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Edge Resources (EDG)

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Monday 18 November, 2013

Edge Resources

Half Year Results

RNS Number : 2267T
Edge Resources Inc.
18 November 2013
 



FOR IMMEDIATE RELEASE

TSX Venture Exchange Symbol: EDE

AIM Exchange Symbol: EDG                                                                                              November 18, 2013

EDGE RESOURCES INC.                                                                                                      Calgary, Alberta

 

 

Edge Resources Inc. Announces Record Quarterly and Half Year Results

 

Edge Resources Inc. ("Edge" or the "Company") is pleased to report it has once again achieved record operating and financial results, with further improvement upon the record results announced for the quarter ended June 30, 2013 ("Q1 2013").  

As expected, following the record results reported in Q1 2013, the Company, for the quarter ended September 30, 2013 ("Q2 2013"), showed record improvements in revenue, operating costs, general & administration costs, cash flow and netbacks. 

As previously reported, all of the Company's three core assets continue to be cash flow positive; however, the Company is pursuing higher profitability and growth from oil-based prospects, such as Eye Hill, while its natural gas properties are allowed to decline naturally.  The Company also disposed of a small, non-core natural gas producing asset in exchange for a highly-prospective, strategic asset in heart of Eye Hill East.

Detailed operating and financial results are presented in Edge's unaudited quarterly financial statements and related Management Discussion & Analysis ("MD&A"), which can be accessed on the Company's website (www.edgeres.com) and on SEDAR (www.sedar.com).  The unaudited second quarter results for the three month period ended September 30, 2013 ("Q2 2013") and unaudited half yearly results for the six month period ended September 30, 2013 ("H1 2013") are highlighted and summarised below.

 

Highlights for the three and six month periods, ending September 30, 2013:

 

·      Continued demonstration of a disciplined business plan; when comparing Q2 2012 to Q2 2013, Oil and Natural Gas Sales increased to $2,566,000 from $2,061,000, General and Administrative Costs decreased to $466,000 from $716,000, Operating Costs (oil) decreased to $19.47/bbl from $45.74/bbl and Netback (oil) increased to $51.20/bbl from $8.15/bbl;

·      Meticulous focus on cash generation has resulted in a dramatic improvement, with net cash generated from operations of $850,000 in H1 2013 compared to a loss of $447,000 in H1 2012.

·      Demonstrated production capability of Eye Hill East assets with a six month, restricted-rate production test yielding continually increasing - but purposely limited - flow rates of up to 151 bopd, averaging 128 bopd in the month ending September 30, 2013.

·      Maintained a controlled focus on oil with average quarterly oil production showing an increase to 283 bopd from 248 bopd, while natural gas production declined due to natural declines and asset dispositions; and,

·      Disposed of non-core, natural gas producing property in exchange for a highly prospective, strategic property in the heart of the Company's key growth asset, Eye Hill East in Saskatchewan.

 

Brad Nichol, President & CEO of Edge, commented, "We have enjoyed another excellent, record quarter.  Unquestionably, the entire industry was buoyed by a year-on-year improvement in oil pricing; however, in the face of an improving top line number, we simultaneously reduced our G&A, Operating and Transportation costs, which resulted in a huge increase in the cash we were able to generate from our operations."  Nichol added, "Edge's industry-leading profit-to-investment ratio, also known as the recycle ratio, at 3.5x versus the industry average of 1.5x, allows us to generate significantly more cash from our properties than other operators.  This has been demonstrated by our production results in Eye Hill.  Our ability to generate cash at these levels is an outstanding quality in today's industry, which should allow Edge to continue grow and utilise internally-generated cash flow."

 

To view the Company's full Q2 2013 and H1 2013 statements, please go to the company website www.edgeres.com or to www.sedar.com.

 

For more information, visit the company website: www.edgeres.com or contact:

 

Brad Nichol, President and CEO                                                                     Phone: +1 403 767 9905

 

Sanlam Securities UK Limited                                                                        Phone: +44 (0)20 7628 2200

Simon Clements / Scott Mathieson / Max Bascombe

 

SP Angel Corporate Finance LLP                                                                    Phone: +44 (0)20 3463 2260

John MacKay / Richard Hail / Stuart Gledhill / Zach Phillips (Research)

 

 

 

About Edge Resources Inc.

