Company Quick10K Filing
Park Place Energy
Price0.20 EPS-0
Shares84 P/E-11
MCap17 P/FCF148
Net Debt-1 EBIT-2
TEV16 TEV/EBIT-10
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-16
10-Q 2020-06-30 Filed 2020-08-14
10-Q 2020-03-31 Filed 2020-06-29
10-K 2019-12-31 Filed 2020-05-15
10-Q 2019-09-30 Filed 2019-11-25
10-Q 2019-06-30 Filed 2019-08-29
10-Q 2019-03-31 Filed 2019-06-25
10-K 2018-12-31 Filed 2019-04-16
10-Q 2018-09-30 Filed 2018-11-15
10-Q 2018-06-30 Filed 2018-10-09
10-Q 2018-03-31 Filed 2018-09-18
10-K 2017-12-31 Filed 2018-08-10
10-Q 2017-09-30 Filed 2018-01-18
10-Q 2017-06-30 Filed 2017-10-04
10-Q 2017-03-31 Filed 2017-06-13
10-K 2016-12-31 Filed 2017-03-30
10-Q 2016-09-30 Filed 2016-12-12
10-Q 2016-06-30 Filed 2016-08-19
10-Q 2016-03-31 Filed 2016-05-13
10-K 2015-12-31 Filed 2016-04-14
8-K 2020-09-04
8-K 2020-08-03
8-K 2020-06-19
8-K 2020-05-14
8-K 2020-04-14
8-K 2020-02-03
8-K 2019-09-20
8-K 2019-08-16
8-K 2019-04-10
8-K 2018-12-31
8-K 2018-08-20
8-K 2018-06-20
8-K 2018-02-28
8-K 2018-02-08

PKPL 10Q Quarterly Report

Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mining Safety Disclosures
Item 5. Other Information
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Park Place Energy Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02015201620182020
Assets, Equity
1.30.80.4-0.1-0.5-1.02016201720182020
Rev, G Profit, Net Income
1.81.30.70.2-0.4-0.92015201620182020
Ops, Inv, Fin

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File Number: 000-55539

 

TRILLION ENERGY INTERNATIONAL INC.

(Exact name of small business issuer as specified in its charter)

 

Delaware   47-4488552

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Turan Gunes

Bulvari, Park Oran Ofis Plaza, 180-y, Daire:54,
Kat:16, 06450, Oran, Cankaya, Anakara, Turkey

   
(Address of principal executive offices)   (Zip Code)

 

(778) 819-8503

Registrant’s telephone number, including area code

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [  ] No [X]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]       Accelerated filer [  ]
Non-accelerated filer [  ]   (Do not check if a smaller reporting company)   Smaller reporting company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: The registrant had 116,114,156 shares of common stock outstanding as of November 16, 2020.

 

 

 

 

 

 

TRILLION ENERGY INTERNATIONAL INC.

 

Form 10-Q

 

Table of Contents

 

Caption

 

 

2

 

 

PART I

 

Item 1. Financial Statements

 

TRILLION ENERGY INTERNATIONAL INC.

Unaudited Interim Condensed Consolidated Balance Sheets

(Expressed in U.S. dollars)

 

  

September 30,

2020

  

December 31,

2019

 
   (unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $231,424   $863,017 
Receivables   593,295    637,145 
Prepaid expenses and deposits   22,691    30,035 
Note receivable   60,342    50,671 
Total current assets   907,752    1,580,868 
Oil and gas properties, net   5,380,077    5,574,295 
Property and equipment, net   146,873    45,116 
Restricted cash   13,447    96,906 
Total assets  $6,448,149   $7,297,185 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities  $1,222,880   $1,170,568 
Loans payable - current   46,164    14,304 
Operating lease liability - current   11,489    4,759 
Total current liabilities   1,280,533    1,189,631 
Asset retirement obligation   3,912,804    3,633,427 
Loans payable – long term   549,941    546,729 
Convertible debt   58,907    48,033 
Derivative liability   1,258,479    79,458 
Operating lease liability   28,155     
Total liabilities   7,088,819    5,497,278 
Stockholders’ equity:          
Common stock Authorized: 250,000,000 shares, par value $0.00001; issued and outstanding: 116,114,156 823 and 87,628,823 shares, respectively.   1,157    876 
Additional paid-in capital   27,223,382    27,031,125 
Stock subscriptions and stock to be issued   24,533    23,052 
Accumulated other comprehensive loss   (542,040)   (311,104)
Accumulated deficit   (27,347,702)   (24,944,042)
Total stockholders’ equity   (640,670)   1,799,907 
Total liabilities and stockholders’ equity  $6,448,149   $7,297,185 

 

See accompanying condensed notes to these interim consolidated financial statements.

 

3

 

 

TRILLION ENERGY INTERNATIONAL INC.

Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss

(Expressed in U.S. dollars)

(unaudited)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2020   2019   2020   2019 
Revenue                    
Oil and natural gas sales  $493,609   $914,791   $1,773,073   $2,939,263 
Cost and expenses                    
Production   488,930    643,202    1,688,342    1,970,397 
Depletion   65,630    152,120    201,875    468,373 
Depreciation   22,132    7,779    35,106    31,425 
Accretion of asset retirement obligation   95,435    105,749    279,377    309,572 
Stock-based compensation   167,189    437,725    167,189    437,725 
General and administrative   698,005    504,346    1,690,367    1,306,516 
Total expenses   1,537,321    1,850,921    4,062,256    4,524,008 
Loss before other income (expenses)   (1,043,712)   (936,130)   (2,289,183)   (1,584,745)
Other income (expenses)                    
Interest expense   (34,155)   (11,244)   (86,829)   (32,652)
Interest income   5,308    9,084    12,771    23,253 
Foreign exchange gain (loss)   4,393    (7,701)   31,803    (15,241)
Other income (expense)   -    1,786    -    69,843 
Change in fair value of derivative liability   (86,208)   -    (43,221)   - 
Loss on debt extinguishment   (29,001)   -    (29,001)   - 
Total other income (expenses)   (139,663)   (8,075)   (114,477)   45,203 
Net loss for the period  $(1,183,375)  $(944,205)  $(2,403,660)  $(1,539,542)
                     
Loss per share  $(0.01)  $(0.01)  $(0.03)  $(0.02)
Weighted average number of shares outstanding   110,299,171    83,578,901    95,897,700    83,565,179 
                     
Other comprehensive loss:                    
Foreign currency translation adjustments  $(74,807)  $(23,756)  $(230,936)  $(139,136)
Comprehensive loss  $(1,258,182)  $(967,961)  $(2,634,596)  $(1,678,678)

 

See accompanying condensed notes to these unaudited interim condensed consolidated financial statements.

 

4

 

 

TRILLION ENERGY INTERNATIONAL INC.

