviewed when events or changes in circumstances indicate the assets may not be recoverable. Exploration and evaluation assets are also tested for impairment immediately prior to being transferred to oil and gas properties. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Impairment exists when the carrying value of an asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. These calculations are based on available data, other observable inputs and projections of cash flows, all of which are subject to estimates and assumptions. Recoverable amounts are also sensitive to assumptions about the future usefulness of in-process development and the related marketing rights.
(j) Provisions
Provisions are recognized by the company when it has a legal or constructive obligation as a result of past events, it is probable that an outflow of economic resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Provisions are recognized for decommissioning and restoration obligations associated with the company’s exploration and evaluation assets and oil and gas properties. Provisions for decommissioning and restoration obligations are measured at the present value of management’s best estimate of the future cash flows required to settle the present obligation, using the risk-free interest rate. The value of the obligation is added to the carrying amount of the associated asset and amortized over the useful life of the asset. The provision is accreted over time with actual expenditures charged against the accumulated obligation. Changes in the future cash flow estimates resulting from revisions to the estimated timing or amount of undiscounted cash flows are recognized as a change in the decommissioning and restoration provision and related asset.
| 13 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
(k) Financial Instruments
| (i) | Classification |
The company classifies its financial instruments into one of the following categories: fair value through profit or loss (“FVTPL”), fair value through other comprehensive income (“FVOCI”), or at amortized cost. This determination is made at initial recognition. All financial instruments are initially recognized at fair value on the balance sheet, net of any transaction costs except for financial instruments classified as FVTPL, where transaction costs are expensed as incurred. Subsequent measurement of financial instruments is based on their classification. The company classifies its derivative liability and cash and cash equivalents as FVTPL, accounts receivable and notes receivable as financial assets at amortized cost, and accounts payable, loans payable, and convertible notes as financial liabilities at amortized cost. Embedded derivative in other financial instruments or other host contracts are recorded as separate derivatives when their risks and characteristics are not closely related to those of the host contract.
| (ii) | Measurement |
Financial assets and liabilities at amortized cost
Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.
Financial assets and liabilities at FVTPL
Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of operations and comprehensive loss in the period in which they arise.
Debt investments at FVTOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at FVTOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.
| (iii) | Impairment of Financial Assets at Amortized Cost |
The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. The Company shall recognize in the statements of loss and comprehensive loss, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.
| 14 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
| (iv) | Derecognition |
Financial assets
The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity.
Financial liabilities
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expire. The Company also derecognizes a financial liability when the terms of the liability are modified such that the terms and / or cash flows of the modified instrument are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.
Gains and losses on derecognition are recognized in profit or loss.
(l) Income Taxes
Current Income Tax:
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income.
Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred Tax:
Deferred tax is recognized on temporary differences at the reporting date arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that future taxable income will be available to allow all or part of the temporary differences to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted and are expected to apply by the end of the reporting period. Deferred tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
| 15 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
(m) Foreign Currency Translation
Functional currencies of the Company’s individual entities are the currency of the primary economic environment in which the entity operates. Transactions in foreign currencies are translated to the appropriate functional currency at foreign exchange rates that approximate those on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the appropriate functional currency at foreign exchange rates as at the balance sheet date. Foreign exchange differences arising on translation are recognized in net earnings. Non-monetary assets that are measured in a foreign currency at historical cost are translated using the exchange rate at the date of the transaction.
In preparing the Company’s Financial Statements, the financial statements of each entity are translated into US dollar (“USD”), the presentation currency of the Company. The assets and liabilities of foreign operations are translated into USD at exchange rates as at the balance sheet date. Revenues and expenses of foreign operations are translated into USD using foreign average exchange rates for the period. Foreign exchange differences are recognized in other comprehensive income or loss.
The functional currency of the Company’s Bulgarian operations is the Bulgarian Lev. The functional currency of the Company’s Turkish operations is the Turkish Lira.
Prior to January 1, 2022, the functional currency of Trillion Energy International Inc. was USD. The Company redomiciled from United States to Canada and became a Canadian Company in January 2022, resulting in the parent’s expenditures being denominated primarily in Canadian dollar (“CAD”) and the Company being funded primarily from issuance of equity instruments which proceeds are in CAD. As a result, the Company determined that the functional currency of the parent was changed to CAD effective January 1, 2022.
The
Company has accounted for the change in functional currency prospectively with no impact of this change on prior period comparative information.
The Company has made an accounting policy choice to reassess the classification of financial instruments as liabilities or equity or
vice versa as applicable when the functional currency of the Company or its subsidiaries changes. The policy will be applied consistently
in the future. As a result, certain of the Company’s CAD denominated warrants with a carrying value of $
Under the company’s share-based compensation plans, share-based awards may be granted to executives, employees and nonemployee directors.
Stock options that give the holder the right to purchase common shares are accounted for as equity-settled plans. The expense is based on the fair value of the options at the time of grant using the Black-Scholes options pricing model and is recognized over the vesting periods of the respective options. A corresponding increase is recorded to option reserve. Consideration paid to the company on exercise of options is credited to share capital and the associated amount in option reserve is reclassified to share capital.
| 16 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
(o) Unit Offerings
Common shares are classified as equity. Proceeds from unit placements are allocated between shares and warrants issued using the residual method. The residual method first allocates fair value to the component with the best evidence of fair value and then the residual value, if any, to the less easily measurable component. The fair value of the common shares, measured on date of issue, was determined to be the component with the best evidence of fair value. The balance, if any, is allocated to the attached warrants. Costs directly identifiable with share capital financings are charged against share capital.
If the subscription is not funded upon issuance, the Company records a receivable as a contra account to shareholders’ equity.
Basic earnings per share is calculated by dividing the net earnings for the period by the weighted average number of common shares outstanding during the period.
Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding for dilutive common shares. The number of shares included is computed using the treasury stock method. As certain instrument can be exchanged for common shares of the Company, they are considered potentially dilutive and are included in the calculation of the company’s diluted net earnings per share if they have a dilutive impact in the period.
(q) Leases
At inception of a contract, the company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset on the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term. Judgment is applied to determine the lease term where a renewal option exists. Right-of-use assets are depreciated using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. In addition, the right-of-use assets may be reduced by impairment losses or adjusted for certain remeasurements of the lease liability.
The company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of twelve months or less. The lease payments are recognized as an expense when incurred over the lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the company’s incremental borrowing rate. Lease payments include fixed payments, and variable payments that are based on an index or rate.
| 17 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
Cash payments for the principal portion of the lease liability are presented within the financing activities section and the interest portion of the lease liability is presented within the operating activities section of the statement of cash flows. Short-term lease payments and variable lease payments not included in the measurement of the lease liability are presented within the operating activities section of the statement of cash flows.
(r) First-time Adoption of IFRS
These Financial Statements for the quarter ended March 31, 2022, are the first the Company has prepared in accordance with IFRS. The Company previously prepared its financial statements, up to and including December 31, 2021, in accordance with accounting principles generally accepted in the United States (“US GAAP”).
Accordingly, the Company has prepared financial statements that comply with IFRS applicable as at March 31, 2022, together with the comparative period data for the year ended December 31, 2021. In preparing the financial statements, the Company’s opening statement of financial position was prepared as at January 1, 2021, the Company’s date of transition to IFRS. This note explains the principal adjustments made by the Company in restating its US GAAP financial statements.
Exemptions applied
IFRS 1 allows first-time adopters certain exemptions from the retrospective application of certain requirements under IFRS. The Company has applied the following exemptions:
IFRS 3 Business Combinations has not been applied to either acquisitions of subsidiaries that are considered businesses under IFRS, or acquisitions of interests in associates and joint ventures that occurred before January 1, 2021. Use of this exemption means that the US GAAP carrying amounts of assets and liabilities, that are required to be recognized under IFRS, are their deemed cost at the date of the acquisition. After the date of the acquisition, measurement is in accordance with IFRS. Assets and liabilities that do not qualify for recognition under IFRS are excluded from the opening IFRS statement of financial position. The Company did not recognize any assets or liabilities that were not recognized under US GAAP or exclude any previously recognized amounts as a result of IFRS recognition requirements.
The Company has not restated contracts that were completed before January 1, 2021, under IFRS 15 “Revenue from Contracts with Customers”. A completed contract is a contract for which the Company has transferred all of the goods and services identified in accordance with US GAAP.
The Company assessed all contracts existing at January 1, 2021 to determine whether a contract contains a lease based upon the conditions in place as at January 1, 2021 in accordance with IFRS 16 “Leases”. Lease liabilities were measured at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate at January 1, 2021. Right-of-use assets were measured at the amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognized in the statement of financial position immediately before January 1, 2021. The lease payments associated with leases for which the lease term ends within 12 months of the date of transition to IFRS and leases for which the underlying asset is of low value have been recognized as an expense on either a straight-line basis over the lease term or another systematic basis. The transition to IFRS 16 did not result in any material impact on the Company’s financial position as at December 31, 2021 and 2020, or operation results for the three months ended March 31, 2021, and therefore, no adjustment has been proposed accordingly.
| 18 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
IFRS 1 allows an entity that used full cost accounting under its previous GAAP to elect, at the time of adoption to IFRS, to measure oil and gas assets in the development and production phases by allocating the amount determined under the entity’s previous GAAP for those assets to the underlying assets pro rata using a reasonable method as of that date. The costs of development and production assets have been separately recorded by the Company for each group of assets.
As the Company elected the oil and gas assets IFRS 1 exemption, the asset retirement obligation (“ARO”) exemption available to full cost entities was also elected. This exemption allows for the re-measurement of ARO on IFRS transition with the offset to accumulated deficit.
The Company has elected the IFRS 1 exemption that allows the Company an exemption from applying IFRS 2 “Share-Based Payments” to equity instruments which vested and settled before the Company’s transition date to IFRS.