 

Edge Resources is focused on developing a balanced portfolio of oil and natural gas assets from properties in Alberta and Saskatchewan, Canada.  Management has consistently focused on:

 

1.       Shallow, vertical, conventional programs with reduced capital, operational and geological risks

2.       Very high or 100% working interests and fully operated assets

3.       Pools and horizons with exceptionally high reserves in place

 

The management team's very high drilling success rate is based on the safe, efficient deployment of capital and a proven ability to efficiently execute in shallow formations, which gives Edge Resources a sustainable, low-cost, competitive advantage.

 



Condensed Interim Balance Sheets

(amounts in Canadian dollars)

(unaudited)

 




September 30,


March 31,


September 30,


Note


    2013


                  2013


          2012

Assets








Current assets








Cash and cash equivalents



$        26,694


$           49,232


$           5,178

Accounts receivable



997,276


1,016,878


1,234,668

Fair value of derivative instruments



-


-


120,728

Deposits and prepaid expenses



109,802


64,035


71,942

Total current assets



1,133,772


1,130,145


1,535,858

Non-current assets








      Fair value of derivative instruments



-


-


84,346

Exploration and evaluation assets



676,872


438,540


374,981

Property, plant and equipment

3


34,125,257


35,685,424


35,764,584

Total non-current assets



34,802,129


36,123,964


36,223,911

Total assets



$  35,935,901


$     37,254,109


$     37,759,769

Liabilities








Current liabilities








Accounts payable and accrued liabilities



$    1,379,382


$       2,682,799


$       2,695,509

Bank debt

4


7,514,047


6,654,021


9,076,063

Loans payable

5


-


9,035,342


1,160,438

Fair value of derivative instruments



92,683


215,640


-

Flow-through share premium



116,077


116,077


-

Total current liabilities



9,102,189


18,703,879


12,932,010

Loans payable

5


9,444,712


-


7,466,027

Fair value of derivative instruments



53,719


97,734


-

Decommissioning provisions



5,069,000


6,056,000


6,437,000

Total liabilities



23,669,620


24,857,613


26,835,037









Shareholders' Equity








Share capital



32,691,059


32,691,059


27,247,163

Warrants



-


-


339,232

Contributed surplus



2,213,328


2,097,875


1,589,584

Deficit



(22,638,106)


(22,392,438)


(18,251,247)

Total shareholders' equity



12,266,281


12,396,496


10,924,732

Total liabilities and shareholders' equity



$  35,935,901


$     37,254,109


$     37,759,769

 

 



Condensed Interim Statements of Net Loss and Comprehensive Loss

(amounts in Canadian dollars)

(unaudited)

 



Three months ended

Six months ended


Note

Sept. 30,

2013

Sept. 30,

2012

Sept. 30,

2013

Sept. 30,

2012







Revenue






Oil and natural gas sales


$    2,566,411

$     2,060,989

$     4,887,341

$     4,294,681

Royalties


(460,255)

(307,423)

(817,420)

(752,638)

Revenue, net of royalties


2,106,156

1,753,566

4,069,921

3,542,043

Other income






Realized gain (loss) on financial derivatives


(47,483)

134,628

(96,329)

256,648

Unrealized gain (loss) on financial derivatives


(118,808)

(580,754)

166,972

96,992

Gain on disposition of oil and natural gas interests

3

-

-

185,000

-

Gain on disposition of exploration and evaluation assets


-

-

-

300,000

Other income


13,152

18,730

26,483

37,349

Total income, before expenses


1,953,017

1,326,170

4,352,047

4,233,032

Expenses






Operating


830,047

1,568,733

1,684,240

2,381,382

Transportation


64,538

128,156

166,110

261,296

General and administrative


465,929

715,526

997,415

1,424,901

Depletion and depreciation


505,200

840,600

1,039,600

1,787,100

Finance


307,247

334,983

613,405

659,201

Stock-based compensation


47,054

153,447

115,453

183,675

Capital taxes


(52,008)

31,112

(18,508)

96,112

Total expenses


2,168,007

3,772,557

4,597,715

6,793,667

Net loss and comprehensive loss for the period


$      (214,990)

$    (2,446,387)

$      (245,668)

$   (2,560,635)

Net loss and comprehensive loss per share






Basic and diluted


$            (0.00)

$           (0.02)

$            (0.00)

$            (0.03)

 

 

 

 