Unaudited Interim Condensed Consolidated Statements of Stockholders’ Equity

(Expressed in U.S. dollars)

(unaudited)

 

   Common stock  

Additional

paid-in

  

Stock

subscriptions

and stock to

  

Accumulated

other

comprehensive

   Accumulated     
   Shares   Amount   capital   be issued   income (loss)   deficit   Total 
                             
Balance, December 31, 2018   83,360,966   $834   $26,220,157   $41,302   $(130,660)  $(23,260,549)  $2,871,084 
Issuance of common stock   262,500    3    33,747    (25,750)           8,000 
Currency translation adjustment                   (106,547)       (106,547)
Net loss                       (315,017)   (315,017)
Balance, March 31, 2019   83,623,466    837    26,253,904    15,552    (237,207)   (23,575,566)   2,457,520 
Currency translation adjustment                   (8,833)       (8,833)
Net loss                       (280,320)   (280,320)
Balance, June 30, 2019   83,623,466    837    26,253,904    15,552    (246,040)   (23,855,886)   2,168,367 
Issuance of common stock   100,000    1    14,999    (15,000)   -    -    - 
Retired shares   (150,000)   (2)   (22,498)   22,500    -    -    - 
Private placement – shares to be issued   -    -    -    7,692    -    -    7,692 
Shares to be issued for debt settlement   -    -    -    339,343    -    -    339,343 
Stock-based compensation expense   -    -    379,225    -    -    -    379,225 
Vesting of restricted stock units   -    -    -    58,500    -    -    58,500 
Currency translation adjustment   -    -    -    -    (23,756)   -    (23,756)
Net loss   -    -    -    -    -    (944,205)   (944,205)
Balance, September 30, 2019   83,573,466   $836   $26,625,630   $428,587   $(269,796)  $(24,800,091)  $1,985,166 

 

   Common stock  

Additional

paid-in

   Stock subscriptions and stock to   Accumulated other comprehensive   Accumulated     
   Shares   Amount   capital   be issued   income (loss)   deficit   Total 
Balance, December 31, 2019   87,628,823   $876   $27,031,125   $23,052   $(311,104)  $(24,944,042)  $1,799,907 
Stock subscriptions received               1,881            1,881 
Currency translation adjustment                   (118,920)       (118,920)
Net loss                       (427,828)   (427,828)
Balance, March 31, 2020   87,628,823    876    27,031,125    24,933    (430,024)   (25,371,870)   1,255,040 
Stock subscriptions received               4,412            4,412 
Issuance of common stock   15,000,000    150    30,992    (24,933)           6,209 
Currency translation adjustment                   (37,209)       (37,209)
Net loss                       (792,457)   (792,457)
Balance, June 30, 2020   102,628,823   $1,026   $27,062,117   $4,412   $(467,233)  $(26,164,327)  $435,995 
Private placement   12,787,000    130    (7,117)   (4,412)           (11,399)
Shares to be issued           -    24,533            24,533 
Stock-based compensation expense           137,789                137,789 
Stock-based compensation expense – Restricted stock units   525,000    -    29,400                29,400 
Shares issued upon conversion of debentures   173,333    1    1,193        -    -    1,194 
Currency translation adjustment   -                (74,807)   -    (74,807)
Net loss   -            -    -    (1,183,375)   (1,183,375)
Balance, September 30, 2020   116,114,156    1,157    27,223,382    24,533    (542,040)   (27,347,702)   (640,670)

 

See accompanying notes to unaudited interim condensed consolidated financial statements

 

5

 

 

TRILLION ENERGY INTERNATIONAL INC.

Unaudited Interim Condensed Consolidated Statements of Cash Flows

(Expressed in U.S. dollars)

(unaudited)

 

   Nine Months Ended September 30, 
   2020   2019 
Operating activities:          
Net loss for the period  $(2,403,660)  $(1,539,542)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depletion   201,875    468,373 
Depreciation   35,106    31,425 
Accretion of asset retirement obligation   279,377    309,572 
Stock-based compensation   137,789    379,225 
Stock-based compensation - Restricted stock units   29,400    58,500 
Accretive interest   23,860    3,828 
Interest from loans payable   48,014    28,858 
Unrealized foreign exchange gain   (9,205)   2,504 
Change in fair value of derivative liability   43,221    - 
Loss on debt extinguishment   29,001    - 
Changes in operating assets and liabilities:          
Receivables   43,850    (72,006)
Prepaid expenses and deposits   7,344    223,089 
Accounts payable and accrued liabilities   403,865    219,214 
Net cash used in operating activities   (1,130,163)   113,040 
Investing activities:          
Property and equipment additions   (91,995)   - 
Oil and natural gas properties expenditures   (4,821)   (37,448)
Issuance of note receivable   (7,454)   - 
Net cash used in investing activities   (104,270)   (37,448)
Financing activities:          
Proceeds from stock subscriptions received   751,400    15,692 
Payments on leases   (21,800)   (15,060)
Proceeds from loans payable   83,651    77,644 
Repayments of loans payable   (47,299)   (73,397)
Issuance of convertible debt   -    123,095 
Net cash provided by financing activities   765,952    127,974 
Effect of exchange rate changes on cash, cash equivalents and restricted cash   (246,571)   (56,241)
Change in cash and cash equivalents and restricted cash   (715,052)   147,325 
Cash and cash equivalents and restricted cash at beginning of period   959,923    898,271 
Cash and cash equivalents and restricted cash at end of period  $244,871   $1,045,596 
           
Reconciliation of cash, cash equivalents and restricted cash:          
Cash and cash equivalents, end of period  $231,424   $947,131 
Restricted cash, end of period   13,447    98,465 
Cash, cash equivalents and restricted cash, end of period  $244,871   $1,045,596 
           
Non-cash investing and financing activities:          
Operating lease right-of-use asset additions  $57,919   $104,866 
Subscriptions closed from debt conversion  $391,575   $339,343 

 

See accompanying condensed notes to these unaudited interim condensed consolidated financial statements.

 

6

 

 

TRILLION ENERGY INTERNATIONAL INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

(Expressed in U.S. dollars)

(unaudited)

 

1. Organization

 

Trillion Energy International Inc. and its consolidated subsidiaries, (collectively referred to as the “Company”) is an international oil and natural gas exploration and production company. Our corporate headquarters are located at Turan Gunes Bulvari, Park Oran Ofis Plaza, 180-y, Daire:45, Kat:14, 06450, Oran, Cankaya, Anakara, Turkey. The Company has oil and gas operations in Turkey and an exploration license in Bulgaria. The Company was incorporated in Delaware in 2015.

 

2. Summary of Significant Accounting Policies|

 

  (a) Basis of Presentation and Going Concern

 

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ended December 31, 2020.

 

The consolidated balance sheet at December 31, 2019, has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2019.

 

Going Concern

 

The Company has suffered recurring losses and negative cash flows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will need to raise funds through either the sale of its securities, issuance of corporate bonds, joint venture agreements and/or bank financing to accomplish its goals. If additional financing is not available when needed, the Company may need to cease operations. The Company may not be successful in raising the capital needed to drill and/or rework existing oil wells. Any additional wells that the Company may drill may be non-productive. Management believes that actions presently being taken to secure additional funding for the reworking of its existing infrastructure will provide the opportunity for the Company to continue as a going concern. Since the Company has an oil producing asset, its goal is to increase the production rate by optimizing its current infrastructure. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.

