tat-10q_20200630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-34574

 

TRANSATLANTIC PETROLEUM LTD.

(Exact name of registrant as specified in its charter)

 

 

Bermuda

None

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

16803 Dallas Parkway

Addison, Texas

75001

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (214) 220-4323

 

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

Title of each class 

 

 

 

 

 

 

 

Ticker Symbol

 

 

 

 

 

 

 

Name of each exchange on which registered 

Common shares, par value $0.10

 

 

 

 

 

 

 

TAT

 

 

 

 

 

 

 

NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant is required to submit such files).    Yes      No  

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

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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  

As of August 7, 2020, the registrant had 68,586,290‬ common shares outstanding.

 

 

 

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

 

 

Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019

4

 

 

Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2020 and 2019

5

 

 

Unaudited Consolidated Statement of Shareholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019

6

 

 

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

7

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

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

27

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

36

 

 

Item 4. Controls and Procedures

36

 

 

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

37

 

 

Item 1A. Risk Factors

37

 

 

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

37

 

 

Item 3. Defaults Upon Senior Securities

37

 

 

Item 4. Mine Safety Disclosures

37

 

 

Item 5. Other Information

37

 

 

Item 6. Exhibits

38

 

 


2


Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of applicable U.S. and Canadian 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 Annual Report on Form 10-K for the year ended December 31, 2019 and our subsequent Quarterly Reports on Form 10-Q. Such factors include, but are not limited to, the following: the occurrence of any event, change, or other circumstances that could give rise to the termination of the Merger Agreement (as defined in Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations); the inability to obtain the requisite shareholder approval for the proposed merger or the failure to satisfy other conditions to completion of the proposed merger; risks that the proposed transaction disrupts current plans and operations; the ability to recognize the benefits of the merger; the amount of the costs, fees, and expenses and charges related to the merger; our ability to continue as a going concern; well development results; access to sufficient capital; market prices for natural gas, natural gas liquids, and oil products, including price changes resulting from COVID-19 fears as well as oil oversupply concerns; estimates of reserves and economic assumptions; the ability to produce and transport natural gas, natural gas liquids, and oil products, including price changes resulting from coronavirus fears as well as oil oversupply concerns; the results of exploration and development drilling and related activities; the effects of the coronavirus on our operations, demand for oil and natural gas as well as governmental actions in response to the coronavirus; economic conditions in the countries and provinces in which we carry on business, especially economic slowdowns; actions by governmental authorities; the unwinding of our hedges against a decline in the price of oil; receipt of required approvals; increases in taxes; legislative and regulatory initiatives relating to fracture stimulation activities; changes in environmental and other regulations; renegotiations of contracts; political uncertainty, including sanctions, armed conflicts, and actions by insurgent groups; outcomes of litigation; the negotiation and closing of material contracts; and the other factors discussed in other documents that we file with or furnish to the SEC and Canadian securities regulatory authorities. 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: liquidity; ability to continue as a going concern; COVID-19; access to sufficient capital; future oil or natural gas production levels; capital expenditures; asset sales; the allocation of capital expenditures to exploration and development activities; sources of funding for our capital expenditure programs or operations; 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, except as required by law.

 

3


PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

TRANSATLANTIC PETROLEUM LTD.

Consolidated Balance Sheets

(in thousands of U.S. Dollars, except share data)

 

 

June 30, 2020

 

 

December 31, 2019

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

8,598

 

 

$

9,664

 

Accounts receivable, net

 

 

 

 

 

 

 

Oil and natural gas sales

 

6,796

 

 

 

13,299

 

Joint interest and other

 

1,106

 

 

 

1,218

 

Related party

 

478

 

 

 

561

 

Prepaid and other current assets

 

12,497

 

 

 

12,375

 

Note receivable - related party

 

3,492

 

 

 

 

Derivative asset

 

10

 

 

 

 

Inventory

 

3,249

 

 

 

7,091

 

Total current assets

 

36,226

 

 

 

44,208

 