Condensed Interim Statements of Changes in Shareholders' Equity

(amounts in Canadian dollars)

(unaudited)

 


Share Capital

Warrants

Contributed surplus

Deficit

Total Equity

Balance at March 31, 2013

$32,691,059

$              -

$ 2,097,875

$(22,392,438)

$12,396,496

Stock-based compensation

-

-

115,453

-

115,453

Net loss for the period

-

-

-

(245,668)

(245,668)

Balance at September 30, 2013

$32,691,059

$              -

$ 2,213,328

$(22,638,106)

$12,266,281

Balance at March 31, 2012

$24,093,398

$   386,860

$1,358,281

$(15,690,612)

$10,147,927

Issue of common shares for cash

3,250,000

-

-

-

3,250,000

Issue of common shares in lieu of services

81,250

-

-

-

81,250

Share issue costs, cash paid

(96,235)

-

-

-

(96,235)

Share issue costs, non-cash

(81,250)

-

-

-

(81,250)

Stock-based compensation

-

-

183,675

-

183,675

Non-cash fair value related to warrants expired

-

(47,628)

47,628

-

-

Net loss for the period

-

-

-

(2,560,635)

(2,560,635)

Balance at September 30, 2012

$27,247,163

$   339,232

$ 1,589,584

$(18,251,247)

$10,924,732

 



Condensed Interim Statements of Cash Flows

(amounts in Canadian dollars)

(unaudited)

 



Three months ended

Six months ended



September 30,

2013

September 30, 2012

September 30, 2013

September 30, 2012







Cash flows provided by (used for):






Cash flows generated from (used in)

operating activities





Net loss


$      (214,990)

$   (2,446,387)

$     (245,668)

$  (2,560,635)

Items not affecting cash:






Unrealized loss (gain) on financial derivatives


118,808

580,754

(166,972)

(96,992)

Gain on disposition of oil and natural gas interests


-

-

(185,000)

-

Gain on disposition of exploration and evaluation assets


-

-

-

(300,000)

Foreign exchange loss (gain)


428

-

(1,122)

-

Depletion and depreciation


505,200

840,600

1,039,600

1,787,100

Accretion of decommissioning provisions


37,000

37,000

74,000

74,000

Stock-based compensation


47,054

153,447

115,453

183,675

Changes in non-cash items


(678,197)

(302,182)

219,407

465,537

Net cash generated from (used in) operating activities


(184,697)

(1,136,768)

849,698

(447,315)

Cash flows used in investing activities






Exploration and evaluation assets expenditures


(8,637)

(210,108)

(38,332)

(516,076)

Property, plant and equipment expenditures


(126,381)

(1,534,444)

(555,433)

(1,785,177)

Proceeds from disposition of exploration and evaluation assets


-

-

-

300,000

Changes in non-cash items


(274,193)

624,186

(1,139,619)

828,409

Net cash used in investing activities


(409,211)

(1,120,366)

(1,733,384)

(1,172,844)

Cash flows from (used in) financing activities






Proceeds from (repayments of) bank debt, net


564,597

2,235,717

860,026

(1,593,313)

Proceeds from issuance of equity


-

-

-

3,250,000

Share issuance costs


-

-

-

(96,235)

Net cash from financing activities


564,597

2,235,717

860,026

1,560,452

Effect of exchange rates on cash and cash equivalents held in foreign currency


(428)

-

1,122

-

Net change in cash and cash equivalents


(29,739)

(21,417)

(22,538)

(59,707)

Cash and cash equivalents, beginning of period


56,433

26,595

49,232

64,885

Cash and cash equivalents, end of period


$         26,694

$           5,178

$        26,694

$          5,178

 



Notes to the Condensed Interim Financial Statements

Three and six months ended September 30, 2013

(amounts in Canadian dollars)

(unaudited)

 

1.      Going Concern

 

These financial statements have been prepared on a going concern basis which presumes that the Company will be able to discharge its obligations and realize its assets in the normal course of business.  The Company had a loss and comprehensive loss of $245,668 for the six month period ended September 30, 2013.  As at September 30, 2013, the Company had a working capital deficiency of $7.8 million that includes $7.5 million in bank debt (excluding derivative assets/liabilities and flow-through share premium).  The Company had unused credit lines of $4.5 million related to its revolving credit facility and $6.5 million related to its development/acquisition facility at September 30, 2013.  At September 30, 2013, the Company was compliant with its lender's covenants.  Subsequent to September 30, 2013, a review of the Company's banking facilities was completed, resulting in a reduction of the revolving credit facility borrowing limit to $8 million and the cancellation of the development/acquisition facility, and a new review date of January 1, 2014.  As of November 15, 2013, the Company is in compliance with the lender's covenants.