 

The recent outbreak of the coronavirus, also known as “COVID-19”, has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures has had an adverse impact on global economic conditions as well as on the Company’s business activities. The extent coronavirus has caused a modest drop in economic activity and oil and gas prices, due to reduced demand. The Company has implemented work from home measures for its employees in its offices in Canada and Turkey. The coronavirus has caused delay in realizing the Company’s funding efforts. To which the coronavirus may impact the Company’s business activities in the future will depend on future developments, such as the ultimate geographic spread of the disease, vaccine approvals and effectiveness, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine their financial impact at this time. While certain restrictions are presently in the process of being relaxed, it is unclear when the world will return to the previous normal, if ever. This may adversely impact the expected implementation of the Company’s plans moving forward. 

 

Consolidation

 

The unaudited interim condensed consolidated financial statements include the accounts of Trillion Energy International Inc. and its wholly-owned subsidiaries Park Place Energy Corp., Park Place Energy Bermuda, BG Exploration EOOD, and Park Place Energy Turkey Limited. All intercompany accounts, transactions and profits were eliminated in consolidation.

 

7

 

 

(c) Use of Estimates

 

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the estimated useful lives and recoverability of long-lived assets, impairment of oil and gas properties, fair value of stock-based compensation, fair value of derivative liabilities, interest rates used for lease calculations and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. There were no new estimates in the period.

 

(d) Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.

 

(e) New Accounting Pronouncements

 

In June 2016, FASB issued ASU 2016-13, Measurement of Credit Loss on financial Instruments. ASU 2016 13 replaces the current incurred loss impairment methodology with the expected credit loss impairment model, which requires consideration of a broader range of reasonable and supportable information to estimate expected credit losses over the life of the instrument instead of only when losses are incurred. This standard applies to financial assets measured at amortized cost basis and investments in leases recognized by the lessor. The Company adopted ASU 2016-13 on January 1, 2020 with no impact on the interim condensed consolidated financial statements.

 

Other recent accounting pronouncements issued by FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s interim condensed consolidated financial statements.

 

3. Restricted Cash

 

The restricted cash relates to drilling bonds provided to GDPA (General Directorate of Petroleum Affairs) for the exploration licenses due to Turkish Petroleum Law. The amounts are for 2% of the annual work budget of the different Turkish licenses which is submitted to GDPA on an annual basis.

 

8

 

 

4. Oil and Gas Properties

 

   Unproven properties   Proven properties     
   Bulgaria   Turkey   Total 
December 31, 2018  $3,117,229   $3,533,703   $6,650,932 
Expenditures       37,449    37,449 
Asset retirement revaluation       (810,667)   (810,667)
Depletion       (302,094)   (302,094)
Foreign currency translation change   (1,325)       (1,325)
December 31, 2019   3,115,904    2,458,391    5,574,295 
Expenditures       4,821    4,821 
Depletion       (201,875)   (201,875)
Foreign currency translation change   2,836        2,836 
September 30, 2020  $3,118,740   $2,261,337   $5,380,077 

 

Bulgaria

 

The Company holds a 98,205-acre oil and gas exploration claim in the Dobrudja Basin located in northeast Bulgaria. The Company intends to conduct exploration for natural gas and test production activities over a five-year period in accordance with or exceeding its minimum work program obligation. The Company’s commitment is to perform geological and geophysical exploration activities in the first 3 years of the initial term (the “Exploration and Geophysical Work Stage”), followed by drilling activities in years 4 and 5 of the initial term (the “Data Evaluation and Drilling Stage”). The Company is required to drill 10,000 meters (approximately 32,800 feet) of new wellbore (which may be vertical, horizontal or diagonal) and conduct other exploration activities during the initial term. The Company intends to commence its work program efforts once it receives all regular regulatory approvals of its work programs.

 

Turkey

 

Cendere oil field

 

The primary asset of the PPE Turkey Companies 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 19.6% for all wells except for wells C-13, C-15 and C-16, for which its interest is 9.8%. The produced oil has a gravity of 27.5o API.

 

The Cendere Field is a long-term low decline oil reserve. As at September 30, 2020, net production to PPE Turkey was 147 Boe/d. For the 2020 year-to-date, net production to the PPE Turkey averaged 183 Boe/d. At September 30, 2020, the gross oil production rate for the producing wells in Cendere was 555,43 bbls/day; the average daily 2020 gross production rate for the field was 594 bbls/day. At the end of October 2020, oil is currently sold at a price of approximately US$40,62 per barrel for a netback per barrel of approximately US$13 / bbl. At September 30, 2020, the Cendere field was producing 109 barrels of oil per day net to the PPE Turkey; and averaged 116 barrels per day during 2020 net to the PPE Turkey.

 

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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. The four SASB fields are located off the north coast of Turkey towards the western end of the Black Sea in water depths ranging from 60 to100 meters. Gas is produced from Eocene age sandstone reservoirs at subsea depths ranging from 1,100 to1,800 meters.

 

Bakuk gas field

 

The Company also owns a 50% operated interest in the Bakuk gas field located near the Syrian border. The Bakuk field is shut-in with no plans to revive production in the near term.

 

5. Property and Equipment

 

   Right-of-use asset   Leasehold improvements   Other equipment   Total 
January 1, 2019  $   $44,476   $61,679   $106,155 
Adoption of Topic 842   50,065            50,065 
Additions   19,193            19,193 
Depreciation   (16,839)   (44,476)   (15,098)   (76,413)
Disposals   (47,660)           (47,660)
Foreign currency translation change           (6,224)   (6,224)
December 31, 2019   4,759        40,357    45,116 
Additions   57,919    91,608    387    149,914 
Depreciation   (9,983)   (13,741)   (11,382)   (35,106)
Disposals                
Foreign currency translation change   (13,051)           (13,051)
September 30, 2020  $39,644   $77,867   $29,362   $146,873 

 

6. Note Receivable

 

In April 2015, the Company loaned $38,570 to a Bulgarian company pursuant to a revolving credit facility, enabling such Bulgarian company to buy and manage land in Bulgaria to be leased by the Company for future well sites. The credit facility has a maximum loan obligation of BGN 1,000,000 ($562,500 USD at September 30, 2020) bears interest at 6.32%, has a five-year term and is secured by the land the Bulgarian company buys. Payment on the facility is due the earlier of the end of the five-year term (April 6, 2020) or on demand by the Company. As of September 30, 2020, the outstanding balance on the loan receivable was $52,888 (December 31, 2019 - $50,671). The change in balance was due to changes in foreign currency translations.

 

In July 2020, the Company loaned $7,454 to a third party. The amount is due on demand, non-interest bearing and unsecured. The loan was received in full subsequent to September 30, 2020.

 

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7. Loans Payable

 

As at  September 30, 2020   December 31, 2019 
Unsecured, interest bearing loans at 10% per annum  $162,632   $176,067 
Unsecured, interest bearing loans at 12% per annum   300,966    283,828 
Unsecured, interest bearing loan at 20.5% per annum   27,249    46,283 
Unsecured, interest bearing loan at 13.25% per annum   47,018     
Non-interest bearing loans   58,240    54,855 
Total loans payable   596,105    561,033 
Current portion of loans payable   (46,164)   (14,304)
Long term portion of loans payable  $549,941   $546,729 

 

Loans bearing interest, accrue at 10% and 12% per annum are all unsecured.

