tat-10q_20200930.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: September 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 November 12, 2020, the registrant had 76,335,557‬ common shares outstanding.

 

 

 

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

Item 1. Financial Statements

 

 

 

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

4

 

 

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

5

 

 

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

6

 

 

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 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

25

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

35

 

 

Item 4. Controls and Procedures

35

 

 

PART II. OTHER INFORMATION

 

 

Item 1. Legal Proceedings

36

 

 

Item 1A. Risk Factors

36

 

 

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

36

 

 

Item 3. Defaults Upon Senior Securities

36

 

 

Item 4. Mine Safety Disclosures

36

 

 

Item 5. Other Information

36

 

 

Item 6. Exhibits

37

 

 


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)

 

 

September 30, 2020

 

 

December 31, 2019

 

 

(unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

5,877

 

 

$

9,664

 

Accounts receivable, net

 

 

 

 

 

 

 

Oil and natural gas sales

 

6,192

 

 

 

13,299

 

Joint interest and other

 

1,137

 

 

 

1,218

 

Related party

 

565

 

 

 

561

 

Prepaid and other current assets

 

13,215

 

 

 

12,375

 

Note receivable - related party

 

3,416

 

 

 

 

Derivative asset

 

35

 

 

 

 

Inventory

 

2,999

 

 

 

7,091

 

Total current assets

 

33,436

 

 

 

44,208

 

Property and equipment:

 

 

 

 

 

 

 

Oil and natural gas properties (successful efforts method)

 

 

 

 

 

 

 

Proved

 

106,277

 

 

 

167,948

 

Unproved

 

9,979

 

 

 

12,978

 

Equipment and other property

 

11,765

 

 

 

10,202

 

 

 

128,021

 

 

 

191,128

 

Less accumulated depreciation, depletion and amortization

 

(80,144

)

 

 

(106,610

)

Property and equipment, net

 

47,877

 

 

 

84,518

 

Other long-term assets:

 

 

 

 

 

 

 

Other assets

 

3,549

 

 

 

3,827

 

Note receivable - related party

 

 

 

 

3,951

 

Total other assets

 

3,549

 

 

 

7,778

 

Total assets

$

84,862

 

 

$

136,504

 

LIABILITIES, SERIES A PREFERRED SHARES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,971

 

 

$

4,555

 

Accounts payable - related party

 

2,956

 

 

 

4,262

 

Accrued liabilities

 

13,240

 

 

 

15,244

 

Derivative liability

 

2,201

 

 

 

966

 

Loans payable

 

9,197

 

 

 

17,143

 

Total current liabilities

 

29,565

 

 

 

42,170

 

Long-term liabilities:

 

 

 

 

 

 

 

Asset retirement obligations

 

3,185

 

 

 

4,749

 

Accrued liabilities

 

8,761

 

 

 

10,370

 

Deferred income taxes

 

16,718

 

 

 

22,728

 

Loans payable

 

 

 

 

2,857

 

Total long-term liabilities

 

28,664

 

 

 

40,704

 

Total liabilities

 

58,229

 

 

 

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 September 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 September 30, 2020 and December 31, 2019

 

41,050

 

 

 

41,050

 

Shareholders' equity:

 

 

 

 

 

 

 

Common shares, $0.10 par value, 200,000,000 shares authorized; 76,335,557 shares and 62,230,058 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

7,634

 

 

 

6,223

 

Treasury stock

 

(970

)

 

 

(970

)

Additional paid-in-capital

 

584,849

 

 

 

582,359

 

Accumulated other comprehensive loss

 

(143,587

)

 

 

(147,347

)

Accumulated deficit

 

(467,343

)

 

 

(432,685

)

Total shareholders' equity (deficit)

 

(19,417

)

 

 

7,580

 

Total liabilities, Series A preferred shares and shareholders' equity

$

84,862

 

 

$

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 Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and natural gas sales

$

8,459

 

 

$

14,543

 

 

$

23,285

 

 

$

50,537

 

Other

 

170

 

 

 

110

 

 

 

204

 

 

 

372

 

Total revenues

 

8,629

 

 

 

14,653

 

 

 

23,489

 

 

 

50,909

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production

 

2,308

 

 

 

3,162

 

 

 

8,207

 

 

 

8,376

 

Transportation and processing

 

914

 

 

 

1,262

 

 

 

3,035

 

 

 

3,802

 

Exploration, abandonment and impairment

 

69

 

 

 

488

 

 

 

20,407

 

 

 

6,267

 

Seismic and other exploration

 

-

 

 

 

48

 

 

 

45

 

 

 

233

 