On August 29, 2013, the Company was successful in restructuring the loans payable (note 7).  The due dates for the loans payable plus accrued interest were extended to January 31, 2017, resulting in a significant improvement in the working capital deficit and will allow more financial flexibility for the Company in the near term.  Also, as per note 18, the Company raised an additional $3.3 million in equty resulting in an even stronger financial position subsequent to quarter end.  Despite the above noted reduction in the Company's banking facilities, management believes with the amendments and the extension of the due dates for the loans payable, positive cash flows generated from operating activities during the quarter prior to changes in non-cash items, the continued implementation of operating cost reduction initiatives to enhance future cash flows, equity raised subsequent to quarter end, and expected increased cash flows from its planned capital program, that the Company will generate sufficient funds to meet its foreseeable obligations in the normal course of operations.  Management has been and continues to be active in seeking alternative sources of funding to help accelerate its planned capital expenditure program, and to ultimately reduce its total debt.  The Company cannot provide any assurance that sufficient cash flows will be generated from operating activities and/or potential equity issuances will be available on acceptable terms, if at all, to reduce its working capital deficiency and to carry out an accelerated capital expenditure program.

The above-noted factors describe matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.  The Company's ability to continue as a going concern is dependent upon its ability to attain profitable operations, generate sufficient funds to continue its exploration and development activities, to repay its debts as they come due, and continue to obtain sufficient capital from investors or other sources of financing to meet its current and future obligations.

Management considers the Company is a going concern and has prepared the condensed interim financial statements on a going concern basis.

 

2.      Basis of preparation

 

These condensed interim financial statements are unaudited and have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting" using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Certain information and disclosures normally included in the annual financial statements prepared in accordance with IFRS have been condensed or omitted.

The condensed interim financial statements should be read in conjunction with the Company's audited annual financial statements as at and for the year ended March 31, 2013 and the notes thereto.

3.      Property, plant and equipment

 


Oil and natural gas interests

Corporate and other

Total

Cost




Balance at March 31, 2012

$  36,648,999

$      43,798

$  36,692,797

Capital expenditures

4,867,434

13,400

4,880,834

Transfers from exploration and evaluation assets

316,057

-

316,057

Change in decommissioning provisions

412,000

-

412,000

Balance at March 31, 2013

$  42,244,490

$      57,198

$  42,301,688

Capital expenditures

554,107

1,326

555,433

Disposition (1)

(60,000)

-

(60,000)

Change in decommissioning provisions (note 8)

(1,021,000)

-

(1,021,000)

Balance at September 30, 2013

$  41,717,597

$      58,524

$  41,776,121

Accumulated depletion and depreciation and impairment losses




Balance at March 31, 2012

$    1,985,000

$      18,264

$    2,003,264

Depletion and depreciation expense

3,240,000

10,000

3,250,000

Impairment loss

1,363,000

-

1,363,000

Balance at March 31, 2013

$    6,588,000

$      28,264

$    6,616,264

Depletion and depreciation expense

1,035,000

4,600

1,039,600

Disposition (1)

(5,000)

-

(5,000)

Balance at September 30, 2013

$    7,618,000

$      32,864

$    7,650,864

 


Oil and natural gas interests

Corporate and other

Total

Net carrying value:




At March 31, 2013

$  35,656,490

$      28,934

$  35,685,424

At September 30, 2013

$  34,099,597

$      25,660

$  34,125,257

(1)       On May 15, 2013, the Company completed an asset swap transaction with an unrelated third party such that $200,000 of oil and natural gas interests were swapped for $200,000 of undeveloped lands.  The carrying amount of the oil and natural gas interests was $15,000, including a decommissioning provision of $40,000, resulting in a gain on sale of $185,000 for the six month period ended September 30, 2013.