Property and equipment:

 

 

 

 

 

 

 

Oil and natural gas properties (successful efforts method)

 

 

 

 

 

 

 

Proved

 

120,915

 

 

 

167,948

 

Unproved

 

10,414

 

 

 

12,978

 

Equipment and other property

 

13,136

 

 

 

10,202

 

 

 

144,465

 

 

 

191,128

 

Less accumulated depreciation, depletion and amortization

 

(89,529

)

 

 

(106,610

)

Property and equipment, net

 

54,936

 

 

 

84,518

 

Other long-term assets:

 

 

 

 

 

 

 

Other assets

 

3,524

 

 

 

3,827

 

Note receivable - related party

 

 

 

 

3,951

 

Total other assets

 

3,524

 

 

 

7,778

 

Total assets

$

94,686

 

 

$

136,504

 

LIABILITIES, SERIES A PREFERRED SHARES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,611

 

 

$

4,555

 

Accounts payable - related party

 

5,120

 

 

 

4,262

 

Accrued liabilities

 

13,993

 

 

 

15,244

 

Derivative liability

 

3,227

 

 

 

966

 

Loans payable

 

11,269

 

 

 

17,143

 

Total current liabilities

 

35,220

 

 

 

42,170

 

Long-term liabilities:

 

 

 

 

 

 

 

Asset retirement obligations

 

3,505

 

 

 

4,749

 

Accrued liabilities

 

9,455

 

 

 

10,370

 

Deferred income taxes

 

17,721

 

 

 

22,728

 

Loans payable

 

 

 

 

2,857

 

Total long-term liabilities

 

30,681

 

 

 

40,704

 

Total liabilities

 

65,901

 

 

 

82,874

 

Commitments and contingencies

 

 

 

 

 

 

 

Series A preferred shares, $0.01 par value, 100,000 shares authorized; 100,000 shares issued and outstanding with a liquidation preference of $50 per share as of June 30, 2020 and December 31, 2019

 

5,000

 

 

 

5,000

 

Series A preferred shares-related party, $0.01 par value, 821,000 shares authorized; 821,000 shares issued and outstanding with a liquidation preference of $50 per share as of June 30, 2020 and December 31, 2019

 

41,050

 

 

 

41,050

 

Shareholders' equity:

 

 

 

 

 

 

 

Common shares, $0.10 par value, 200,000,000 shares authorized; 62,759,347 shares and 62,230,058 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

 

6,276

 

 

 

6,223

 

Treasury stock

 

(970

)

 

 

(970

)

Additional paid-in-capital

 

582,484

 

 

 

582,359

 

Accumulated other comprehensive loss

 

(140,671

)

 

 

(147,347

)

Accumulated deficit

 

(464,384

)

 

 

(432,685

)

Total shareholders' equity (deficit)

 

(17,265

)

 

 

7,580

 

Total liabilities, Series A preferred shares and shareholders' equity

$

94,686

 

 

$

136,504

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

4


TRANSATLANTIC PETROLEUM LTD.

Consolidated Statements of Operations and Comprehensive (Loss) Income

(Unaudited)

(U.S. Dollars and shares in thousands, except per share amounts)

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas sales

$

6,483

 

 

$

17,134

 

 

$

14,826

 

 

$

35,994

 

Other

 

17

 

 

 

81

 

 

 

34

 

 

 

262

 

Total revenues

 

6,500

 

 

 

17,215

 

 

 

14,860

 

 

 

36,256

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production

 

2,380

 

 

 

2,712

 

 

 

5,899

 

 

 

5,214

 

Transportation and processing

 

961

 

 

 

1,221

 

 

 

2,121

 

 

 

2,540

 

Exploration, abandonment and impairment

 

-

 

 

 

666

 

 

 

20,338

 

 

 

5,779

 

Seismic and other exploration

 

-

 

 

 

108

 

 

 

45

 

 

 

185

 

General and administrative

 

2,394

 

 

 

2,690

 

 

 

4,746

 

 