General and administrative

 

1,965

 

 

 

2,503

 

 

 

6,711

 

 

 

8,247

 

Depreciation, depletion and amortization

 

1,542

 

 

 

3,021

 

 

 

7,048

 

 

 

10,179

 

Accretion of asset retirement obligations

 

44

 

 

 

56

 

 

 

141

 

 

 

157

 

Total costs and expenses

 

6,842

 

 

 

10,540

 

 

 

45,594

 

 

 

37,261

 

Operating (loss) income

 

1,787

 

 

 

4,113

 

 

 

(22,105

)

 

 

13,648

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on sale

 

-

 

 

 

-

 

 

 

(10,128

)

 

 

-

 

Interest and other expense

 

(2,557

)

 

 

(2,780

)

 

 

(7,165

)

 

 

(8,011

)

Interest and other income

 

230

 

 

 

381

 

 

 

643

 

 

 

776

 

Gain (loss) on derivative contracts

 

(359

)

 

 

403

 

 

 

3,937

 

 

 

(30

)

Foreign exchange loss

 

(532

)

 

 

(797

)

 

 

(1,016

)

 

 

(2,185

)

Total other expense

 

(3,218

)

 

 

(2,793

)

 

 

(13,729

)

 

 

(9,450

)

(Loss) income from operations before income taxes

 

(1,431

)

 

 

1,320

 

 

 

(35,834

)

 

 

4,198

 

Income tax (expense) benefit

 

(1,528

)

 

 

(250

)

 

 

1,176

 

 

 

(7,039

)

Net (loss) income

 

(2,959

)

 

 

1,070

 

 

 

(34,658

)

 

 

(2,841

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(2,916

)

 

 

808

 

 

 

3,760

 

 

 

(3,834

)

Comprehensive income (loss)

$

(5,875

)

 

$

1,878

 

 

$

(30,898

)

 

$

(6,675

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

$

(0.04

)

 

$

0.02

 

 

$

(0.04

)

 

$

(0.05

)

Weighted average common shares outstanding

 

66,183

 

 

 

57,680

 

 

 

73,738

 

 

 

54,249

 

Diluted net income (loss) per common share

$

(0.04

)

 

$

0.02

 

 

$

(0.04

)

 

$

(0.05

)

Weighted average common and common equivalent shares outstanding

 

66,183

 

 

 

57,680

 

 

 

73,738

 

 

 

54,249

 

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 Nine Months Ended September 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 September 30, 2020

Shares

 

 

Shares

 

 

Shares

 

 

Stock

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

(Deficit)

 

Balance at June 30, 2020

 

62,759

 

 

 

333

 

 

$

6,276

 

 

$

(970

)

 

$

582,484

 

 

$

(140,671

)

 

$

(464,384

)

 

$

(17,265

)

Issuance of common shares

 

13,576

 

 

 

-

 

 

 

1,358

 

 

 

-

 

 

 

2,326

 

 

 

-

 

 

 

-

 

 

 

3,684

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

39

 

 

 

-

 

 

 

-

 

 

 

39

 

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,916

)

 

 

-

 

 

 

(2,916

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,959

)

 

 

(2,959

)

Balance at September 30, 2020

 

76,335

 

 

 

333

 

 

$

7,634

 

 

$

(970

)

 

$

584,849

 

 

$

(143,587

)

 

$

(467,343

)

 

$

(19,417

)

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

62,230

 

 

 

333

 

 

$

6,223

 

 

$

(970

)

 

$

582,359

 

 

$

(147,347

)

 

$

(432,685

)

 

$

7,580

 

Issuance of common shares

 

14,105

 

 

 

-

 

 

 

1,411

 

 

 

-

 

 

 

2,273

 

 

 

-

 

 

 

-

 

 

 

3,684

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

263

 

 

 

-

 

 

 

-

 

 

 

263

 

Tax effect of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46

)

 

 

-

 

 

 

-

 

 

 

(46

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,760

 

 

 

-

 

 

 

3,760

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(34,658

)

 

 

(34,658

)

Balance at September 30, 2020

 

76,335

 

 

 

333

 

 

$

7,634

 

 

$

(970

)

 

$

584,849

 

 

$

(143,587

)

 

$

(467,343

)

 

$

(19,417

)

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

52,723

 

 

 

333

 

 

$

5,273

 

 

$

(970

)

 

$

577,538

 

 

$

(146,663

)

 

$

(431,230

)

 

$

3,948

 

Issuance of common shares

 

4,986

 

 

 

-

 

 

 

498

 

 

 

-

 

 

 

3,186

 

 

 

-

 