 

4.      Bank debt

 

As at September 30, 2013, the Company had lending facilities with a Canadian chartered bank, consisting of a $12.0 million revolving demand credit facility, and a $6.5 million demand development/acquisition facility, of which $7.5 million ($7.0 million under bankers' acceptances and $0.5 million under prime-based lending) and $Nil were drawn, respectively.  The revolving facility is a borrowing base facility that is determined based on, among other things, the Company's current reserve report, results of operations, current and forecasted commodity prices and the current economic environment.  The revolving credit facility contains standard commercial covenants for facilities of this nature.  The Company also has available a risk management facility which allows the Company to conduct certain financial risk management options.  The interest rates on the facilities are bank prime plus 0.75% per annum and bank prime plus 1.25% per annum, respectively.  Bankers' acceptances are subject to a 2% acceptance fee plus an applicable market interest rate.  The facilities are secured by a $50.0 million demand debenture and a general security agreement covering all assets of the Company.  The revolving credit facility provides that advances may be made by way of direct advances, bankers' acceptances, or standby letters of credit/guarantee.  Advances on the development/acquisition facility are subject to bank approval; however they are generally limited to the lesser of the estimated development/acquisition cost and the bank's internal valuation of associated reserves.  Repayments for the revolving facility are interest only, and repayments for the development/acquisition line are determined by the bank based on their evaluation of the specific circumstances, both subject to the bank's right of demand.

The only financial covenant on the revolving facility is a requirement for the Company to maintain a current ratio (as defined in the credit agreement and further described in note 17) of not less than 1.0:1.0, and such ratio is to be tested at the end of each fiscal quarter.  The Company was in compliance with this financial covenant as at September 30, 2013.  A condition of the risk management facility is the Company must not hedge greater than 50% of its oil and natural gas production.

Subsequent to September 30, 2013, a review of the Company's banking facilities was completed, resulting in a reduction of the revolving demand credit facility borrowing limit to $8 million and the cancellation of the development/acquisition facility, and a new review date of January 1, 2014.  In addition, the interest rate on the revolving demand credit facility changed to prime plus 3.0%, the acceptance fee on banker's acceptances changed to 4.25% and the production limitations on the risk management facility were clarified such that the Company may only hedge 50% of estimated forward production on a commodity by commodity basis.  All other aspects of the lending facilities remain the same.  As of November 15, 2013, the Company is in compliance with the lender's covenants.

 

5.      Loans payable

 

As at September 30, 2013, the Company has a loan payable with a principal amount of $8 million, which bears interest at 10% per annum, is secured against the assets of the Company as a second charge to the Company's lending facility (note 6), and is due January 31, 2017.  Any interest and principal repayments for this loan is subject to the bank's prior approval.  The loan payable is due to a company that is also a shareholder of the Company, and repayable early at any time without penalty.

On August 29, 2013, the terms of the loan payable were amended, such that the previous principal amounts owing of $7,000,000 (due January 2014) and $1,000,000 (due January 2013), were consolidated  into a total balance owing of $8,000,000 bearing simple interest at 10% per annum, with a due date of January 31, 2017. Under the terms of the new agreement, accrued interest is also due and payable January 31, 2017.  The due date for interest owing on the previous loan amount was also extended to January 31, 2017.  There were no fees associated with the amendment.

The following table summarizes changes in the loans payable:


10% loan

12% loan

10% loan

Total


due January 2014

due January 2013

due January 2017


Principal





Balance March 31, 2013

$         7,000,000

$        1,000,000

$                       -

$      8,000,000

Consolidation

(7,000,000)

(1,000,000)

8,000,000

-

Balance September 30, 2013

$                          -

$                         -

$      8,000,000

$      8,000,000

Interest





Balance March 31, 2012

$            115,068

$           100,274

$                      -

$         215,342

Interest expense

700,000

120,000

-

820,000

Balance March 31, 2013

815,068

220,274

-

1,035,342

Interest expense

289,589

49,644

-

339,233

Consolidation

(1,104,657)

(269,918)

1,374,575

-

Interest expense

-

-

70,137

70,137

Balance September 30, 2013

$                         -

$                         -

1,444,712

1,444,712

Total loan payable at March 31, 2013

$        7,815,068

$        1,220,274

$                       -

$      9,035,342

Total loan payable at September 30, 2013

$                         -

$                         -

$      9,444,712

$      9,444,712

 

 

 

6.      Availability of the Financial Statements and MD&A

Copies of all the Company's Financial Statements and MD&A's will be available on the Company's website (www.edgeres.com) and on SEDAR (www.sedar.com).

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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