 

On August 2, 2019, Garanti Bank extended a long-term loan to Park Place Turkey Limited in the amount of ₺300,000 (or approximately US$53,600). The loan matures on August 2, 2022 and bears interest at 20.5% per annum. Principal and accrued interest are paid monthly.

 

On February 4, 2020, Garanti Bank extended a long-term loan to Park Place Turkey Limited in the amount of ₺500,000 (or approximately US$83,500). The loan matures on February 4, 2022 and bears interest at 13.25% per annum. Principal and accrued interest are paid monthly.

 

8. 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 that was classified as an operating lease on recognition.

 

During the three and nine months ended September 30, 2020, the Company recognized operating lease expense of $7,456 and $19,299, respectively (2019 - $4,813 and $10,077, respectively), which is included in general and administrative expenses. As of September 30, 2020, the Company’s leases had a weighted average remaining lease term of 4.25 years. Operating right-of-use assets have been included within property and equipment as follows:

 

Right-of-use asset  September 30, 2020   December 31, 2019 
Cost  $57,919   $18,345 
Accumulated amortization   (5,224)   (13,586)
Foreign currency translation change   (13,051)   - 
Net book value  $39,644   $4,759 

 

Operating 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 weighted average discount rate of 10% in determining its lease liabilities. The discount rate was derived from the Company’s assessment of current borrowings.

 

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Operating lease right-of-use assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.

 

As at September 30, 2020, the Company’s lease liability is as follows:

 

Lease liability  September 30, 2020   December 31, 2019 
Current portion of operating lease liabilities  $11,489   $4,759 
Long-term portion of operating lease liabilities   28,155    - 
   $39,644   $4,759 

 

Future minimum lease payments to be paid by the Company as a lessee as of September 30, 2020 are as follows:

 

Operating lease commitments and lease liability  September 30, 2020 
Remainder of 2020  $2,872 
2021   11,489 
2022   11,489 
2023   11,489 
2034   11,489 
Total future minimum lease payments   48,828 
Discount   (9,184)
Total  $39,644 

 

9. Asset Retirement Obligations

 

Asset retirement obligations (“AROs”) associated with the retirement of tangible long-lived assets are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets in the period incurred. The fair value of AROs is recognized as of the acquisition date for business combinations. The cost of the tangible asset, including the asset retirement cost, is depleted over the life of the asset. AROs are recorded at estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligations discounted at the Company’s credit-adjusted risk-free interest rate. Accretion expense is recognized over time as the discounted liabilities are accreted to their expected settlement value. If estimated future costs of AROs change, an adjustment is recorded to both the ARO and the long-lived asset. Revisions to estimated AROs can result from changes in retirement cost estimates, revisions to estimated inflation rates and changes in the estimated timing of abandonment. The Company’s ARO is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs.

 

The following is a continuity of the Company’s asset retirement obligations:

 

   September 30, 2020   December 31, 2019 
         
Asset retirement obligations at beginning of period  $3,633,427   $4,026,129 
Additions        
Accretion expense   279,377    417,965 
Change in estimate       (810,667)
Asset retirement obligations at end of period  $3,912,804   $3,633,427 

 

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10. Convertible Debentures

 

On September 30, 2019, the Company closed an unbrokered private placement of convertible debt, issuing $123,095 ($163,000 CAD) in debentures to two investors. The convertible debentures bear interest at 10% per annum, payable annually in advance. 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 $0.20 USD or $0.25 CAD per share, based on the currency initially subscribed) at a conversion price of $0.12 USD or $0.15 CAD per unit, based on the currency initially subscribed. The convertible debt matures on September 30, 2021 and is secured by a general security agreement over the assets of the Company.

 

As the September 30, 2019 convertible debt included an embedded conversion feature denominated in Canadian dollars, 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 of the convertible debt granted on September 30, 2019, the Company recognized a derivative liability of $81,956 and an offsetting convertible debt discount of $81,956.

 

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 $0.12 CAD per share, or approximately US$0.09 per share) at a conversion price of $0.075 CAD per unit (approximately US$0.06 per unit). In accordance with ASC 470-50-40-10, the carrying value of the debt of $90,264 was considered to be extinguished and a new issuance of $120,295 was recognized. A loss of $30,031 was recognized on the extinguishment.

 

On initial recognition of the convertible debt amended on July 1, 2020, the Company recognized a derivative liability of $62,980 and an offsetting convertible debt discount of $62,980.

 

On September 15, 2020, debt in the principal amount of $9,870 ($13,000 CAD) was converted by the holder to 173,333 units with a fair value of $11,644. The Company recognized a gain on the conversion of the debt of $1,030.

 

The following is a continuity of the Company’s convertible debt:

 

   Host debt instrument   Embedded conversion feature   Total 
Balance, January 1, 2019  $   $   $ 
Issued during the period   123,095        123,095 
Allocated to derivative   (81,956)   81,956     
Accretion   6,101        6,101 
Change in fair value of derivative       (2,498)   (2,498)
Foreign currency translation change   793        793 
Balance, December 31, 2019   48,033    79,458    127,491 
Extinguished during the period   (60,213)   (30,051)   (90,264)
Re-issued during the period   120,295        120,295 
Allocated to derivative   (62,980)   62,980     
Accretion   23,859        23,859 
Change in fair value of derivative       (34,645)   (34,645)
Converted to units   (9,870)   (7,647)   (17,517)
Foreign currency translation change   (217)       (217)
Balance, September 30, 2020  $58,907   $70,095   $129,002 

 

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11. Common Stock

 

For the nine months ended September 30, 2020

 

During the nine months ended September 30, 2020 the Company received $24,533 in proceeds for a private placement. As at September 30, 2020 the stock remains to be issued.

 

On June 19, 2020 the Company closed a non-brokered private placement financing for aggregate gross proceeds of $730,000 CAD (approximately US$552,083) (approximately US$ (the “Offering”). Under the Offering, the Corporation issued an aggregate of 14,400,000 units (“Units”), at a price of $0.05 CAD per Unit (approximately US$0.04 per Unit). Each Unit was comprised of one common share in the capital of the Corporation (each a “Common Share”) and one Common Share purchase warrant (“Warrant”). Each Warrant entitles the holder to purchase one Common Share at a price of $0.12 CAD (approximately US$0.09) for a period of 24 months from the closing date. In connection with the Offering, the Corporation settled a total of $30,000 in outstanding debt through the issuance to certain creditors of 600,000 Units, at a deemed issue price of $0.05 per Unit (the “Debt Settlement”). Each Unit issued in the Debt Settlement consists of one Common Share and one Warrant under the same terms as the Offering.