 

 

-

 

 

 

3,684

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

119

 

 

 

-

 

 

 

-

 

 

 

119

 

Tax effect of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

808

 

 

 

-

 

 

 

808

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,070

 

 

 

1,070

 

Balance at September 30, 2019

 

57,709

 

 

 

333

 

 

$

5,771

 

 

$

(970

)

 

$

580,843

 

 

$

(145,855

)

 

$

(430,160

)

 

$

9,629

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

52,413

 

 

 

333

 

 

$

5,241

 

 

$

(970

)

 

$

577,488

 

 

$

(142,021

)

 

$

(427,319

)

 

$

12,419

 

Issuance of common shares

 

4,986

 

 

 

-

 

 

 

498

 

 

 

-

 

 

 

3,186

 

 

 

-

 

 

 

-

 

 

 

3,684

 

Issuance of restricted stock units

 

310

 

 

 

-

 

 

 

32

 

 

 

-

 

 

 

(32

)

 

 

-

 

 

 

-

 

 

 

-

 

Share-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

298

 

 

 

-

 

 

 

-

 

 

 

298

 

Tax effect of restricted stock

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(97

)

 

 

-

 

 

 

-

 

 

 

(97

)

Foreign currency translation adjustment

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,834

)

 

 

-

 

 

 

(3,834

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,841

)

 

 

(2,841

)

Balance at September 30, 2019

 

57,709

 

 

 

333

 

 

$

5,771

 

 

$

(970

)

 

$

580,843

 

 

$

(145,855

)

 

$

(430,160

)

 

$

9,629

 

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 Nine Months Ended

 

 

September 30,

 

 

2020

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(34,658

)

 

$

(2,841

)

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

 

 

 

 

 

 

 

Share-based compensation

 

263

 

 

 

298

 

Foreign currency loss

 

1,214

 

 

 

1,776

 

Interest on Series A Preferred Shares paid in common shares

 

3,684

 

 

 

3,684

 

(Gain) loss on derivative contracts

 

(3,937

)

 

 

30

 

Cash settlement on derivative contracts

 

5,135

 

 

 

 

Loss on sale

 

10,128

 

 

 

 

Amortization on loan financing costs

 

23

 

 

 

31

 

Deferred income tax (benefit) expense

 

(444

)

 

 

4,396

 

Exploration, abandonment and impairment

 

20,407

 

 

 

6,267

 

Depreciation, depletion and amortization

 

7,048

 

 

 

10,179

 

Accretion of asset retirement obligations

 

141

 

 

 

157

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

4,742

 

 

 

172

 

Prepaid expenses and other assets

 

(4,339

)

 

 

(6,567

)

Accounts payable and accrued liabilities

 

1,570

 

 

 

8,122

 

Net cash provided by operating activities

 

10,977

 

 

 

25,704

 

Investing activities:

 

 

 

 

 

 

 

Additions to oil and natural gas properties

 

(3,745

)

 

 

(24,847

)

Additions to equipment and other properties

 

(158

)

 

 

(341

)

Proceeds from sale

 

1,451

 

 

 

 

Net cash used in investing activities

 

(2,452

)

 

 

(25,188

)

Financing activities:

 

 

 

 

 

 

 

Tax withholding on restricted share units

 

(46

)

 

 

(97

)

Note receivable - related party

 

 

 

 

1,000

 

Loan proceeds

 

626

 

 

 

20,605

 

Loan repayment

 

(11,429

)

 

 

(16,550

)

Net cash (used in) provided by financing activities

 

(10,849

)

 

 

4,958

 

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

 

(1,463

)

 

 

(914

)

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

 

(3,787

)

 

 

4,560

 

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

 

9,804

 

 

 

10,032

 

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

$

6,017

 

 

$

14,592

 

Supplemental disclosures:

 

 

 

 

 

 

 

Cash paid for interest

$

2,555

 

 

$

3,387

 

Cash paid for taxes

$

592

 

 

$

2,988

 

 

 

 

 

 

 

 

 

 

(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 September 30, 2020 includes cash and cash equivalents of $5.9 million and restricted cash of $0.1 million in other assets. The end of period balance at September 30, 2019 includes cash and cash equivalents of $14.5 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 November 12, 2020, approximately 51.7% 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 $34.7 million for the nine months ended September 30, 2020.  At September 30, 2020, we had cash and cash equivalents of $5.9 million, $9.2 million in short-term debt, and a working capital surplus of $3.9 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 pandemic 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 $40.00 per barrel as of November 5, 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 of proceeds from the derivative counterparty. 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 (“Bbl/d”). The swap contract