The Company has elected the IFRS 1 exemption that allows the Company an exemption from applying IFRS 9 “Financial Instruments” to financial instruments that were derecognized before the date of transition to IFRS on January 1, 2021.
| 19 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
Reconciliation of financial position as at January 1, 2021 (date of transition to IFRS)
Summary of Reconciliation of Financial Position
| Notes | US GAAP | Effect of Transition to IFRS | IFRS | |||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||||
| Account receivables | ||||||||||||||
| Prepaid expenses and deposits | ||||||||||||||
| Total current assets | ||||||||||||||
| Oil and gas properties, net | (1), (5) | ( | ) | |||||||||||
| Exploration and evaluation assets | (1) | |||||||||||||
| Property and equipment, net | ||||||||||||||
| Restricted cash | ||||||||||||||
| Total assets | $ | $ | $ | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | |||||||||||
| Loans payable - current | ||||||||||||||
| Lease liability - current | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Asset retirement obligation | (2) | |||||||||||||
| Loans payable | ||||||||||||||
| Convertible debt | ||||||||||||||
| Derivative liability | ||||||||||||||
| Lease liability | ||||||||||||||
| Total liabilities | ||||||||||||||
| Stockholders’ deficiency: | ||||||||||||||
| Common stock | ||||||||||||||
| Additional paid-in capital | (3) | ( | ) | |||||||||||
| Share premium | (3) | |||||||||||||
| Notes and amounts receivable for equity issued | ||||||||||||||
| Stock subscriptions and stock to be issued | ||||||||||||||
| Shares to be cancelled | ||||||||||||||
| Obligation to Issue Shares | ||||||||||||||
| Warrant and option reserve | (3) | |||||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||||
| Total stockholders’ deficiency | ( | ) | ( | ) | ( | ) | ||||||||
| Total liabilities and stockholders’ deficiency | $ | $ | $ | |||||||||||
| 20 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
Reconciliation of financial position as at December 31, 2021
| Notes | US GAAP | Effect of Transition to IFRS | IFRS | |||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||||
| Accounts receivable | ||||||||||||||
| Prepaid expenses and deposits | ||||||||||||||
| Total current assets | ||||||||||||||
| Oil and gas properties, net | (1), (2), (5) | ( | ) | |||||||||||
| Exploration and evaluation assets | (1) | |||||||||||||
| Property and equipment, net | ||||||||||||||
| Restricted cash | ||||||||||||||
| Total assets | $ | $ | ( | ) | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | |||||||||||
| Loans payable | ||||||||||||||
| Lease liability | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Asset retirement obligation | (2) | |||||||||||||
| Loans payable | ||||||||||||||
| Derivative liability | ||||||||||||||
| Lease liability | ||||||||||||||
| Total liabilities | ||||||||||||||
| Stockholders’ equity (deficiency): | ||||||||||||||
| Common stock | ||||||||||||||
| Additional paid-in capital | (3), (4) | ( | ) | |||||||||||
| Share premium | (3), (4) | |||||||||||||
| Notes and amounts receivable for equity issued | ( | ) | ( | ) | ||||||||||
| Warrant and option reserve | (3) | |||||||||||||
| Shares to be cancelled | ||||||||||||||
| Obligation to Issue Shares | ||||||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||||
| Total stockholders’ equity (deficiency) | ( | ) | ( | ) | ||||||||||
| Total liabilities and stockholders’ equity (deficiency) | $ | $ | ( | ) | $ | |||||||||
| 21 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
Reconciliation of operation results for the three months ended March 31, 2021
| Notes | US GAAP | Effect of Transition to IFRS | IFRS | |||||||||||
| Revenue | ||||||||||||||
| Oil and natural gas sales | $ | $ | $ | |||||||||||
| Cost and expenses | ||||||||||||||
| Production | ||||||||||||||
| Depletion | (5) | |||||||||||||
| Depreciation | ||||||||||||||
| Accretion of asset retirement obligation | (2) | ( | ) | |||||||||||
| Stock based compensation | ||||||||||||||
| General and administrative | ||||||||||||||
| Total expenses | ( | ) | ||||||||||||
| Loss before other income (expenses) | ( | ) | ( | ) | ||||||||||
| Other income (expenses) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||
| Interest income | ||||||||||||||
| Finance cost | ( | ) | ( | ) | ||||||||||
| Foreign exchange loss | ( | ) | ( | ) | ||||||||||
| Other expense | ( | ) | ( | ) | ||||||||||
| Loss on debt extinguishment | (4) | ( | ) | ( | ) | |||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||||||||
| Total other expenses | ( | ) | ( | ) | ||||||||||
| Net loss for the period | $ | ( | ) | $ | $ | ( | ) | |||||||
| Loss per share | $ | ( | ) | $ | $ | ( | ) | |||||||
| Weighted average number of shares outstanding | ||||||||||||||
| Other comprehensive loss | ||||||||||||||
| Foreign currency translation adjustments | $ | ( | ) | $ | $ | ( | ) | |||||||
| Comprehensive loss | $ | ( | ) | $ | $ | ( | ) | |||||||
Notes to the reconciliations
The reconciling items between US GAAP and IFRS presentation have no significant effect on the cash flows generated. Therefore, a reconciliation of cash flows has not been presented above.
| 22 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 2. | Summary of Significant Accounting Policies (continued) |
| (1) | Exploration and evaluation assets (“E&E assets”) |
An adjustment has been made to reclassify the presentation of the Company’s Bulgarian property as exploration and evaluation assets as it is not a property under development or production, in accordance with IFRS.
| (2) | Asset retirement obligation |
Under
US GAAP, the ARO was discounted at a rate of
As
a result of the change in discount rate, the ARO accretion expense decreased by $
| (3) | Option reserve and share premium |
Under US GAAP, share-based payments were presented as additional paid-in capital. Upon transition to IFRS, a reclassification adjustment has been made to separately present the amount related to share-based compensation of $. The remaining additional paid-in capital has been reclassified to share premium.
| (4) | Loss on convertible debt extinguishment |
Under
US GAAP, when conversion features have been bifurcated from the conversion debt host and accounted for as liabilities, no equity conversion
feature remains in the debt instrument. The liabilities for the debt and the conversion feature are extinguished in exchange for common
shares, the difference between the carrying value of the liabilities and the fair value of the common shares ae recorded as a gain or
loss. IFRS requires the entity to derecognize the liability component and recognize it as equity on conversion of a convertible instrument
and no gain or loss is recognized. As a result of the difference between the two accounting standards, for the three months ended March
31, 2021, the loss on debt extinguishment decreased by $
| (5) | Depletion |
The
Company is depleting its oil and gas properties over the proved reserves. IFRS requires an entity to include the estimated future costs
to develop the reserves in the calculation of depletion. The calculation of depletion under US GAAP did not include the estimated future
development costs as the Company applied Electronic Code of Federal Regulation Title 17 Section 210.4-1, Financial accounting and reporting
for oil and gas producing activities pursuant to the Federal securities laws and the Energy Policy and Conservation Act of 1975, to exclude
the estimated future expenditures associated with a major development. As a result, oil and gas properties, net, increased by $
| 23 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
3. Restricted Cash
The
restricted cash relates to drilling bonds provided to the General Directorate of Petroleum Affairs (the “GDPA”) for the exploration
licenses due to Turkish Petroleum Law. The amounts are for
4. Amounts Receivable
Schedule of Amounts Receivable
| March 31, 2022 | December 31, 2021 | December 31, 2020 | ||||||||||
| Accounts receivable | $ | $ | $ | |||||||||
| GST receivable | ||||||||||||
| Interest receivable | ||||||||||||
| Due from related parties | ||||||||||||
| Other | ||||||||||||
| Amounts receivable | $ | $ | $ | |||||||||
5. Oil and Gas Properties
Schedule of Oil and Gas Properties
| SASB | Cendere | Total | ||||||||||
| December 31, 2020 | $ | $ | $ | |||||||||
| Expenditures | ||||||||||||
| Depletion | ( | ) | ( | ) | ( | ) | ||||||
| Change in estimate | ( | ) | ( | ) | ||||||||
| December 31, 2021 | ||||||||||||
| Oil and gas properties, beginning balance | ||||||||||||
| Expenditures | ||||||||||||
| Depletion | ( | ) | ( | ) | ( | ) | ||||||
| Change in estimate | ( | ) | ( | ) | ( | ) | ||||||
| March 31, 2022 | $ | $ | $ | |||||||||
| Oil and gas properties, ending balance | $ | $ | $ | |||||||||
Turkey
Cendere oil field
The
primary asset of PPE Turkey is the Cendere onshore oil field, which is a profitable oil field located in South East Turkey having 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 TPAO. The Company’s interest is
| 24 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
5. Oil and Gas Properties (continued)
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. SASB has four producing fields, each with a production platform plus subsea pipelines that connect the fields to an
onshore gas plant.
Bakuk gas field
The
Company also owns a
6. Exploration & Evaluation Asset
Schedule of Exploration & Evaluation Asset
| Unproven properties | ||||
| Bulgaria | ||||
| December 31, 2020 | ||||
| Foreign currency translation change | ( | ) | ||
| December 31, 2021 | $ | |||
| Foreign currency translation change | ||||
| March 31, 2022 | ||||
Bulgaria
The Company holds a 98,205-acre oil and gas exploration claim in the Dobrudja Basin located in northeast Bulgaria. The Company intends to conduct exploration for natural gas and test production activities over a five-year period in accordance with or exceeding its minimum work program obligation. The Company’s commitment is to perform geological and geophysical exploration activities in the first 3 years of the initial term (the “Exploration and Geophysical Work Stage”), followed by drilling activities in years 4 and 5 of the initial term (the “Data Evaluation and Drilling Stage”). The Company is required to drill 10,000 meters (approximately 32,800 feet) of new wellbore (which may be vertical, horizontal or diagonal) and conduct other exploration activities during the initial term. The Company intends to commence its work program efforts once it receives all regular regulatory approvals of its work programs.
| 25 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
7. Property and Equipment
Summary of Property, Plant and Equipment
| Right-of-use asset | Leasehold improvements | Other equipment | Total | |||||||||||||
| Right-of-use asset | Leasehold improvements | Other equipment | Total | |||||||||||||
| December 31, 2020 | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Depreciation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Disposals | ( | ) | ( | ) | ||||||||||||
| Foreign currency translation change | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| December 31, 2021 | $ | $ | $ | $ | ||||||||||||
| Balance | $ | $ | $ | $ | ||||||||||||
| Additions | ||||||||||||||||
| Depreciation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation change | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| March 31, 2022 | $ | $ | $ | $ | ||||||||||||
| Balance | $ | $ | $ | $ | ||||||||||||
8. Loans Payable
Schedule of Loans Payable
| As at | March 31, 2022 | December 31, 2021 | December 31, 2020 | |||||||||
| As at | March 31, 2022 | December 31, 2021 | December 31, 2020 | |||||||||
| Unsecured,
interest bearing loans at | $ | $ | $ | |||||||||
| Unsecured,
interest bearing loans at | ||||||||||||
| Unsecured,
interest bearing loan at | ||||||||||||
| Unsecured,
interest bearing loan at | ||||||||||||
| Unsecured,
interest bearing loan at | ||||||||||||
| Unsecured,
interest bearing loan at | ||||||||||||
| Non-interest bearing loans | ||||||||||||
| Total loans payable | ||||||||||||
| Current portion of loans payable | ( | ) | ( | ) | ( | ) | ||||||
| Long-term portion of loans payable | $ | $ | $ | |||||||||
| (1) |
| (2) |
| (3) |
| 26 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
8. Loans Payable (continued)
| (4) |
| (5) |
9. Leases
The Company leases certain assets under lease agreements. On January 1, 2020, the Company entered into a one-year lease for office space, which the Company elected the short-term lease measurement and recognition exemption.