 

On July 31, 2020 the Company closed a non-brokered private placement financing for aggregate gross proceeds of $551,140 CAD (approximately US$410,760) (the “July Offering”). Under the July Offering, the Corporation issued an aggregate of 56,000 Units, at a price of $0.06 CAD per Unit (approximately US$0.04 per Unit). Each Unit was comprised of one Common Share and one Warrant. Each Warrant entitles the holder to purchase one Common Share at a price of $0.12 CAD (approximately US$0.09) for a period of 24 months from the closing date. In connection with the July Offering, the Corporation settled a total of $495,140 in outstanding debt through the issuance to certain creditors of 8,252,334 Units, at a deemed issue price of $0.06 per Unit. Each Unit issued in the Debt Settlement consists of one Common Share and one Warrant under the same terms as the Offering.

 

On July 31, 2020, the Company granted 525,000 restricted share units which vested immediately. In connection with the grant, 525,000 Common Shares with a fair value of $29,400 were issued.

 

On September 4, 2020, the Company closed a private placement of 3,601,333 units for gross proceeds of $216,080 CAD (approximately US$156,538). Each unit consists of one Common Share and one Warrant. Each Warrant entitles the holder to purchase one Common Share at a price of $0.12 CAD (or US$0.09) for a period of 24 months from the closing date. In connection with the private placement, the Company issued 149,800 broker warrants with a fair value of $7,117.

 

On September 15, 2020, the Company issued 173,333 Units with a fair value of $11,644 in settlement of convertible debt of $9,870. Each Unit consists of one share and one warrant; each warrant can acquire one share at an exercise price of $0.12 CAD per share, or approximately US$0.09 per share.

 

For the year ended December 31, 2019

 

On February 15, 2019, the Company issued 112,500 units at $0.10 per unit for gross proceeds of $11,250, pursuant to a private placement which closed on November 12, 2018, and included in stock subscriptions and to be issued as of December 31, 2018. Each unit consisted of one common share and ½ of one share purchase warrant, resulting in the issuance of 56,250 warrants. Each Warrant entitles the holder to purchase one Common Share at a price of $0.12 CAD for a period of 24 months from the closing date.

 

On February 15, 2019, the Company issued 150,000 units at $0.15 per unit for gross proceeds of $22,500, pursuant to a private placement which closed on November 12, 2018, of which $8,000 was cash and $14,500 was included in stock subscriptions and to be issued as of December 31, 2018. Each unit consisted of one common share and one share purchase warrant , resulting in the issuance of 150,000 warrants. Each whole share purchase warrant is exercisable for a period of 24 months at an exercise price of $0.30 per share of common stock. On July 19, 2019, the Company retired these 150,000 common shares as the incorrect number of shares were issued. The correct amount of 100,000 of shares and warrants was re-issued on July 23, 2019 for $15,000. The $22,500 was transferred back to ‘stock subscriptions and stock to be issued’.

 

On September 30, 2019, the Company closed a private placement of 76,923 units for gross proceeds of $7,692 which was received in cash. Each unit consists of one common share and ½ of one share purchase warrant, resulting in the issuance of 38,462 warrants. Each whole share purchase warrant is exercisable for a period of 24 months at an exercise price of $0.30 per share of common stock.

 

On September 30, 2019, the Company issued 3,393,434 units for a total of $339,343. These units were issued to related parties (Note 15) and were used to reduce accounts payable owed to these parties. There was no gain or loss in the settlement of these accounts payable. Each unit consists of one common share and ½ of one share purchase warrant, resulting in the issuance of 1,696,717 warrants. Each whole share purchase warrant is exercisable for a period of 24 months at an exercise price of $0.30 per share of common stock.

 

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12. Stock Options

 

The Board of Directors adopted the 2013 Long-Term Incentive Equity Plan (the “Incentive Plan” or “2013 Plan”) effective as of October 29, 2013. The Incentive Plan permits grants of stock options (including incentive stock options and nonqualified stock options), stock appreciation rights, restricted stock awards, and other stock-based awards.

 

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; and
  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.

 

Under the 2013 Plan, the maximum number of shares of authorized stock that may be delivered is 10% of the total number of shares of common stock issued and outstanding of the Company as determined on the applicable date of grant of an award under the 2013 Plan. Under the 2013 Plan, the exercise price of each option (or other stock-based award) shall not be less than the market price of the Company’s stock as calculated immediately preceding the day of the grant. The vesting schedule for each option or other stock-based award shall be specified by the Board of Directors at the time of grant. The maximum term of options or other stock-based award granted is ten years or such lesser time as determined by the Board of Directors at the time of grant.

 

The following is a continuity of the Company’s outstanding stock options:

 

    Number of options     Weighted average
exercise price
 
Outstanding, December 31, 2018     4,565,000       0.13  
Granted     3,800,000       0.13  
Expired     (115,000 )     0.10  
Outstanding, December 31, 2019     8,250,000     $ 0.13  
Granted     2,470,000       0.06  
Expired     (100,000 )     0.19  
Outstanding, September 30, 2020     10,620,000     $ 0.11  

 

At September 30, 2020, the Company had the following outstanding stock options:

 

Outstanding   Exercise Price   Expiry Date  Vested 
 900,000    0.18   March 26, 2021   900,000 
 1,000,000    0.12   September 15, 2022   1,000,000 
 2,450,000    0.12   October 24, 2023   2,450,000 
 3,800,000    0.12   September 19, 2024   3,800,000 
 2,470,000   $0.06   July 31, 2025   2,470,000 
 10,620,000            10,620,000 

 

As of September 30, 2020, all stock options have fully vested. The weighted average remaining contractual life of outstanding stock options is 3.48 years. The aggregate intrinsic value of the stock options at September 30, 2020 is $nil.

 

For the three and nine months ended September 30, 2020, the Company recognized stock-based compensation expense of $137,789 (2019 - $379,225 and $379,225, respectively) for options granted and vested. At September 30, 2020, the Company has no unrecognized compensation expense related to stock options.

 

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13. Warrants

 

The following is a continuity of the Company’s outstanding stock purchase warrants:

 

   Number of
warrants
   Weighted average exercise price 
Outstanding, December 31, 2018   17,498,532    0.25 
Issued   1,891,429    0.30 
Expired        
Outstanding, December 31, 2019   19,389,961   $0.26 
Issued   28,110,133    0.09 
Expired   (6,191,781)   0.30 
Outstanding, September 30, 2020   41,308,313   $0.14 

 

At September 30, 2020, the Company had the following outstanding stock purchase warrants:

 

Outstanding   Exercise Price   Expiry Date
 100,000    0.30   October 20, 2020
 4,538,000    0.30   October 26, 2020
 1,125,000    0.30   November 7, 2020
 200,001    0.30   November 23, 2020
 5,500,000    0.15   November 30, 2020
 38,462    0.30   May 1, 2021
 1,696,717    0.30   September 30, 2021
 15,000,000    0.09(a)  June 19, 2022
 9,185,667    0.09(a)  July 31, 2022
 3,751,133    0.09(a)  September 4, 2022
 173,333    0.09(a)  September 15, 2022
 41,308,313         

 

(a) $0.12 CAD

 

The weighted average remaining contractual life of outstanding warrants as at September 30, 2020 is 1.29 years.