 

5,744

 

Depreciation, depletion and amortization

 

2,517

 

 

 

3,442

 

 

 

5,506

 

 

 

7,158

 

Accretion of asset retirement obligations

 

44

 

 

 

49

 

 

 

97

 

 

 

101

 

Total costs and expenses

 

8,296

 

 

 

10,888

 

 

 

38,752

 

 

 

26,721

 

Operating (loss) income

 

(1,796

)

 

 

6,327

 

 

 

(23,892

)

 

 

9,535

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale

 

-

 

 

 

-

 

 

 

(10,128

)

 

 

-

 

Interest and other expense

 

(2,396

)

 

 

(2,753

)

 

 

(4,608

)

 

 

(5,231

)

Interest and other income

 

292

 

 

 

221

 

 

 

413

 

 

 

395

 

Gain (loss) on derivative contracts

 

(3,217

)

 

 

(323

)

 

 

4,296

 

 

 

(433

)

Foreign exchange loss

 

(356

)

 

 

(115

)

 

 

(484

)

 

 

(1,388

)

Total other expense

 

(5,677

)

 

 

(2,970

)

 

 

(10,511

)

 

 

(6,657

)

(Loss) income from operations before income taxes

 

(7,473

)

 

 

3,357

 

 

 

(34,403

)

 

 

2,878

 

Income tax (expense) benefit

 

(261

)

 

 

(3,366

)

 

 

2,704

 

 

 

(6,789

)

Net loss

 

(7,734

)

 

 

(9

)

 

 

(31,699

)

 

 

(3,911

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(1,245

)

 

 

(416

)

 

 

6,676

 

 

 

(4,642

)

Comprehensive loss

$

(8,979

)

 

$

(425

)

 

$

(25,023

)

 

$

(8,553

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per common share

$

(0.12

)

 

$

(0.00

)

 

$

(0.51

)

 

$

(0.07

)

Weighted average common shares outstanding

 

62,502

 

 

 

52,529

 

 

 

62,406

 

 

 

52,506

 

Diluted net loss per common share

$

(0.12

)

 

$

(0.00

)

 

$

(0.51

)

 

$

(0.07

)

Weighted average common and common equivalent shares outstanding

 

62,502

 

 

 

52,529

 

 

 

62,406

 

 

 

52,506

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 


5


TRANSATLANTIC PETROLEUM LTD.

Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2020 and 2019

(Unaudited)

(U.S. Dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Shareholders'

 

 

Common

 

 

Treasury

 

 

Common

 

 

Treasury

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

Three months ended June 30, 2020

Shares

 

 

Shares

 

 

Shares

 

 

Stock

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

(Deficit)

 

Balance at March 31, 2020

 

62,349

 

 

 

333

 

 

$

6,235

 

 

$

(970

)

 

$

582,426

 

 

$

(139,426

)

 

$

(456,650

)

 

$

(8,385

)

Issuance of restricted stock units

 

410

 

 

 

-

 

 

 

41

 

 

 

-

 

 

 

(41

)

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

114

 

 

 

-

 

 

 

-

 

 

 

114

 

Tax effect of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15

)

 

 

-

 

 

 

-

 

 

 

(15

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,245

)

 

 

-

 

 

 

(1,245

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,734

)

 

 

(7,734

)

Balance at June 30, 2020

 

62,759

 

 

 

333

 

 

$

6,276

 

 

$

(970

)

 

$

582,484

 

 

$

(140,671

)

 

$

(464,384

)

 

$

(17,265

)

Six Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

62,230

 

 

 

333

 

 

$

6,223

 

 

$

(970

)

 

$

582,359

 

 

$

(147,347

)

 

$

(432,685

)

 

$

7,580

 

Issuance of restricted stock units

 

529

 

 

 

-

 

 

 

53

 

 

 

-

 

 

 

(53

)

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

229

 

 

 

-

 

 

 

-

 

 

 

229

 

Tax effect of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(51

)

 

 

-

 

 

 

-

 