On January 3, 2020, the Company entered into a five-year lease for an office space.
As
of March 31, 2022, the Company’s lease had a remaining lease term of
Summary of Changes in ROU Assets
| Right-of-use asset |
|
March 31, 2022 |
|
December 31, 2021 |
|
December 31, 2020 | ||||||
| Right-of-use asset | March 31, 2022 | December 31, 2021 | December 31, 2020 | |||||||||
| Beginning balance | $ | $ | $ | |||||||||
| Additions, cost | ||||||||||||
| Amortization | ( | ) | ( | ) | ( | ) | ||||||
| Foreign currency translation change | ( | ) | ( | ) | ( | ) | ||||||
| Net book value | $ | $ | $ | |||||||||
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
| 27 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 9. | Leases (continued) |
As at March 31, 2022, the Company’s lease liability is as follows:
Summary of Lease Liability
| Lease liability | March 31, 2022 | December 31, 2021 | December 31, 2020 | |||||||||
| Current portion of operating lease liability | $ | $ | $ | |||||||||
| Long-term portion of operating lease liability | ||||||||||||
| Lease liability | $ | $ | $ | |||||||||
Future minimum lease payments to be paid by the Company as a lessee as of March 31, 2022 are as follows:
Summary of Future Minimum Lease Payments
| Operating lease commitments and lease liability | ||||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total future minimum lease payments | ||||
| Discount | ( | ) | ||
| Total | $ | |||
10. Notes and Amounts Receivable for Equity Issued
Schedule of Notes and Amounts Receivable for Equity Issued
| March 31, 2022 | ||||
| Notes receivable | $ | |||
| Amounts receivable | * | |||
| Notes and Amounts Receivable for Equity Issued | $ | |||
| * |
During the year ended December 31, 2021, the Company entered into agreements with certain warrant and option holders for the following notes receivables as consideration for the exercise of warrants and options:
On
July 31, 2021, the Company entered into a promissory note agreement with a principal sum of $
On
July 31, 2021, the Company entered into a promissory note agreement with a principal sum of $
On
July 31, 2021, the Company entered into a promissory note agreement with a principal sum of $
On
July 31, 2021, the Company entered into a promissory note agreement with a principal sum of $
| 28 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 10. | Notes and Amounts Receivable for Equity Issued (continued) |
On
July 31, 2021, the Company entered into a promissory note agreement with a principal sum of $
On
July 31, 2021, the Company entered into a promissory note agreement with the CFO of the Company with a principal sum of $
On
July 31, 2021, the Company entered into a promissory note agreement with a principal sum of $
On
July 31, 2021, the Company entered into a promissory note agreement with a principal sum of $
On
July 31, 2021, the Company entered into a promissory note agreement with the CEO of the Company with a principal sum of $
On
July 31, 2021, the Company entered into a promissory note agreement with the CEO of the Company with a principal sum of $
On
November 10, 2021, the Company entered into a promissory note agreement with the CEO of the Company with a principal sum of $
On
November 10, 2021, the Company entered into a promissory note agreement with a principal sum of $
On
November 10, 2021, the Company entered into a promissory note agreement with a principal sum of $
On
November 10, 2021, the Company entered into a promissory note agreement with a director of the Company with a principal sum of $
| 29 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 10. | Notes and Amounts Receivable for Equity Issued (continued) |
See summary table below for terms specific to the promissory note.
Schedule of Promissory Notes
# of Securities exercised | Principal | Maturity date | Interest rate | ||||||||||
| Current | |||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| $ | % | ||||||||||||
| Total | * | $ | |||||||||||
| * |
The following is a continuity of the Company’s promissory note receivable:
Schedule of Promissory Note Receivable
| Notes Receivable | ||||
| Beginning balance, Jan 1, 2021 | $ | |||
| Additions | ||||
| Repayments | ( | ) | ||
| Accrued interest | ||||
| Foreign exchange loss on revaluation | ( | ) | ||
| Net book value, December 31, 2021 and March 31, 2022 | $ | |||
During
the three months ended March 31, 2022, the accrued interest income totaled $
| 30 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
11. Asset Retirement Obligations
The following is a continuity of the Company’s asset retirement obligations:
Schedule of Asset Retirement Obligations
March 31, 2022 | December 31, 2021 | |||||||
| Balance at the beginning of period | $ | $ | ||||||
| Accretion expense | ||||||||
| Change in estimate | ( | ) | ( | ) | ||||
| Balance at the end of period | $ | $ | ||||||
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 March 31, 2022 is $
12. Convertible Debentures
On
September 30, 2019, the Company closed an unbrokered private placement of convertible debt, issuing $
As the September 30, 2019, convertible debt included an embedded conversion feature denominated in Canadian dollars other than the functional currency which was USD at the issuance of the convertible debt, the debt was determined to be a financial instrument comprising an embedded derivative representing the conversion feature with a residual host debt component. On initial recognition, the Company used the residual value method to allocate the principal amount of the debentures between the embedded derivative conversion feature and host debt components. The conversion feature was valued first with the residual allocated to the host debt component.
On
initial recognition the Company recognized a derivative liability of $
The fair value of the conversion features was determined based on the Black-Scholes Option Pricing Model using the following weighted average assumptions:
Schedule of Fair Value Assumptions of Conversion Features
| 2020 | ||||
| Risk-free interest rate | % | |||
| Expected life (years) | ||||
| Expected volatility | % | |||
| Dividend yield | % | |||
| 31 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 12. | Convertible Debentures (continued) |
On
July 1, 2020, the Company amended the conversion price of the convertible debentures. Under the amended terms, they are convertible any
time during the term of the debenture into units (each unit consists of one share and one warrant; each warrant can acquire one share
at an exercise price of $CAD per share, or approximately US$
On
September 15, 2020, debt in the principal amount of $
On
March 8, 2021, the Company amended the terms of the convertible debentures such that any warrants issued with the units upon the conversion
of the debentures is exercisable at US$
On
March 8, 2021, the debt in the principal amount of $
On
March 30, 2021, the debt in the principal amount of $
A continuity of convertible debt and the embedded derivative conversion feature for the three months ended March 31, 2022 is as follows:
Schedule of Convertible Debt and Embedded Derivative Conversion
| Host debt instrument | Embedded
conversion feature | Total | ||||||||||
| Host debt instrument | Embedded
conversion feature | Total | ||||||||||
| Balance, December 31, 2020 | ||||||||||||
| Accretion | ||||||||||||
| Conversion | ( | ) | ( | ) | ( | ) | ||||||
| Balance, December 31, 2021 & March 31, 2022 | $ | $ | $ | |||||||||
13. Common Stock
The Company has an unlimited number of common shares authorized with a par value of $CAD per share. As at March 31, 2022, common shares were issued and outstanding (December 31, 2021 - ).
For the three months ended March 31, 2022
On
March 15, 2022, the Company issued units at $CAD per unit for gross proceeds of $CAD ($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 $CAD for two years from the date of the closing
of the offering. As the fair value of the common shares on the same date exceeded the issuance price, no residual value was assigned
to the warrants. Cash finder’s fee of CAD ($USD) were paid and finder’s warrants were issued with a fair
value of $
| 32 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 13. | Common Stock (continued) |
On
March 16, 2022, the Company issued units at $CAD per unit for gross proceeds of $CAD ($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 $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 $CAD ($USD) were paid and finder’s warrants were issued with a fair
value of $
On March 17, 2022, the Company closed a non-brokered private placement financing, by issuing units at $CAD per unit for proceeds of $CAD ($USD). 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 $CAD for two years from the date of the closing of the offering.