 

On June 19, 2020, in connection with a private placement of units, the Company issued 15,000,000 warrants with an exercise price of $0.12 CAD (approximately US$0.09) per warrant and a contractual life of 2 years. As the warrants have an exercise price denominated in a currency other than the Company’s functional currency, they are derivative financial instruments measured at fair value at the end of each reporting period. The fair value of the derivative warrants on issuance was determined to be $520,941 based on the Black-Scholes Option Pricing Model using the following assumptions: expected dividend yield - 0%, expected volatility - 282%, risk-free interest rate - 0.19% and an expected remaining life - 2.0 years.

 

On July 31, 2020, in connection with a private placement of units, the Company issued 9,185,667 warrants with an exercise price of $0.12 CAD (approximately US$0.09) per warrant and a contractual life of 2 years. As the warrants have an exercise price denominated in a currency other than the Company’s functional currency, they are derivative financial instruments measured at fair value at the end of each reporting period. The fair value of the derivative warrants on issuance was determined to be $410,666 based on the Black-Scholes Option Pricing Model using the following assumptions: expected dividend yield - 0%, expected volatility - 260%, risk-free interest rate - 0.11% and an expected remaining life - 2.0 years.

 

16

 

 

On September 4, 2020, in connection with a private placement of units, the Company issued 3,751,133 warrants with an exercise price of $0.12 CAD (approximately US$0.09) per warrant and a contractual life of 2 years. As the warrants have an exercise price denominated in a currency other than the Company’s functional currency, they are derivative financial instruments measured at fair value at the end of each reporting period. The fair value of the derivative warrants on issuance was determined to be $163,621 based on the Black-Scholes Option Pricing Model using the following assumptions: expected dividend yield - 0%, expected volatility - 260%, risk-free interest rate - 0.13% and an expected remaining life - 2.0 years.

 

On September 4, 2020, in connection with the conversion of convertible debt, the Company issued 173,333 warrants with an exercise price of $0.12 CAD (approximately US$0.09) per warrant and a contractual life of 2 years. As the warrants have an exercise price denominated in a currency other than the Company’s functional currency, they are derivative financial instruments measured at fair value at the end of each reporting period. The fair value of the derivative warrants on issuance was determined to be $7,647 based on the Black-Scholes Option Pricing Model using the following assumptions: expected dividend yield - 0%, expected volatility - 231%, risk-free interest rate - 0.13% and an expected remaining life - 2.0 years.

 

The following is a continuity of the Company’s derivative warrant liability:

 

   Total 
Balance, January 1 and December 31, 2019  $79,458 
Issued during the period   1,222,242 
Change in fair value of derivative   (43,221)
Balance, September 30, 2020  $1,258,479 

 

14. Restricted Stock Units

 

For the three and nine months ended September 30, 2020, the Company recognized $29,200 (2019 - $nil and $nil, respectively) in stock-based compensation expense for RSUs granted and vested. At September 30, 2020, the Company has no unrecognized compensation expense related to RSUs.

 

   Number of restricted stock units   Weighted average fair value per award 
Balance, December 31, 2018      $ 
Granted   585,500    0.10 
Vested   (585,500)   0.10 
Balance, December 31, 2019        
Granted   525,000    0.06 
Vested   (525,000)   0.06 
Balance, September 30, 2020   -    - 

 

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15. Related Party Transactions

 

At September 30, 2020, accounts payable and accrued liabilities included $54,881 (December 31, 2019 - $58,438) due to related parties for outstanding management and consulting fees. The amounts are unsecured, non-interest bearing and due on demand. The Company issued 3,393,434 units for the settlement of accounts payable owed to related parties in the amount of $128,043, resulting in no gain or loss. Refer to Note 12.

 

During the nine and three months ended September 30, 2020, included in general and administrative expenses is $215,766 and $88,430, respectively, (2019 - $235,500 and $131,000, respectively) in respect to directors and management fees.

 

16. Segment Information

 

The Company’s operations are 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 include a head office in Canada, oil and gas operations in Turkey and oil and gas properties located in Bulgaria.

 

As at and for the nine month period ended September 30, 2020            
             
   Bulgaria   North America   Turkey   Total 
Revenue                    
Oil and natural gas sales  $   $   $1,773,073   $1,773,073 
Cost and expenses                    
Production           1,688,342    1,688,342 
Depletion           201,875    201,875 
Depreciation           35,106    35,106 
Share-based payments   -    167,189    -    167,189 
Accretion of asset retirement obligation           279,377    279,377 
General and administrative   6,255    1,001,055    683,057    1,690,367 
Total expenses   6,255    1,168,244    2,887,757    4,062,256 
Loss before other income (expenses)   (6,255)   (1,168,244)   (1,114,684)   (2,289,183)
Other income (expenses)                    
Interest expense   (103)   (71,873)   (14,853)   (86,829)
Interest income           12,771    12,771 
Foreign exchange gain (loss)   759    1,110    29,934    31,803 
Other income (expense)               - 
Change in fair value of derivative liability       (43,221)       (43,221)
Loss on debt extinguishment        (29,001)        (29,001)
Total other income (expenses)   656    (142,985)   27,852    (114,477)
Net loss for the period  $(5,599)  $(1,311,229)  $(1,086,832)  $(2,403,660)
                     
Long lived assets  $3,118,740   $   $2,421,657   $5,540,397 

 

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For the nine month period ended September 30, 2019            
             
   Bulgaria   North America   Turkey   Total 
Revenue                    
Oil and natural gas sales  $   $   $2,939,263   $2,939,263 
Cost and expenses                    
Production           1,970,397    1,970,397 
Depletion           468,373    468,373 
Depreciation           31,425    31,425 
Accretion of asset retirement obligation           309,572    309,572 
Stock-based compensation   

-

    437,725    

-

    437,725 
General and administrative   1,298    575,122    730,096    1,306,516 
Total expenses   1,298    1,012,847    3,509,863    4,524,008 
Loss before other income (expenses)   (1,298)   (1,012,847)   (570,600)   (1,584,745)
Other income (expenses)                    
Interest income       -    23,253    23,253 
Interest expense       (28,858)   (3,794)   (32,652)
Foreign exchange gain (loss)       2,067    (17,308)   (15,241)
Other income (expense)           69,843    69,843 
Total other income (expenses)       (26,791)   71,994    45,203 
Net loss for the period  $(1,298)  $(1,039,638)  $(498,606)  $(1,539,542)
                     
Long lived assets at December 31, 2019  $3,117,229   $   $3,639,858   $6,757,087 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide readers of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. Our MD&A is presented in the following sections:

 

  Executive Summary
     
  Results of Operations
     
  Liquidity and Capital Resources
     
  Forward-Looking Statements.

 

Our MD&A should be read in conjunction with our unaudited financial statements of Trillion Energy International Inc. (“Trillion Energy”, Company”, “we”, and “our”) and related Notes in Part I, Item 1 of the Quarterly Report on Form 10-Q and Item 8, Financial Statements and Supplementary Data, of the Annual Report on Form 10-K for the year ended December 31, 2019.

 

Our website can be found at www.trillionenergy.com. Our Annual Reports on 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.

 

Executive Summary

 

Trillion Energy International Inc. is focused on its oil and gas producing assets in Turkey and a coal bed methane exploration license in Bulgaria.