 

 

(51

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,676

 

 

 

-

 

 

 

6,676

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(31,699

)

 

 

(31,699

)

Balance at June 30, 2020

 

62,759

 

 

 

333

 

 

$

6,276

 

 

$

(970

)

 

$

582,484

 

 

$

(140,671

)

 

$

(464,384

)

 

$

(17,265

)

Three Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

52,496

 

 

 

333

 

 

$

5,249

 

 

$

(970

)

 

$

577,493

 

 

$

(146,247

)

 

$

(431,221

)

 

$

4,304

 

Issuance of restricted stock units

 

227

 

 

 

-

 

 

 

24

 

 

 

-

 

 

 

(24

)

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

77

 

 

 

-

 

 

 

-

 

 

 

77

 

Tax effect of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8

)

 

 

-

 

 

 

-

 

 

 

(8

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(416

)

 

 

-

 

 

 

(416

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9

)

 

 

(9

)

Balance at June 30, 2019

 

52,723

 

 

 

333

 

 

$

5,273

 

 

$

(970

)

 

$

577,538

 

 

$

(146,663

)

 

$

(431,230

)

 

$

3,948

 

Six Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

52,413

 

 

 

333

 

 

$

5,241

 

 

$

(970

)

 

$

577,488

 

 

$

(142,021

)

 

$

(427,319

)

 

$

12,419

 

Issuance of restricted stock units

 

310

 

 

 

-

 

 

 

32

 

 

 

-

 

 

 

(32

)

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

179

 

 

 

-

 

 

 

-

 

 

 

179

 

Tax effect of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(97

)

 

 

-

 

 

 

-

 

 

 

(97

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,642

)

 

 

-

 

 

 

(4,642

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,911

)

 

 

(3,911

)

Balance at June 30, 2019

 

52,723

 

 

 

333

 

 

$

5,273

 

 

$

(970

)

 

$

577,538

 

 

$

(146,663

)

 

$

(431,230

)

 

$

3,948

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

 

 

 


6


TRANSATLANTIC PETROLEUM LTD.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands of U.S. Dollars)

 

 

For the Six Months Ended

 

 

June 30,

 

 

2020

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(31,699

)

 

$

(3,911

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Share-based compensation

 

229

 

 

 

179

 

Foreign currency loss

 

427

 

 

 

3,011

 

(Gain) loss on derivative contracts

 

(4,296

)

 

 

433

 

Cash settlement on derivative contracts

 

6,468

 

 

 

 

Loss on sale

 

10,128

 

 

 

 

Amortization on loan financing costs

 

21

 

 

 

21

 

Deferred income tax (benefit) expense

 

(1,776

)

 

 

3,713

 

Exploration, abandonment and impairment

 

20,338

 

 

 

5,779

 

Depreciation, depletion and amortization

 

5,506

 

 

 

7,158

 

Accretion of asset retirement obligations

 

97

 

 

 

101

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

5,457

 

 

 

(10,630

)

Prepaid expenses and other assets

 

(1,635

)

 

 

(6,205

)

Accounts payable and accrued liabilities

 

996

 

 

 

10,973

 

Net cash provided by operating activities

 

10,261

 

 

 

10,622

 

Investing activities:

 

 

 

 

 

 

 

Additions to oil and natural gas properties

 

(3,472

)

 

 

(15,538

)

Additions to equipment and other properties

 

(158

)

 

 

(188

)

Proceeds from sale

 

1,451

 

 

 

 

Net cash used in investing activities

 

(2,179

)

 

 

(15,726

)

Financing activities:

 

 

 

 

 

 

 

Tax withholding on restricted share units

 

(51

)

 

 

(97

)

Note receivable - related party

 

 

 

 

1,000

 

Loan proceeds

 

626

 

 

 

20,000

 

Loan repayment

 

(9,357

)

 

 

(10,800

)

Net cash (used in) provided by financing activities

 

(8,782

)

 

 

10,103

 