In concurrence with the non-brokered private placement on March 17, 2022, the Company:
| ● | issued shares, of which relate to the vesting of restricted stock units granted in 2021 and relating to the granting and vesting of restricted stock units during the quarter ended March 31, 2022. The value of the restricted stock units granted during the quarter ended March 31, 2022 is $CAD ($USD). $of the share-based compensation was recorded in the prior year. The share-based compensation for the three months ended March 31, 2022 totaled $; | |
| ● | issued units for prepaid services valued at $CAD ($USD). During the three months ended March 31, 2022, $($USD) was expensed and included in investor relations on the consolidated statement of loss and comprehensive loss. As at March 31, 2022, $CAD (approximately $) was included in prepaid expenses and deposits on the consolidated statement of financial position; and | |
| ● | issued units at a fair value of $CAD per unit for debt settlement of $CAD ($USD) with no loss or gain recognized. |
On
March 18, 2022, the Company issued units at $CAD per unit for gross proceeds of $CAD ($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 $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 $CAD ($USD) was paid and finder’s warrants were issued with a fair
value of $
On
March 24, 2022, the Company issued units at $CAD per unit for gross proceeds of $CAD ($USD) pursuant to the closing of a non-brokered
private placement. Each unit comprises one common shares and one half of one share purchase warrant. Each whole warrant entitles the
holder to purchase one common share for $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 $CAD ($USD) was paid and finder’s warrants were issued with a fair
value of $
| 33 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 13. | Common Stock (continued) |
On
March 28, 2022, the Company issued units at $CAD per unit for gross proceeds of $CAD ($USD) pursuant to the closing of a non brokered
private placement. Each unit comprises one common shares and one half of one share purchase warrant. Each whole warrant entitles the
holder to purchase one common share for $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 $CAD ($USD) were paid and finder’s warrants were issued with a fair
value of $
During
the three months ended March 31, 2022, warrants with an exercise price of $CAD and warrants with an exercise price of $CAD were exercised with cash proceeds of $CAD ($USD). Warrant and option reserve of $
On
March 1, 2022, the Company entered into a consulting agreement with a third party. Pursuant to the consulting agreement, the Company
would issue common shares for the consulting services received
in March 2022. As at March 31, 2022, the common shares have not been issued and the fair value of $
For the three months ended March 31, 2021
On March 8, 2021, the Company closed a non-brokered private placement financing for aggregate gross proceeds of $CAD (approximately US$) (the “March Offering”). Under the March Offering, the Company issued an aggregate of units, at a price of $CAD per unit (approximately US$per unit). Each unit was comprised of one Common Share and one-half of one share purchase warrant. Each warrant entitles the holder to purchase one Common Share at a price of $CAD (approximately $) for a period of 30 months from the closing date.
On March 8, 2021, the Company settled a total of $CAD (US$) in outstanding debt through the issuance to a creditor of units, at a price of $CAD (US$) per unit. Each unit issued in the Debt Settlement consists of one Common Share and one warrant under the same terms as the March Offering.
On March 8, 2021, the Company closed a private placement for aggregate proceeds of $(the “US Private Placement”). Under the US Private Placement, the corporation issued an aggregate of units at a price of $per unit. Each unit was comprised of one Common Share and one-half of one share purchase warrant. Each warrant entitles the holder to purchase one Common Share at a price of $for a period of 30 months from the closing date.
On
March 8, 2021, convertible debt in the principal amount of $
| 34 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 13. | Common Stock (continued) |
On
March 30, 2021, convertible debt in the principal amount of $
On March 30, 2021, the Company granted restricted share units which vested immediately. In connection with the grant, Common Shares with a fair value of $were issued.
On March 30, 2021, the Company issued Common Shares for the exercise of warrants at $for gross proceeds of $.
On March 30, 2021, the Company issued Common Shares for the exercise of options at $for gross proceeds of $. In addition, the Company also issued Common Shares for the exercise of options. In lieu of cash, the Company settled $of outstanding debt.
On
March 30, 2021, the Company issued Common Shares for the exercise of warrants at $CAD (approximately US$),
with a fair value of $
On March 30, 2021, the Company issued Common Shares with a fair value of $for services provided.
On
March 30, 2021, the Company issued Common Shares with a fair value of $to settle debt of $
The Incentive Plan authorizes the following types of awards:
| ● | incentive stock options and nonqualified stock options to purchase common stock at a set price per share; | |
| ● | stock appreciation rights (“SARs”) to receive upon exercise common stock or cash equal to the appreciation in value of a share of Common Stock; | |
| ● | restricted stock, which are shares of common stock granted subject to a restriction period and/or a condition which, if not satisfied, may result in the complete or partial forfeiture of the shares; | |
| ● | other stock-based awards, which provide for awards denominated in or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of common stock of the Company, which may include performance shares or options and restricted stock units which provide for shares to be issued or cash to be paid upon the lapse of predetermined restrictions. |
| 35 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 14. | Stock Options (continued) |
Under the 2013 Plan, the maximum number of shares of authorized stock that may be delivered is of the total number of shares of common stock issued and outstanding of the Company as determined on the applicable date of grant of an award under the 2013 Plan. Under the 2013 Plan, the exercise price of each option (or other stock-based award) shall not be less than the market price of the Company’s stock as calculated immediately preceding the day of the grant. The vesting schedule for each option or other stock-based award shall be specified by the Board of Directors at the time of grant. The maximum term of options or other stock-based award granted is ten years or such lesser time as determined by the Board of Directors at the time of grant.
Summary of Changes in Stock Options
| Number of options | Weighted
average exercise price | |||||||
| Outstanding, December 31, 2020 | ||||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Cancelled | ( | ) | ||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Exercised | ( | ) | ||||||
| Outstanding, March 31, 2022 | $ | |||||||
Schedule of Stock Options Outstanding and Exercisable
| Outstanding | Exercise Price | Expiry Date | Vested | |||||||||
As
at March 31, 2022, the weighted average remaining contractual life of outstanding stock options is years. The aggregate intrinsic value of the stock
options at March 31, 2022 is $
For the three months ended March 31, 2022, the Company recognized $(2021 - ) in stock-based compensation expense for options granted and vested. At March 31, 2022 and 2021, the Company has no unrecognized compensation expense related to stock options.
During
the three months ended March 31, 2022, options with an exercise price of $CAD (approximately $USD) were exercised for gross proceeds of $
| 36 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 14. | Stock Options (continued) |
The fair values for stock options granted have been estimated using the Black-Scholes option pricing model using the following weighted average assumptions:
Schedule of Weighted Average Assumptions
| 2022 | 2021 | |||||||
| Risk-free interest rate | N/A | – | % | |||||
| Expected life (years) | N/A | |||||||
| Expected volatility | N/A | - | % | |||||
| Dividend yield | N/A | % | ||||||
| Weighted average fair value per share | N/A | $ | ||||||
15. Warrants
A continuity of the Company’s outstanding share purchase warrants for the three months ended March 31, 2022 and the year ended December 31, 2021 is presented below:
Summary of Changes in Warrants
| Number
of warrants | Weighted average exercise price | |||||||
| Outstanding, December 31, 2020 | ||||||||
| Issued | ||||||||
| Exercised | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding, December 31, 2021 | $ | |||||||
| Issued | ||||||||
| Exercised | ( | ) | ||||||
| Outstanding, March 31, 2022 | $ | |||||||
Schedule of Purchase Warrants Outstanding
| Outstanding | Exercise Price | Expiry Date | ||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
| USD | ||||||
As at March 31, 2022, the weighted average remaining contractual life of outstanding warrants is years.
| 37 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 15. | Warrants (continued) |
As at December 31, 2021, the Company had warrants issued in connection with private placements, or debt settlements. The exercise price of such warrants was denominated in CAD other than the functional currency prior to January 1, 2022. As such the warrants were classified as derivate liabilities with a fair value of $. As a result of the change in functional currency of Trillion Energy International Inc. (“Trillion”) to CAD on January 1, 2022, such warrants were reclassified to equity.
Due
to the change in functional currency of Trillion, warrants with a carrying value of $
The following is a continuity of the Company’s derivative warrant liability:
Schedule of Warrant Derivative Liability
| Total | ||||
| Balance, January 1 and December 31, 2020 | $ | |||
| Issued during the period | ||||
| Extinguished during the period | ( | ) | ||
| Change in fair value of derivative | ( | ) | ||
| Balance, December 31, 2021 | $ | |||
| Effect of change in functional currency | ( | ) | ||
| Change in fair value of derivative | ||||
| Foreign exchange difference | ||||
| Balance, March 31, 2022 | $ | |||
In connection with the private placements in March , 2022, the Company issued warrants and finder’s warrants for a total number of (Note 13). As the fair value of the common shares on the closing dates of the private placements were greater than the unit subscription price, no residual value was assigned to any of the warrants. The fair values for finder’s warrants granted during the current period, have been estimated using the Black-Scholes option pricing model using the following assumptions:
Schedule of Weighted Average Assumption for Warrants
| 2022 | ||||
| Risk-free interest rate | – % | |||
| Expected life (years) | ||||
| Expected volatility | % | |||
| Dividend yield | % | |||
| Share price | $ | - $CAD | ||
During
the three months ended March 31, 2022,
| 38 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
16. Restricted Stock Units
During the three months ended March 31, 2022, the Company granted (2021 – ) restricted stock units (“RSUs”) as consideration for management and consulting contracts. The RSUs were valued at $(2021 - $) based on the fair market value of the closing price of the common stock of the Company at the grant date and are recognized evenly over the vesting period. Within 30 days of vesting, the RSUs are exchanged for shares of common stock of the Company.
During the three months ended March 31, 2022, common stock valued at $relating to the vested RSUs during the year ended December 31, 2021, were issued (Note 13).
For the three months ended March 31, 2022, the Company recognized $(2021 - $) in stock-based compensation expense for RSUs granted and vested (Note 13). At March 31, 2022 and 2021, the Company has no unrecognized compensation expense related to RSUs.
Schedule of Restricted Stock Units
| Number
of restricted stock units | Weighted average fair value per award | |||||||
| Balance, December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Balance, December 31, 2021 | ||||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Balance, March 31, 2022 | ||||||||
17. Related Party Transactions
At
March 31, 2022, accounts payable and accrued liabilities included $
During
the three months ended March 31, 2022, management fees of $
During
the three months ended March 31, 2022, the Company issued (2021 - )
units for the settlement of accounts payable owed to related parties in the amount of $
During
the three months ended March 31, 2022, the Company issued (2021 - )
common shares relating to the exercise of (2021 – )
warrants and (2021 – )
options held by related parties. As consideration, the Company entered into promissory note agreements with the related parties for total
principal receivable by the Company of $(2021 - $
As
at December 31, 2021, notes receivable included $
| 39 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
18. General and Administrative
Schedule of General and Administrative Expense
| March 31, 2022 | March 31, 2021 | |||||||
| For the three months ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| Salaries and compensation | $ | $ | ||||||
| Professional fees | ||||||||
| Office | ||||||||
| Filing and Transfer Fees | ||||||||
| Advertising | ||||||||
| Bank charges and other | ||||||||
| General and Administrative | $ | $ | ||||||
19. Geographical Segment Information
During the three months ended March 31, 2022 and 2021, the Company’s operations were in the resource industry in Bulgaria, and Turkey with head offices in the United States and a satellite office in Sofia, Bulgaria. The Company’s operating segments included, a head office in Canada, oil and gas operations in Turkey and oil and gas properties located in Bulgaria.