 

Turkey

 

On January 18, 2017, the Company completed the acquisition of three oil and gas exploration and production companies operating in Turkey (the “PPE Turkey”). As a result of the acquisition of PPE Turkey, the Company now owns interests in the producing Cendere oil field, and in the producing South Akcakoca Sub-Basin (“SASB”) gas field in Turkey.

 

PPE Turkey own 19.6% interest in the onshore Cendere oil field except three wells where PPE Turkey own 9.8% interest. PPE owns 49% working interest in the offshore SASB.

 

Aa at September 30, 2020, net production to the PPE Turkey from such fields was 147 barrels of oil equivalent per day or Boe/d. For the 2020 year-to-date, net production to the PPE Turkey averaged 183 Boe/d. 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.

 

At September 30, 2020, the gross oil production rate for the producing wells in Cendere was 578 bbls/day; the average daily 2020 gross production rate for the field was 555 bbls/day. At the end of July 2020, oil is currently sold at a price of approximately US$40.6 per barrel for a netback per barrel of approximately US$13/bbl. At September 30, 2020, the Cendere field was producing 109 barrels of oil per day net to the PPE Turkey; and averaged 116 barrels per day during 2020 net to the PPE Turkey.

 

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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 41.8 Bcf

 

As at September 30, 2020, the gross gas production rate for the 4 producing wells in SASB was 0.4719 MMcfd; the average daily 2020 gross production rate for the field was 0.8175 MMcfd. The average gas sale price year to date was, US$6.14/Mcf and US$5.31 per Mcf for the quarter ending September 30, 2020, for a netback per Mcf of approximately minus US$4.22. The lower net back is a result of relatively lower production levels being incurred due to natural decline, down approximately 96% since peak production rates occurred during 2011, given no new wells have been drilled since 2011. The Company anticipates that as new wells come online, the netback will increase substantially.

 

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.

 

Before the license for the Bulgarian CBM project is “effective”, the Company’s overall work program and first year annual work program must be approved by both the Bulgarian environmental ministry and the energy ministry. On August 26, 2014, the Bulgarian environmental agency approved the Company’s overall work program and first year annual work program. A number of parties appealed the decision of the environmental agency and an appeal proceeding was commenced before a three-judge administrative panel. The three-judge panel issued a decision on February 3, 2017 in which it ruled that the environmental agency had failed to follow its own regulations in approving the Company’s work programs. Both the environmental agency and the Company have appealed the decision to a five-judge panel whose decision will be final.

 

Strategic Focus

 

Our focus currently is obtaining funding to produce our reserves in our oil and gas fields 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 great upside attraction as a potential coal bed methane exploration 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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Results of Operations

 

The following summary of our results of operations should be read in conjunction with our unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 which are included herein.

 

Revenue

 

For the three months ended September 30, 2020, the Company had oil and gas revenue of $493,609, compared to $914,791 for the three months ended September 30, 2019. Revenue decreased mainly due to the devaluation of the Turkish Lira compared to the U.S. dollar of approximately 22% over the comparable period and a 13% decrease in gross revenue in Turkish Lira, primarily driven by decreases in oil price and a marginal decrease in production output primarily due to the field’s normal decline rate and relatively high WC%. Oil and gas revenue denominated in Turkish Liras was ₺4,544,765 for three months ended September 30, 2020, compared to ₺ 5,202,155 for the three months ended September 30, 2019.

 

For the nine months ended September 30, 2020, the Company had oil and gas revenue of $1,773,073, compared to $2,939,263 for the nine months ended September 30, 2019. Revenue decreased partially due to the devaluation of the Turkish Lira compared to the U.S. dollar of approximately 22% over the comparable period and a 23% decrease in gross revenue in Turkish Lira, primarily driven by decreases in oil price and a marginal decrease in production output primarily due to the field’s normal decline rate and relatively high WC%. Oil and gas revenue denominated in Turkish Liras was ₺ 12,836,819 for nine months ended September 30, 2020, compared to ₺16,581,285 for the nine months ended September 30, 2019.

 

Expenses

 

For the three months ended September 30, 2020, the Company incurred production expenses related to its Turkey operations of $488,930 (2019 - $643,202), depletion charges of $65,630 (2019 - $152,120), depreciation expense of $22,132 (2019 - $7,779) and asset retirement obligation accretion expense of $95,435 (2019 - $105,749). Production expenses decreased by $154,272 largely due to devaluation of the Turkish Lira compared to the U.S. dollar of approximately 22% over the comparable period, as well as marginally lower production volumes as discussed above. Depletion expenses were reduced by $86,490 over the comparable quarter primarily due to updated reserve reports received December 31, 2019 which significantly decreased the depletion rate. Depreciation increased by $14,353 for the three months ended September 30, 2020 primarily due to the accelerated depreciation of leasehold improvements after terminating an office lease arrangement in the comparative period. Accretion of asset retirement costs decreased by $10,314 for the three months ended September 30, 2020 primarily due to revaluation of the asset retirement obligation at December 31, 2019 which decreased the carrying value of the obligation.

 

For the nine months ended September 30, 2020, the Company incurred production expenses related to its Turkey operations of $1,688,342 (2019 - $1,970,397), depletion charges of $201,875 (2019 - $468,373), depreciation expense of $35,106 (2019 - $31,425) and asset retirement obligation accretion expense of $279,377 (2019 - $309,572). Production expenses decreased by $282,055 largely due to devaluation of the Turkish Lira compared to the U.S. dollar of approximately 122% over the comparable period, as well as marginally lower production volumes as discussed above. Depletion expenses were reduced by $266,498 over the comparable quarter primarily due to updated reserve reports received December 31, 2019 which significantly decreased the depletion rate. Depreciation increased by $3,681 for the nine months ended September 30, 2020 primarily due to the accelerated depreciation of leasehold improvements after terminating an office lease arrangement in the comparative period. Accretion of asset retirement costs decreased by $30,195 for the nine months ended September 30, 2020 primarily due to revaluation of the asset retirement obligation at December 31, 2019 which decreased the carrying value of the obligation.

 

For the three months ended September 30, 2020, the Company had general and administrative expenses of $698,005, compared to $504,346 for the three months ended September 30, 2019. $496,052 in expenses were from the North American head office and $201,953 for the Turkey office

 

For the nine months ended September 30, 2020, the Company had general and administrative expenses of $1,690,367, compared to $1,306,516 for the nine months ended September 30, 2019. $1,007,310 in expenses were from the North American head office and $683,057 for the Turkey office.

 

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Other Income (Expense)

 

For the three months ended September 30, 2020, the Company had other expenses of $139,663 compared to other expenses of $8,075 for the three months ended September 30, 2019. For the three months ended September 30, 2020, other expense consisted primarily of $86,208 change in the fair value of the Company’s derivatives. For the three months ended September 30, 2019, other expense consisted primarily of interest expense, partially offset by interest income.

 

For the nine months ended September 30, 2020, the Company had other expense of $114,477 compared to other income of $45,203 for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, other expense consisted primarily of interest expense of $86,829, a loss on the change in the fair value of the Company’s derivative liabilities of $43,221 and loss on the extinguishment of debt of $29,001. For the nine months ended September 30, 2019, other income consisted primarily of other income, partially offset by interest expense.