Effect of exchange rate on cash flows, cash equivalents, and restricted cash

 

(366

)

 

 

(1,184

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(1,066

)

 

 

3,815

 

Cash, cash equivalents and restricted cash, beginning of period (1)

 

9,804

 

 

 

10,032

 

Cash, cash equivalents and restricted cash, end of period (2)

$

8,738

 

 

$

13,847

 

Supplemental disclosures:

 

 

 

 

 

 

 

Cash paid for interest

$

2,229

 

 

$

2,269

 

Cash paid for taxes

$

414

 

 

$

1,565

 

 

 

 

 

 

 

 

 

 

(1)

The beginning of period balance at December 31, 2019 includes cash and cash equivalents of $9.7 million and restricted cash of $0.1 million in other assets.  The beginning of period balance at December 31, 2018 includes cash and cash equivalents of $9.9 million and restricted cash of $0.1 million in other assets

 

 

(2)

The end of period balance at June 30, 2020 includes cash and cash equivalents of $8.6 million and restricted cash of $0.1 million in other assets. The end of period balance at June 30, 2019 includes cash and cash equivalents of $13.7 million and restricted cash of $0.1 million in other assets.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 


7


Transatlantic Petroleum Ltd.

Notes to Consolidated Financial Statements

(Unaudited)

1. General

Nature of operations

TransAtlantic Petroleum Ltd. (together with its subsidiaries, “we,” “us,” “our,” the “Company,” or “TransAtlantic”) is an international oil and natural gas company engaged in acquisition, exploration, development, and production. We have focused our operations in countries that have established, yet underexplored petroleum systems, are net importers of petroleum, have an existing petroleum transportation infrastructure, and provide favorable commodity pricing, royalty rates, and tax rates to exploration and production companies. We hold interests in developed and undeveloped oil and natural gas properties in Turkey and Bulgaria. As of August 7, 2020, approximately 50.5% of our outstanding common shares were beneficially owned by N. Malone Mitchell 3rd, our chief executive officer and chairman of our board of directors. Persons and entities associated with Mr. Mitchell also owned 739,000 of our 12.0% Series A Convertible Redeemable Preferred Shares (“Series A Preferred Shares”). Mr. Mitchell’s affiliates are currently prohibited from converting any of their Series A Preferred Shares to common shares if such conversion would cause Mr. Mitchell or his affiliates to obtain beneficial ownership in excess of 49.9% of the outstanding common shares; however, Mr. Mitchell, upon 61 days’ prior notice, may increase or decrease such percentage cap.

We are a holding company with two operating segments – Turkey and Bulgaria. Our assets consist of our ownership interests in subsidiaries that primarily own assets in Turkey and Bulgaria.

Basis of presentation

Our consolidated financial statements are expressed in U.S. Dollars (“USD”) and have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All amounts in the notes to the consolidated financial statements are in USD unless otherwise indicated. The unaudited consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. In preparing financial statements, management makes informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews estimates, including those related to fair value measurements associated with financial derivatives, the recoverability and impairment of long-lived assets, contingencies and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

2. Going Concern

These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern.  These principles assume that we will be able to realize our assets and discharge our obligations in the normal course of operations for the foreseeable future.  

We incurred a net loss of $31.7 million for the six months ended June 30, 2020.  At June 30, 2020, we had cash and cash equivalents of $8.6 million, $11.3 million in short-term debt, and a working capital surplus of $1.0 million, compared to cash and cash equivalents of $9.7 million, $2.9 million in long-term debt, $17.1 million in short-term debt and a working capital surplus of $2.0 million at December 31, 2019.

In March 2020, crude oil prices declined to approximately $25 per barrel for Brent crude as a result of market concerns about the economic impact from the COVID-19 as well as the ability of OPEC and Russia to agree on a perceived need to implement further production cuts in response to weaker worldwide demand.  Since then, Brent crude prices have rebounded to approximately $45.00 per barrel as of August 10, 2020 and remain unpredictable.