Schedule of Geographical Segment Information
| Canada | Turkey | Bermuda | Bulgaria | Total | ||||||||||||||||
| Revenue for the three months ended March 31, | ||||||||||||||||||||
| 2022 | $ | $ | $ | $ | $ | |||||||||||||||
| 2021 | $ | $ | $ | $ | $ | |||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Non-current assets as at | ||||||||||||||||||||
| March 31, 2022 | $ | $ | $ | $ | $ | |||||||||||||||
| December 31, 2021 | $ | $ | $ | $ | $ | |||||||||||||||
| Non-current assets | $ | $ | $ | $ | $ | |||||||||||||||
20. 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.
| 40 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
21. 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 |
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 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.
| (i) | 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 March 31, 2022, 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
| (ii) | 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 has significant debt facilities, including convertible debt and promissory notes and loans payable. As the debt facilities are incurring a fixed rate of interest, the Company is not significantly exposed to interest rate risk.
| (iii) | 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.
| 41 |
TRILLION ENERGY INTERNATIONAL INC.
Notes to the Consolidated Interim Financial Statements
For the three months ended March 31, 2022 and 2021
(Expressed in U.S. dollars)
(Unaudited)
| 21. | Financial Instruments and Risk Management (continued) |
| 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. The Company limits its exposure to credit loss on cash by placing its cash with a high-quality financial institution.
| 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 table below summarizes the maturity profile of the Company’s contractual cashflows.
Summary of Maturity Profile of the Contractual Cashflows
| As at March 31, 2022 | Less than 1 year | 1 - 2 years | Later than 2 years | Total | ||||||||||||
| As at March 31, 2022 | Less than 1 year | 1 - 2 years | Later than 2 years | Total | ||||||||||||
| Accounts payable | $ | $ | $ | $ | ||||||||||||
| Loans payable | ||||||||||||||||
| Lease liability | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
| As at December 31, 2021 | Less than 1 year | 1 - 2 years | Later than 2 years | Total | ||||||||||||
| Accounts payable | $ | $ | $ | $ | ||||||||||||
| Loans payable | ||||||||||||||||
| Lease liability | ||||||||||||||||
| Total liabilities | $ | $ | $ | $ | ||||||||||||
22. Subsequent Events
Subsequent to March 31, 2022, the Company issued shares pursuant to the exercise of warrants and options that were exercised during the three months ended March 31, 2022.
Subsequent
to March 31, 2022, the Company issued shares pursuant to the exercise of warrants at $for proceeds of $
Subsequent
to March 31, 2022, the Company issued shares pursuant to the exercise of options at $ CAD ($ USD) for proceeds
of $
Subsequent
to March 31, 2022, the Company issued shares pursuant to the exercise of warrants at $ CAD ($ USD) for proceeds
of $
| 42 |
Exhibit 99.2
TRILLION ENERGY INTERNATIONAL INC.
MANAGEMENT DISCUSSION & ANALYSIS
For the three months ended March 31, 2022 and 2021
TABLE OF CONTENTS
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TRILLION ENERGY INTERNATIONAL INC.
MANAGEMENT DISCUSSION & ANALYSIS
For the three months ended March 31, 2022 and 2021
(Expressed in United States Dollars)
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Unless otherwise noted, all currency amounts are in US dollars.
Our MD&A should be read in conjunction with our unaudited condensed interim consolidated financial statements of Trillion Energy International Inc., (“Trillion Energy”, the “Company”, “we”, and “our”) and the related notes thereto for the three months ended March 31, 2022 and 2021, and the audited consolidated financial statements for the years ended December 31, 2021 and 2020 and the related notes thereto.
Additional information related to the Company is available on its website at www.trillionenergy.com. Our prior Annual Reports on Form 20-F, Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”), pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”), can be accessed free of charge by linking directly from our website under the “Investor Relations - SEC Filings” caption to the SEC’s Edgar Database, as well as on the Canadian Securities Administrator’s website at www.sedar.com.
This MD&A was approved by the directors of the Company on June 16, 2022.
Caution Regarding 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.
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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.
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 move coincided with the redomicile of the Company from Delaware to British Columbia, a move which was approved by shareholders in November 2021. The Company also has a registered office in Turkey and Bulgaria. The Company was originally incorporated in Delaware in 2015, and in January 2022 became a British Columbia Company. The Company’s shares trade on the OTCQB under the symbol “TRLEF” and trade on the Canadian Securities Exchange under the symbol “TCF”.
On January 21, 2022, the Company redomiciled from Delaware, United States to British Columbia, Canada by way of an amalgamation transaction with the Company’s British Columbian subsidiary (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 continued to operate under the name of Trillion Energy International Inc. after the Repatriation Transaction.
As a result of the Repatriation Transaction, the Company met the definition of a foreign private issuer, as defined under Rule 3b-4 of the Securities Exchange Act of 1934, as amended.
Developments of the Business
Trillion Energy International Inc. is focused on its oil and gas producing assets in Turkey specifically its SASB Natural Gas field as well as its Cendere Oil field. It also has an exploration license in Bulgaria which it intends to explore for coal bed methane generated natural gas.
The Company’s current focus was on obtaining funding to produce the Company’s reserves in the oil and gas fields in Turkey, which management expects will generate significant additional cash-flow for the Company. The Company received approximately $17,598,610 CAD in gross proceeds pursuant to private placement subscriptions in March 2022, most of which is earmarked for exploratory wells on the SASB gas field in Turkey. The Company plans to raise another $20,000,000 during the second quarter of 2022 (the “Additional Funding”). The extent and timing of further development is contingent upon receiving the Additional Funding. The Company’s plan is to commence further development during August 2022 when the Uranus jack-up rig is scheduled to arrive at the SASB gas field. The Uranus Rig is based in Romania and will be used to drill a series of production wells and workovers commencing with reserves, as well as to perform certain rig-based workovers.
The Bulgaria license area holds great upside attraction as a potential natural gas coal bed methane exploration project. The license area was extensively drilled for coal exploration from 1964 to 1990, with over 200 wells and which delineated over 70 coal seams generating natural gas. It was determined that coal mining was not technically feasible due to depth, however, the coal exploration drilling provided the Company with an extensive geological control of the block.
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Turkey
The Company owns interests in the producing Cendere oil field (“Cendere”) and producing South Akcakoca Sub-Basin (“SASB”) gas field in Turkey. Cendere, a mature oilfield, is a long-term low decline oil reserve. The Company has a 19.6% interest in the Cendere oil field located in Southeast Turkey all except certain wells.
The SASB field holds significant upside through exploitation of reserves and resources where significant infrastructure is in place to realize same, including pipelines, offshore platforms, and a gas processing plant capable of processing 150,000 MCF/day. With this base of operations in Turkey and its experienced management team, the Company is poised to exploit these assets and for further growth in the region.
Cendere
At March 31, 2022, the gross oil production rate for the producing wells in Cendere was 688 bbls/day (barrels per day); the average daily 2022 Q1 gross production rate for the field was 581 bbls/day. At the end of March 2022, oil was sold at a price of approximately US$111 per barrel (“bbl”). At March 31, 2022, the Cendere field was producing 98 barrels of oil per day net to the us; and averaged 86 barrels per day during 2022 Q1 net to the Company.
SASB
SASB has four producing fields, each with a production platform plus subsea pipelines that connect the fields to an onshore gas plant. The SASB fields are located off the north coast of Turkey towards the western end of the Black Sea. Total gross production to date from the four fields is approximately 42.2 billion cubic feet (“Bcf”).
The Company plans to commence drilling additional wells and to conduct workovers on SASB commencing July, 2022, at which time the Uranus Rig from Romania will arrive on the licence block. The initial program will be seven wells (two workovers and five new directional wells) all which will produce immediately. The Company plans to extent the work program for up to an additional 10 wells, depending in part on the results of the first wells.
New wells have not been drill on SASB since 2011 and the current four producing wells are over 10 years old and require workovers or are depleted. As at March 31, 2022, the gross gas production rate for the remaining producing wells in SASB was 0.343 million cubic feet per day (“MMcfd”); the average daily 2022 gross production rate for the field was 0.367 MMcfd. The average gas sale price year to date was, US$11.85/Mcf and US$11.78 per Mcf for the month ending March 31, 2022. The field currently has relatively low production levels due to natural decline, down approximately 96% since peak production rates occurred during 2011, given no new wells have been drilled since 2011. At the end of March 2022, gas is currently sold at a price of approximately US$11.78/MCF. Current natural gas prices are approximately $18/MCF.
The Company also plans to explore potential opportunities around the SASB development license area, which is currently 12,385 hectares, by applying for a Technical Investigation Survey Permit for 200,000 hectares of surrounding area (“the Permit”). Upon receiving the Permit, the Company planned to reprocess existing 3D and 2D seismic with new technology. Such new technology is expected to improve the resolution of the data and define new exploration targets around the SASB.
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Bulgaria license
In October of 2010, the Company was awarded an exploration permit for the “Vranino 1-11 Block”, a 98,205 acre oil and gas exploration land located in Dobrudja Basin, Bulgaria, by the Bulgarian Counsel of Ministers. On April 1, 2014, the Company entered into an Agreement for Crude Oil and Natural Gas Prospecting and Exploration in the Vranino 1-11 Block with the Ministry of Economy and Energy of Bulgaria (the “License Agreement”). The initial term of the License Agreement is five years. This five-year period will commence once the Bulgarian regulatory authorities approve of the Company’s work programs for the permit area. The License Agreement (or applicable legislation) provides for possible extension periods for up to five additional years during the exploration phase, as well as the conversion of the License Agreement to an exploitation concession, which can last for up to 35 years. Under the License Agreement, the Company will submit a yearly work program that is subject to the approval of the Bulgarian regulatory authorities. The running time for the work program has not yet commenced for the work program, due certain environmental reports being required to be completed first.
Recent Events
On February 16, 2022, the Company announced it has signed a purchase order with Schlumberger (“SLB”) to provide all well engineering design services and drilling support for new well drilling operations at the SASB gas field, Black Sea Schlumberger is the world’s leading provider of technology for drilling and production to the global energy industry.