 

Net Loss

 

The changes in overall net loss for the three and nine months ended September 30, 2020, compared to the three and nine months ended September 30, 2019 are a result of the factors as described above.

 

Liquidity and Capital Resources

 

The following table summarizes our liquidity position:

 

   September 30, 2020   December 31, 2019 
   (Unaudited)     
Cash  $231,424   $863,017 
Working capital (deficiency)   (372,781)   391,237 
Total assets   6,448,149    7,297,185 
Total liabilities   7,088,819    5,497,278 
Stockholders’ equity   (640,670)   1,799,907 

 

Cash Used in Operating Activities

 

Net cash used in operating activities for the nine months ended September 30, 2020 was $1,130,163, compared to $113,040 cash used in operating activities for the nine months ended September 30, 2019. The current period loss of $2,403,660 was offset by $818,439 in net non-cash items and $455,058 in changes in working capital items for the nine months ended September 30, 2020. This compares to a prior year loss of $1,539,542, offset by $1,282,285 in net non-cash items and $370,297 in changes in working capital items.

 

Cash Used in Investing Activities

 

Net cash used in investing activities for the nine months ended September 30, 2020 was $104,270, compared to $37,448 used for the nine months ended September 30, 2019. Oil and gas properties expenditures decreased to $4,821 from $37,448 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 nine months ended September 30, 2020 was $765,952, compared to $127,974 for the nine months ended September 30, 2019. Cash provided by financing activities in the current period was primarily related to $751,400 in stock subscription received related to a private placement and a new bank loan at the Company’s Turkey subsidiary. In the comparative period the Company received $77,644 in loans payable, $123,095 in convertible debt and $15,692 in stock subscriptions.

 

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Future Operating Requirements

 

Based on our current plan of operations and due to a decline in oil prices, we estimate that we will require approximately $850,000 to cover our plan of operations over the next 12 months. We plan to spend approximately $50,000 on an environmental report for Bulgaria Vranino exploration block. We also plan to improve our working capital surplus by raising cash and paying off accounts payable. We will require approximately $800,000 for general and administrative expenses.

 

Based on the recent increase in reserves on SASB, our current plan of operations is the drilling of up to five (5) new wells at SASB and to reenter three existing wells to perform workovers to increase gas production. Depending on the timing of the drilling operations at our current interest (currently 49%), we project we will incur up to an additional $16 to $25 million in capital expenditures over the next 12 months to enable us to conduct such operations.

 

To reduce our current outstanding trade payables and indebtedness will require approximately $1.2 million; however, we may be able to negotiate terms that will require a lesser amount. To pay for the SASB drilling campaign, we will require an additional $20 million.

 

As of September 30, 2020, the Company had unrestricted cash of $244,871. The Company is attempting to raise additional capital to fund its future exploration and operating requirements.

 

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.

 

On October 1, 2018 the Company entered into an agreement to grant to the CEO of the Company a 0.5% (one half of one 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.

 

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Forward-Looking Information

 

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of applicable U.S. securities legislation. Additionally, forward-looking statements may be made orally or in press releases, conferences, reports, on our website or otherwise, in the future, by us or on our behalf. Such statements are generally identifiable by the terminology used such as “plans,” “expects,” “estimates,” “budgets,” “intends,” “anticipates,” “believes,” “projects,” “indicates,” “targets,” “objective,” “could,” “should,” “may” or other similar words.

 

By their very nature, forward-looking statements require us to make assumptions that may not materialize or that may not be accurate. Forward-looking statements are subject to known and unknown risks and uncertainties and other factors that may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements, including the factors discussed under Item 1A. Risk Factors in our most recent Annual Report on Form 10-K. Such factors include, but are not limited to, the following: fluctuations in and volatility of the market prices for oil and natural gas products; the ability to produce and transport oil and natural gas; the results of exploration and development drilling and related activities; global economic conditions, particularly in the countries in which we carry on business, especially economic slowdowns; actions by governmental authorities including increases in taxes, legislative and regulatory initiatives related to fracture stimulation activities, changes in environmental and other regulations, and renegotiations of contracts; political uncertainty, including actions by insurgent groups or other conflicts; the negotiation and closing of material contracts; future capital requirements and the availability of financing; estimates and economic assumptions used in connection with our acquisitions; risks associated with drilling, operating and decommissioning wells; actions of third-party co-owners of interests in properties in which we also own an interest; our ability to effectively integrate companies and properties that we acquire; our limited operating history; our history of operating losses; our lack of insurance coverage; and the other factors discussed in other documents that we file with or furnish to the U.S. Securities and Exchange Commission. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors and our course of action would depend upon our assessment of the future, considering all information then available. In that regard, any statements as to: future oil or natural gas production levels; capital expenditures; the allocation of capital expenditures to exploration and development activities; sources of funding for our capital expenditure programs; drilling of new wells; demand for oil and natural gas products; expenditures and allowances relating to environmental matters; dates by which certain areas will be developed or will come on-stream; expected finding and development costs; future production rates; ultimate recoverability of reserves, including the ability to convert probable and possible reserves to proved reserves; dates by which transactions are expected to close; future cash flows, uses of cash flows, collectability of receivables and availability of trade credit; expected operating costs; changes in any of the foregoing and other statements using forward-looking terminology are forward-looking statements, and there can be no assurance that the expectations conveyed by such forward-looking statements will, in fact, be realized.

 

Although we believe that the expectations conveyed by the forward-looking statements are reasonable based on information available to us on the date such forward-looking statements were made, no assurances can be given as to future results, levels of activity, achievements or financial condition.

 

Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described above, as well as others not now anticipated. The foregoing statements are not exclusive and further information concerning us, including factors that potentially could materially affect our financial results, may emerge from time to time. We do not intend to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable because we are a smaller reporting company.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure of Controls and Procedures

 

We carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2020 (the “Evaluation Date”). This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, we concluded that our disclosure controls and procedures were effective.

 

We believe that our consolidated financial statements contained in our Quarterly Report on Form 10-Q for the period ended September 30, 2020 fairly present our financial condition, results of operations and cash flows in all material respects.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not currently involved in any legal proceedings and we are unaware of any pending proceedings.

 

Item 1A. Risk Factors

 

Not applicable because we are a smaller reporting company. See risk factors described in Item 1A of the Company’s most recent Annual Report on Form 10-K.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Not applicable.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mining Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

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Item 6.   Exhibits
     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended
     
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101   The Company’s unaudited Condensed Consolidated Financial Statements and related Notes for the quarterly period ended September 30, 2020 from this Quarterly Report on Form 10-Q, formatted in XBRL (extensible Business Reporting Language).

 

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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.  
     
By: /s/ “Arthur Halleran”  
  Arthur Halleran  
  President and CEO (Principal Executive Officer)  
  Date: November 16, 2020  

 

By: /s/ “David Thompson”  
  David Thompson  
  Chief Financial Officer (Principal Financial Officer)  
  Date: November 16, 2020  

 

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