As a result of the decline in Brent crude prices, the current near term price outlook and resulting lower current and projected cash flows from operations, we have reduced our planned capital expenditures to those necessary for production lease maintenance and those projecting a return on invested capital at current prices. In order to mitigate the impact of reduced prices on our 2020 cash flows and liquidity, we implemented cost reduction measures to reduce our operating costs and general and administrative expenses. In connection therewith, we intend to prioritize funding operating expenditures over general and administrative expenditures, whenever possible.

8


On March 9, 2020, we unwound our commodity derivative contracts with respect to our future crude oil production. In connection with these transactions, we received $6.5 million. In order to reduce future interest expense, we used these proceeds to pay down the 2019 Term Loan (as defined in Note 8. “Loans Payable”). On April 3, 2020, we entered into a new swap contract with DenizBank, A.S. (“DenizBank”), which hedged approximately 2,000 barrels of oil per day. The swap contract is in place from May 2020 through February 2021, has an ICE Brent Index strike price of $36.00 per barrel, and is settled monthly. Therefore, DenizBank is required to make a payment to us if the average monthly ICE Brent Index price is less than $36.00 per barrel, and we are required to make a payment to DenizBank if the average monthly ICE Brent Index price is greater than $36.00 per barrel.

Türkiye Petrol Rafinerileri A.Ş. (“TUPRAS”), a privately-owned oil refinery in Turkey, purchases substantially all of our crude oil production. The price of substantially all of the oil delivered pursuant to the purchase and sale agreement with TUPRAS is tied to Arab Medium oil prices adjusted upward based on an API adjustment, Suez Canal tariff costs, and freight charges. Between March 2020 and May 2020, there was a significant widening of the differential between the average monthly ICE Brent Index price and our realized oil prices. In 2018 and 2019, the average monthly ICE Brent Index Price exceeded our realized oil prices by $2.44 and $0.17 per barrel, respectively. The differential between the average monthly ICE Brent Index Price and our realized oil prices widened from $3.40 per barrel in March 2020 to $8.34 per barrel in May 2020. The widening of the differential between the average monthly ICE Brent Index Price and our realized oil prices rendered our hedges less effective, resulting in significantly lowered revenues from March 2020 through May 2020.  In June 2020, the differential between the average monthly ICE Brent Index Price and our realized oil prices contracted to $0.74 per barrel, and, in July 2020, our realized oil prices exceeded the average monthly ICE Brent Index Price by $3.71 per barrel. The differential between the average monthly ICE Brent Index Price and our realized oil prices remains unpredictable and may expand or contract in the future.

The price of the oil delivered pursuant to the purchase and sale agreement with TUPRAS is determined under the Petroleum Market Law No. 5015 under the laws of the Republic of Turkey. In November 2019, TUPRAS filed a lawsuit seeking restitution from us for alleged overpayments resulting from a February 2019 amendment to the Turkish domestic crude oil pricing formula under Petroleum Market Law No. 5015 (the “Pricing Amendment”). TUPRAS also claimed that the Pricing Amendment violates the Constitution of the Republic of Turkey and seeks to have the Pricing Amendment cancelled. Additionally, in April 2020, TUPRAS notified us that it intends to extend payment terms for oil purchases by 60 days. The outcome of the TUPRAS lawsuit and negotiations regarding the extension of payment terms is uncertain; however, a conclusion of the lawsuit in TUPRAS’s favor or an extension of payment terms would reduce or delay our cash flow and decrease our cash balances.

In the second quarter of 2020, we borrowed approximately $626,000 pursuant to the U.S. Paycheck Protection Program (the “PPP”) to cover certain payroll, benefit, and rent expenses. We have forecast that amounts borrowed or received pursuant to the PPP will be forgiven for cash flow purposes. New guidance on the criteria for forgiveness continues to be released, and we currently expect that we will meet the conditions for forgiveness for a majority of the loan. Additionally, in the second quarter of 2020, the Turkish government passed legislation permitting employers to reduce the working hours of employees, reducing payro