SLB’s services will include design and engineering of: well directional trajectories, offset analysis, casing requirements, drilling mud programs, directional tools, and the like. The initial engineering and planning services will be delivered during Q2 of 2022, in anticipation of drilling to commence in Q3 2022.
On May 18, 2022 the Company announced that it had signed a contract (“Contract”) to obtain drilling services from GSP Offshore SRL (“GSP”). The drilling services are for the Company’s planned SASB natural gas production and development program in the Black Sea. GSP was selected as its Uranus jack-up drilling rig is currently in the Black Sea, thus reducing costs of mobilization and because GSP has previously successfully drilled prior wells on the SASB gas field. GSP anticipates the Uranus rig will be able to commence service during July 2022 subject to a definitive agreement being executed by all parties. The rig service rate is USD $95,000 per day.
The Contract anticipates drilling up to five new wells and two recompletions (the “Initial Program”) and provides for a minimum 100 of drilling days at a rate of USD $95,000/day. The duration of the Initial Project is expected to be 7 months with one new well being put into production every 15-45 days.
The new wells are anticipated to produce immediately upon completion with production sold into the existing pipeline grid under contract, where high demand exists for the Company’s production as natural gas prices reached over USD $18 MCF during May 2022.
The Company also desires to utilize the GSP rig for an additional 7-10 new well drillings /workovers continuously after the completion of the Initial Program, on the same or similar fiscal terms as the Initial Project. This subsequent project primarily includes exploratory wells and or additional wells drilled into producing gas pool reserves. The exact number of wells targeted for the second program will depend on the results of the Initial Program.
It is the Company’s plan to drill all 17 wells, more or less continuously, bringing one new well into production every 45 days starting the 3rd quarter of 2022 and then throughout the duration of 2023 into 2024, thereby significantly ramping up the Company’s production over that time frame.
Strategic Focus
Our focus currently is increasing oil and gas production and in particular, our natural gas reserves at the SASB gas field in Turkey, which we expect will generate significant cash-flow and profits for the Company. Further development is contingent upon receiving further funding, and our plan is to further develop the fields when funding is received. The Bulgaria license area holds upside exploration potential as a potential coal bed methane natural gas project. The license area was extensively drilled for coal exploration from 1964 to 1990. It was determined that coal mining was not technically feasible. However, the coal exploration drilling provided us with an extensive database.
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Selected Quarterly Information
The following table sets forth selected interim financial information for the Company for the periods ended March 31, 2022 and 2021 and should be read in conjunction with the Company’s consolidated financial statements and related notes thereto for such periods.
The condensed consolidated interim financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and are expressed in United States dollars. The condensed consolidated interim financial statements for the three months ended March 31, 2022 are the first that the Company has prepared in accordance with IFRS (see Note 2 for details on First-Time Adoption of IFRS in the consolidated interim financial statements).
| For the three months ended March 31 | ||||||||
| 2022 ($) | 2021($) | |||||||
| Total revenue | 1,013,625 | 944,562 | ||||||
| Net loss attributable to the Company | (1,931,175 | ) | (9,354,788 | ) | ||||
| Net loss per share (basic and diluted) | (0.01 | ) | (0.07 | ) | ||||
| As at | ||||||||
| March 31, 2022 | December 31, 2021 | |||||||
| Total assets | 18,225,096 | 6,521,629 | ||||||
| Total current liabilities | 1,575,725 | 1,489,747 | ||||||
| Total non-current liabilities | 9,151,392 | 9,493,112 | ||||||
Three months ended March 31, 2022 compared to the three months ended March 31, 2021
The net loss for the three months ended March 31, 2022 increase by 79% compared to the net loss for the three months ended March 31, 2021 with $1,931,175 recognized during the first quarter 2022 as compared to a net loss of $9,354,788 for the first quarter 2021. Factors contributing to the net loss for the quarter included the following:
Revenue
Revenues increased by $69,063 from $944,562 for the three months ended March 31, 2021 to $1,013,625 for the three months ended March 31, 2022. The increase is primarily due to an increase in the sale price of oil and gas realized in Q1 of 2022 compared to Q1 of 2021, offset by a lower sales volume.
Expenses
For the three months ended March 31, 2022, the Company incurred production expenses related to its Turkey operations of $622,318 (2021 - $632,501), depletion charges of $66,549 (2021 - $109,101), depreciation expense of $11,180 (2021 - $7,007) and asset retirement obligation accretion expense of $224,828 (2021 - $22,873). Production expenses decreased by $10,183 due to the decrease in production volumes as discussed above. Depletion decreased by $42,552 as a result of a change in lower production level, while depreciation expenses were consistent with the prior period. Accretion of asset retirement costs increased by $201,955 for the three months ended March 31, 2022 primarily due to a change in estimate of risk free discount rate.
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For the three months ended March 31, 2022, the Company had general and administrative expenses of $1,111,900, compared to $483,624 for the three months ended March 31, 2021. $872,831 (2021 – $405,232) in expenses were from the North American head office and $$239,069 (2021 - $78,392) for the Turkey office.
For the three months ended March 31, 2022, the Company had investor relations expenses of $176,402, compared to $84,149 for the three months ended March 31, 2021. All of these expenses were related to the North American head office.
Other Income (Expense)
For the three months ended March 31, 2022, the Company had other expenses of $646,902 compared to other expenses of $8,923,195 for the three months ended March 31, 2021. Other expenses for the three months ended March 31, 2022, consists mainly of the loss from the change in the fair value of the derivative liability of $568,773 (2021 – $8,730,596) finance costs of $26,512 (2021 - $11,299), a foreign exchange loss of $121,125 (2021 - $66,445) and interest expense of $21,405 (2021 - $44,688) offset by a gain on debt extinguishment of $71,282 (2021 – loss of $72,105). For the three months ended March 31, 2022, the derivative liability arises from the Company’s warrants which are exercisable in US dollars as they have an exercise price denominated in a currency other than the Company’s functional currency of the Canadian dollar. Over the period, the value of the derivative liability increased substantially as a result of the increase in the Company’s share price from $0.19 as at January 1, 2022 to $0.30 as at March 31, 2022.
Total Assets
During the three months ended March 31, 2022, total assets increased by $11,703,467 from $6,521,629 as at December 31, 2021 to $18,225,096 as at March 31, 2022. The increase in total assets was primarily a result of an increase in cash of $11,611,557. The increase in cash is primarily a result of aggregate proceeds received of approximately $18 million CAD in gross proceeds pursuant to private placements closed in March 2022.
Total Non-current Liabilities
Total non-current liabilities as at March 31, 2022 decreased by $341,720 from $9,493,112 as at December 31, 2021 to $9,151,393 as at March 31, 2022. The decrease in total non-current financial liabilities was primarily a result of a $608,163 decrease in asset retirement obligation as a result of changes in estimates in risk free discount rate. This decrease was offset by an increase in derivative liabilities of $268,840 resulting from the change in functional currency from US dollars to Canadian dollars.
The financial information in the following tables summarizes selected financial information for the Company for the last eight quarters which was derived from annual financial statements prepared in accordance with IFRS and are expressed in United States dollars.
March 31, 2022 ($) | December 31, 2021 ($) | September 30, 2021 ($) | June 30, 2021 ($) | |||||||||||||
| Revenue | 1,013,625 | 863,703 | 879,207 | 1,013,255 | ||||||||||||
| Net Income (Loss) | (1,931,175 | ) | 84,982 | 5,364,888 | 1,832,343 | |||||||||||
| Net Income (Loss) per share (basic and diluted) | (0.01 | ) | 0.00 | 0.03 | 0.01 | |||||||||||
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| 2020 | ||||||||||||||||
March 31, 2021 ($) | December 31, 2020 ($) | September 30, 2020 ($) | June 30, 2020 ($) | |||||||||||||
| Revenue | 944,562 | 811,193 | 493,609 | 647,902 | ||||||||||||
| Net Income (Loss) | (9,354,788 | ) | (1,129,624 | ) | (1,183,375 | ) | (792,457 | ) | ||||||||
| Net Income (Loss) per share (basic and diluted) | (0.07 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||
Summary of Results During Prior Eight Quarters
Net loss increased for the three months ended March 31, 2022 by $2,016,157 compared to the three months ended December 31, 2021 from a net income of $84,982 to a net loss of $1,931,175. The increase is primarily due to a gain from the change in fair value of derivative liabilities of $966,192 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 $1,534,965. This is coupled with an increase of $403,874 in general and administrative expenses for the three months ended March 31, 2022 compared to the three months ended December 31, 2021. Revenues increased by $149,922 primarily as a result of fluctuating oil sales prices between Q4 2021 and Q1 2022.
Net income decreased for the three months ended December 31, 2021 by $5,279,906 compared to the three months ended September 30, 2021. This is mainly attributable to a decrease in the gain from the change in fair value of derivative liability of $5,239,722 from $6,205,914 for the three months ended September 30, 2021 to $966,192 for the three months ended December 31, 2021. This decrease is a result of the warrants underlying the derivative liability expiring during the three months ended September 30, 2021. Revenues stayed fairly consistent between Q3 and Q4, 2021 with a slight decrease of $15,504.
Net income increased for the three months ended September 30, 2021 by $3,532,545 compared to the three months ended June 30, 2021. This is mainly attributable to an increase in the gain from the change in fair value of derivative liability of $3,173,786 from $3,032,128 for the three months ended June 30, 2021 to $6,205,914 for the three months ended September 30, 2021. The increase is a result of the Company’s decreasing share price as at September 30, 2021 compared to June 30, 2021 which is used to re-value the derivative liability at period end. Revenues decreased by $134,048 primarily as a result of fluctuating oil sales prices between Q2 2021 and Q3 2021.
A net income of $1,832,343 was recorded for the three months ended June 30, 2021 compared to a net loss of $9,354,788 for the three months ended March 31, 2021, representing a change of $11,254,389. This is mainly attributable to an increase in the gain from the change in fair value of derivative liability of $11,762,724 from ($8,730,596) for the three months ended March 31, 2021 to $3,032,128 for the three months ended June 30, 2021. The increase is a result of the Company’s decreasing share price as at June 30, 2021 compared to March 31, 2021 which is used to re-value the derivative liability at period end. Revenues increased by $68,693 primarily as a result of fluctuating oil sales prices between Q1 2021 and Q2 2021.
Net loss increased for the three months ended March 31, 2021 by $8,225,164 compared to the three months ended December 31, 2020. This is mainly attributable to an increase in the loss from the change in fair value of derivative liability of $8,887,164 from ($156,568) for the three months ended December 31, 2020 to ($8,730,596) for the three months ended March 31, 2021. The increase is a result of the Company’s increasing share price as at March 31, 2021 compared to December 31, 2020 which is used to re-value the derivative liability at period end. Revenues increased by $133,369 primarily as a result of fluctuating oil sales prices between Q4 2020 and Q1 2021.
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Net loss decreased for the three months ended December 31, 2020 by $53,751 compared to the three months ended September 30, 2020. This is mainly attributable to an increase in revenues of $317,584 as a result of increasing oil sales prices between Q3 and Q4 2020. This is offset by an increase in production costs of $201,354 and increase in stock based compensation of $76,177.
Net loss increased for the three months ended September 30, 2020 by $390,918 compared to the three months ended June 30, 2020. This is mainly attributable to an increase in stock based compensation of $167,189 in Q3 2020 compared to Q2 2020 as a result of the issuance of options in Q3 2020. Investor relation expense also increased by $149,505 during the three months ended September 30, 2020 compared to the three months ended June 30, 2020. Revenues decreased by $154,293 primarily as a result of fluctuating oil sales prices between Q2 2020 and Q3 2020.
Net loss increased for the three months ended June 30, 2020 by $364,629 compared to the three months ended March 31, 2020. This is mainly attributable to an increase in investor relations expenses of $212,000 incurred entirely in June 2020. Revenues stayed fairly consistent between Q1 and Q2, 2020 with a slight increase of $16,340.
Liquidity and Capital Resources
The following table summarizes our liquidity position in USD:
March 31, 2022 (USD$) | December 31, 2021 (USD$) | |||||||
| Cash | 12,638,547 | 1,026,990 | ||||||
| Working capital | 12,335,109 | 342,551 | ||||||
| Total assets | 18,225,096 | 6,521,629 | ||||||
| Total liabilities | 10,727,117 | 10,982,859 | ||||||
| Stockholders’ equity (deficiency) | 7,497,979 | (4,461,230 | ) | |||||
During the three months ended March 31, 2022, working capital increased to $12,335,109 from a working capital of $342,551 as at December 31, 2021. The $11,992,558 increase in working capital is attributable to an increase in cash of $12,777,434 primarily from the proceeds received for private placements completed in March 2022. Furthermore, with the increase in cash, the Company paid off current liabilities.
The Company will need additional capital to fund its development program over the next 12 months. During the three months ended March 31, 2022, the Company completed a private placement for approximately $17,598,610CAD in gross proceeds. The Company also intended to continue additional financing in the coming months. The Company’s ability to raise additional funds is subject to a number of uncertainties and risk factors.
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Operating, Investing and Financing Activities
The chart below highlights the Company’s cash flows:
March 31, 2022 ($USD) | March 31, 2021 ($USD) | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | (483,142 | ) | (255,154 | ) | ||||
| Investing activities | (550,721 | ) | (743 | ) | ||||
| Financing activities | 12,470,456 | 1,383,421 | ||||||
| Effect of exchange rate on cash and cash equivalents | 174,964 | (9,434 | ) | |||||
| Increase (decrease) in cash, cash equivalents, and restricted cash | 11,611,557 | 1,118,090 | ||||||
Cash Used in Operating Activities
Net cash used in operating activities for the three months ended March 31, 2022 was $483,142, compared to $255,154 cash used in operating activities for three months ended March 31, 2021. The current period loss of $1,931,175 was coupled with $459,798 in changes in working capital items and offset by $988,235 in net non-cash items for the three months ended March 31, 2022. This compares to a loss of $9,354,788, offset by $9,425,002 in net non-cash items and $325,368 in changes in working capital items for the three months ended March 31, 2021.
Cash Used in Investing Activities
Net cash used in investing activities for the three months ended March 31, 2022 was $550,721, compared to $743 used for the three months ended March 31, 2021. Oil and gas properties expenditures increased to $535,694 from $400 in the comparative period and property and equipment expenditures increased to $15,027 from $343 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 and loans from shareholders.
Net cash provided by financing activities for the three months ended March 31, 2022 was $12,470,456, compared to $1,383,421 for the three months ended March 31, 2021. Cash provided by financing activities in the current period was primarily related to $12,777,434 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. In the comparative period cash from financing activities was primarily related to the issuance of common shares, partially offset by repayment of note payable.
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Future Operating Requirements
Based on our current plan of operations, we estimate that we will require approximately US$11,000,000 to cover our plan of operations over the next 12 months. We will be required to invest an additional approximately US$22,000,000 for our Initial Work Program at SASB, as described below.
Our current plan of operations is the drilling of five (5) new wells at SASB and to re-enter two existing wells to perform workovers to increase gas production (the “Initial Work Program”). The Initial Work Program is expected to incur capital expenditures of approximately $25,000,000, based on our 49% interest in the SASB gas field, of which $3.7 million has been incurred to date where the remainder will be incurred over the next 12 months. As a result of the Initial Work Program, we expect to bring production wells on-line consecutively until all seven wells are drilled and are producing. Each well is expected to generate cashflow as it is brought online and production is sold, which will contribute positively to the Company’s working capital and future anticipated capital expenditures.
Subsequent to the completion of the Initial Work Program, the Company plans to drill up to 10 additional wells over the next 12 to 30 months. Based on our 49% interest, we project that we will incur between $50 to $74 million in additional capital expenditures, which include a mixture of production and exploration wells. Based on our current cost, production estimates and forecasted commodity prices, we expect that cashflow generated from the Initial Work Program will be sufficient to cover most if not all of the capital cost of the second phase of drilling as described within this paragraph.
As of March 31, 2022, the Company had unrestricted cash of US$12,638,547 and current liabilities of US$1,575,725. The Company has engaged Echelon Capital markets and Research Capital to advise and assist in raising additional capital to fund the Company’s Initial Work Program and its operating requirements.
Transactions with Related Parties
At March 31, 2022, accounts payable and accrued liabilities included $56,342 (December 31, 2021 - $13,831) due to related parties. The amounts are unsecured, non-interest bearing and due on demand. A breakdown of the amounts owing by related party as at March 31, 2022 as follows:
| Name | Relationship | Amounts owing | ||||
| David M. Thompson | Chief Financial Officer (“CFO”) and director | $ | 27,411 | |||
| Kubilay Yildirim | Director | $ | 5,626 | |||
| Barry Wood | Director | $ | 23,305 | |||
During the three months ended March 31, 2022, management fees of $315,753 (2021 - $69,000) and director fees of $18,000 (2021 - $18,000) were incurred to related parties. A breakdown of the fees incurred by related party during the three months ended March 31, 2022 as follows:
Management fees
| Name | Relationship | Amount | ||||
| Arthur Halleran | Chief Executive Officer (“CEO”) and director | $ | 285,753 | |||
| David M. Thompson | CFO and director | $ | 30,000 | |||
Directors’ fees
| Name | Relationship | Amount | ||||
| Arthur Halleran | CEO and director | $ | 4,500 | |||
| David M. Thompson | CFO and director | $ | 4,500 | |||
| Kubilay Yildirim | Director | $ | 4,500 | |||
| Barry Wood | Director | $ | 4,500 | |||
During the three months ended March 31, 2022, the Company issued 2,000,000 (2021 - 1,416,667) units to relatives of the CEO for the settlement of accounts payable owed to the CEO in the amount of $242,513 (2021 - $70,833), resulting in no gain or loss.
During the three months ended March 31, 2022, the Company issued Nil (2021 - 5,146,667) common shares relating to the exercise of Nil (2021 – 4,476,667) warrants and Nil (2021 – 670,000) options held by related parties. As consideration, the Company entered into promissory note agreements with the related parties for total principal receivable by the Company of $Nil (2021 - $518,820 (CAD$648,078)). Refer to Note 11 of the accompanying condensed consolidated interim financial statements. As at March 31, 2022, notes receivable included $532,485 (December 31, 2021 - $517,985) due from related parties. The amounts are unsecured, bear interest at 5% per annum and mature between one to two years from grant. A breakdown of the amounts owed by related party as at March 31, 2022 as follows:
| Name | Relationship | Amount | ||||
| Arthur Halleran | CEO and director | $ | 447,368 | |||
| David M. Thompson | CFO and director | $ | 49,584 | |||
| Kubilay Yildirim | Director | $ | 35,533 | |||
The Company is exposed to varying degrees to a variety of financial instrument related risks:
Foreign exchange risk
Foreign exchange risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. Foreign exchange risks are closely monitored, and attempts are made to match foreign cash inflows and outflows. As at March 31, 2022, the Company is primarily exposed to foreign exchange risk through its cash and cash equivalents denominated in Canadian dollars and Turkish Lira. The Company mitigates foreign exchange risk by monitoring foreign exchange rate trends and evaluating reinvestment opportunities when possible. The Company does not currently hedge its foreign exchange risk. Based on current exposures as at March 31, 2022 and assuming that all other variables remain constant, a 10% appreciation or depreciation of the Canadian dollar or Turkish Lira against the United States dollar would result in a gain or loss of approximately $253,307 in the Company’s consolidated statements of loss and comprehensive loss, respectively
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Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company’s cash and trade and other receivables are exposed to credit risk. The Company reduces its credit risk on cash by placing these instruments with institutions of high credit worthiness. 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. The Company has determined that no allowance is required as all amounts outstanding are considered collectible. During the three months ended March 31, 2022, the Company incurred $nil in bad debt expense (2021 - $nil).
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s outstanding debt bears interest at fixed rates. As a result, at March 31, 2022, the Company is not exposed significant interest rate risk.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company manages liquidity risk by maintaining sufficient cash balances to enable settlement of transactions on the due date. The Company addresses its liquidity by raising capital through the issuance of debt and equity. While the Company has been successful in securing financings in the past, there is no assurance that it will be able to do so in the future.
Off-Balance Sheet Arrangements
On October 1, 2018 the Company entered into an agreement to grant to a consultant of the Company a 2% (two percent) gross overriding royalty on petroleum substances produced from certain of its currently undeveloped exploration properties, namely: Block 1-11 Vranino situated in Dobrich District, Bulgaria and seven contiguous exploration licences in the province of Hakkari Yuksekova Semdiali Derecik, Turkey. The Grant of the royalty agreement was for services involving technical and corporate advisory services.
Disclosure of Outstanding Share Data
The Company’s authorized share capital consists of an unlimited number of common shares of which 296,436,824 were issued and outstanding as of March 31, 2022. As of the date of this MD&A, the total number of outstanding common shares was 296,953,074.
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As at March 31, 2022, 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 | |||||||
| 200,000 | 0.12 | September 15, 2022 | 200,000 | |||||||
| 1,750,000 | 0.12 | October 24, 2023 | 1,750,000 | |||||||
| 3,800,000 | 0.12 | September 19, 2024 | 3,800,000 | |||||||
| 640,000 | 0.06 | July 31, 2025 | 640,000 | |||||||
| 950,000 | 0.08 | December 17, 2022 | 950,000 | |||||||
| 250,000 | 0.31 | June 6, 2026 | 250,000 | |||||||
| 7,590,000 | 7,590,000 | |||||||||
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 | |||||||
| 200,000 | 0.12 | September 15, 2022 | 200,000 | |||||||
| 1,750,000 | 0.12 | October 24, 2023 | 1,750,000 | |||||||
| 3,800,000 | 0.12 | September 19, 2024 | 3,800,000 | |||||||
| 640,000 | 0.06 | July 31, 2025 | 640,000 | |||||||
| 880,000 | 0.08 | December 17, 2022 | 880,000 | |||||||
| 250,000 | 0.31 | June 6, 2026 | 250,000 | |||||||
| 7,520,000 | 7,520,000 | |||||||||
As at March 31, 2022, 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 | ||||
| 1,000,000 | 0.16 USD | March 4, 2023 | ||||
| 50,000 | 0.32 USD | June 6, 2023 | ||||
| 2,429,999 | 0.08 USD | September 8, 2023 | ||||
| 1,200,000 | 0.10 USD | September 8, 2023 | ||||
| 2,358,080 | 0.08 USD | September 8, 2023 | ||||
| 660,000 | 0.10 USD | September 30, 2023 | ||||
| 21,705,438 | 0.35 USD | March 15, 2024 | ||||
| 3,393,939 | 0.35 USD | March 16, 2024 | ||||
| 2,954,545 | 0.35 USD | March 17, 2024 | ||||
| 10,614,123 | 0.35 USD | March 18, 2024 | ||||
| 21,469,254 | 0.35 USD | March 24, 2024 | ||||
| 2,653,000 | 0.35 USD | March 28, 2024 | ||||
| 70,488,378 | ||||||
As of 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 | ||||
| 1,000,000 | 0.16 USD | March 4, 2023 | ||||
| 50,000 | 0.32 USD | June 6, 2023 | ||||
| 2,179,999 | 0.08 USD | September 8, 2023 | ||||
| 1,200,000 | 0.10 USD | September 8, 2023 | ||||
| 2,358,080 | 0.08 USD | September 8, 2023 | ||||
| 660,000 | 0.10 USD | September 30, 2023 | ||||
| 21,705,438 | 0.35 USD | March 15, 2024 | ||||
| 3,393,939 | 0.35 USD | March 16, 2024 | ||||
| 2,954,545 | 0.35 USD | March 17, 2024 | ||||
| 10,614,123 | 0.35 USD | March 18, 2024 | ||||
| 21,469,254 | 0.35 USD | March 24, 2024 | ||||
| 2,653,000 | 0.35 USD | March 28, 2024 | ||||
| 70,238,378 | ||||||
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Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes have been prepared in accordance with IFRS. The consolidated interim financial statements for the three months ended March 31, 2022 are the first that has been prepared in accordance with IFRS. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
We believe that our critical accounting policies and estimates include the following:
Revenue Recognition
Revenue from Contracts with Customers
The Company recognizes revenue when it satisfies its performance obligation(s) by transferring control over a product to a customer. Revenue is measured based on the consideration the Company expects to receive in exchange for those products.
Performance Obligations and Significant Judgments
The Company sells oil and natural gas products in Turkey. The Company enters into contracts that generally include one type of distinct product in variable quantities and priced based on a specific index related to the type of product.
The oil and natural gas are typically sold in an unprocessed state to processors and other third parties for processing and sale to customers. The Company recognizes revenue at a point in time when control of the oil is transferred. For oil sales, control is typically transferred to the customer upon receipt at the wellhead or a contractually agreed upon delivery point. Under the Company’s natural gas contracts with processors, control transfers upon delivery at the wellhead or the inlet of the processing entity’s system. For the Company’s other natural gas contracts, control transfers upon delivery to the inlet or to a contractually agreed upon delivery point. In the cases where the Company sells to a processor, the Company has determined that the Company is the principal in the arrangement and the processors are the Company’s customers. The Company recognizes the revenue in these contracts based on the net proceeds received from the processor.
Transfer of control drives the presentation of transportation and gathering costs within the accompanying consolidated statements of loss and comprehensive loss. Transportation and gathering costs incurred prior to transfer of control are recorded within the general and administrative expense line item on the accompanying consolidated statements of loss and comprehensive loss, while transportation and gathering costs incurred subsequent to control transfer are recorded as a reduction to the related revenue.
A portion of the Company’s product sales are short-term in nature. For those contracts, the Company uses the practical expedient in IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”) Paragraph 121 exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
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For the Company’s product sales that have a contract term greater than one year, the Company uses the practical expedient in IFRS 15 Paragraph 121(a) which states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to an unsatisfied performance obligation. Under these sales contracts, each unit of product represents a separate performance obligation; therefore, future volumes are unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required. The Company has no unsatisfied performance obligations at the end of each reporting period.
The Company does not believe that significant judgments are required with respect to the determination of the transaction price, including any variable consideration identified. There is a low level of uncertainty due to the precision of measurement and use of index-based pricing with predictable differentials. Additionally, any variable consideration identified is not constrained.
Accounts Receivable
Accounts receivable consist of oil and gas receivables. The Company has classified these as short-term assets in the balance sheet because the Company expects repayment or recovery within the next 12 months. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company deems all accounts receivable to be collectable and has not recorded any allowance for doubtful accounts.
Exploration and Evaluation Assets
Pre-license exploration costs are recognized in the consolidated statement of operations and comprehensive loss as incurred.
The costs to acquire non-producing oil and gas properties or licences to explore, drill exploratory wells and the costs to evaluate the commercial potential of underlying resources, including related borrowing costs, are initially capitalized as exploration and evaluation assets.
Exploration and evaluation assets are subject to technical, commercial and management review to confirm the continued intent to develop and extract the underlying resources. If an area or exploration well is no longer considered commercially viable, the related capitalized costs are charged to exploration expense.
Exploration and evaluation assets are not subject to depreciation, depletion and amortization.
When management determines with reasonable certainty that an exploration and evaluation asset will be developed, as evidenced by the classification of proved or probable reserves and the appropriate internal and external approvals, the asset is transferred to oil and gas properties.
Oil and gas properties
Oil and gas properties (“O&G”) include exploration and evaluation expenditures, development and productions costs, less accumulated depletion and depreciation and accumulated impairment loss. O&G are grouped into cash generating units for impairment testing. The Company has grouped its O&G into two CGUs: the Cendere Oil Field and SASB Gas Field.
When significant parts of an item of O&G have different useful lives, they are accounted for as separate items (major components).
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Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing parts of O&G are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred. Such capitalized items generally represent costs incurred in developing proved and/or probable reserves and bringing on or enhancing production from such reserves and are accumulated on a field or geotechnical area basis. The carrying amount of any replaced or sold component is derecognized. The costs of the day-to-day servicing of oil ang gas properties are recognized in profit or loss as incurred.
The net carrying value of oil and gas properties is depleted using the unit-of-production method by reference to the ratio of production in the year to the related proved reserves, taking into account estimated future development costs necessary to bring those reserves into production. These estimates are reviewed by independent reservoir engineers at least annually.
Stock-based compensation
Under the company’s share-based compensation plans, share-based awards may be granted to executives, employees and nonemployee directors.
Stock options that give the holder the right to purchase common shares are accounted for as equity-settled plans. The expense is based on the fair value of the options at the time of grant using the Black-Scholes options pricing model and is recognized over the vesting periods of the respective options. A corresponding increase is recorded to option reserve. Consideration paid to the company on exercise of options is credited to share capital and the associated amount in contributed surplus is reclassified to share capital.
Unit Offerings
Common shares are classified as equity. Proceeds from unit placements are allocated between shares and warrants issued using the residual method. The residual method first allocates fair value to the component with the best evidence of fair value and then the residual value, if any, to the less easily measurable component. The fair value of the common shares, measured on date of issue, was determined to be the component with the best evidence of fair value. The balance, if any, was allocated to the attached warrants. Costs directly identifiable with share capital financing are charged against share capital.
Initial adoption of new accounting standards
The Company adopted IFRS for the first time effective for the three months ended March 31, 2022, with a transition date on January 1, 2021. See Note 2(r) of the accompanying condensed consolidated interim financial statements for the three months ended March 31, 2022 and 2021 for details on the adoption.
Subsequent to March 31, 2022, the Company issued 196,250 shares pursuant to the exercise of 146,250 warrants and 50,000 options that were exercised during the three months ended March 31, 2022.
Subsequent to March 31, 2022, the Company issued 50,000 shares pursuant to the exercise of 50,000 warrants at $0.08 for proceeds of $4,000.
Subsequent to March 31, 2022, the Company issued 70,000 shares pursuant to the exercise of 70,000 options at $0.10 CAD ($0.08 USD) for proceeds of $7,000 CAD ($5,597 USD)
Subsequent to March 31, 2022, the Company issued 200,000 shares pursuant to the exercise of 200,000 warrants at $0.10 CAD ($0.08 USD) for proceeds of $20,000 CAD ($15,991 USD)
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