Management’s Discussion and Analysis
For the three months and years ended
December 31, 2015 and 2014
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“the MD&A”) is dated March 3, 2016 and should be read in conjunction with TORC Oil &
Gas Ltd.’s (“TORC” or the “Company”) audited financial statements as at and for the years ended December 31, 2015 and December 31,
2014. The reader should be aware that historical results are not necessarily indicative of future performance.
The financial data presented below has been prepared in accordance with International Financial Reporting Standards (“IFRS”), unless
otherwise indicated.
Barrel of Oil Equivalent
Where amounts are expressed on a barrel of oil equivalent (“Boe”) basis, natural gas volumes have been converted to Boe using a ratio
of 6,000 cubic feet of natural gas to one barrel of oil equivalent. This conversion ratio is based upon an energy equivalent conversion
method primarily applicable at the burner tip and does not represent value equivalence at the wellhead. Boe figures may be misleading,
particularly if used in isolation.
Non-IFRS Measurements
The MD&A contains the terms “funds flow from operations, including transaction related costs” , “funds flow from operations, excluding
transaction related costs” , "net debt" and “operating netback” which are not defined by IFRS and therefore may not be comparable to
performance measures presented by others. Funds flow from operations, including transaction related costs represents cash flow from
operating activities prior to changes in non-cash working capital and settlement of decommissioning obligations. Funds flow from
operations, excluding transaction related costs represents cash flow from operating activities prior to changes in non-cash working
capital, settlement of decommissioning obligations and transaction related costs. Working capital (net debt) is calculated as current
assets (excluding financial derivative assets) less: i) current liabilities (excluding financial derivative liabilities), ii) bank debt, and iii) non-
current deferred lease incentives. Operating netback represents revenue and realized gain or loss on financial derivatives, less royalties,
operating expenses and transportation expenses and has been presented on a per Boe basis. Management believes that in addition to
net income, the aforementioned non-IFRS measurements are useful supplemental measures as they assist in the determination of the
Company’s operating performance, leverage and liquidity.
Investors should be cautioned, however, that these measures should not be
construed as an alternative to both net income and net cash from operating activities, which are determined in accordance with IFRS, as
indicators of the Company’s performance.
The reconciliation between funds flow from operations, as defined above, and net cash from operating activities, as defined by IFRS, is
as follows:
($ thousands)
Net cash from operating activities (defined by IFRS)
Settlement of decommissioning obligations
Changes in non-cash working capital
Funds flow from operations, including transaction related costs
Three months
ended
Dec 31, 2015
$37,224
132
(3,395)
$33,961
Three months
ended
Dec 31, 2014
$72,191
225
(30,706)
$41,710
Transaction related costs
Funds flow from operations, excluding transaction related costs
-
$33,961
38
$41,748
The reconciliation of net debt, as defined above, is as follows:
Year ended
Dec 31, 2015
$137,562
205
(9,639)
$128,128
4,855
$132,983
Year ended
Dec 31, 2014
$198,982
347
(10,752)
$188,577
142
$188,719
Current assets (excluding financial derivative assets)
Less: current liabilities (excluding financial derivative liabilities)
Less: bank debt
Less: non-current deferred lease incentives
Net debt
The reconciliation for operating netback is found within this MD&A.
As at Dec 31, 2015
$32,552
(99,545)
(230,087)
-
($297,080)
As at Dec 31, 2014
$24,754
(89,459)
(179,849)
(104)
($244,658)
TORC's reporting and measurement currency is the Canadian dollar. Amounts in this MD&A are in Canadian dollars unless otherwise
stated.
TORC Oil & Gas Ltd. Q4 2015 Page 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward-Looking Statements
This MD&A contains forward-looking statements. More specifically, it contains forward-looking statements respecting: (i) expectations
that operating and transportation expenses per Boe will continue to improve, (ii) the anticipated sources of funding for the Company's
capital program, (iii) the sufficiency of liquidity and capital resources to fund the Company's capital program, ongoing operations, and
execution of its business plan, and (iv) the Company's risk management activities and the benefits to be obtained therefrom.
The forward-looking statements contained in this MD&A are based on certain key expectations and assumptions made by TORC,
including expectations and assumptions concerning the impact of increasing competition, the general stability of the economic and
political environment in which TORC operates, the ability of the Company to obtain qualified staff, equipment and services in a timely and
cost efficient manner, drilling results, the ability of the operator of the projects which the Company has an interest in to operate the field in
a safe, efficient and effective manner, TORC’s ability to obtain financing on acceptable terms, changes in the Company’s banking facility,
field production rates and decline rates, the ability to reduce operating and transportation costs, the ability to replace and expand oil and
natural gas reserves through acquisition, development or exploration, the timing and costs of pipeline, storage and facility construction
and expansion, the ability of the Company to secure adequate product transportation, future petroleum and natural gas prices, currency,
exchange and interest rates, the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which
the Company operates, and TORC’s ability to successfully market its petroleum and natural gas products. Readers are cautioned that the
foregoing list of factors is not exhaustive.
Although TORC believes that the expectations and assumptions on which the forward-looking statements are based are reasonable,
undue reliance should not be placed on the forward-looking statements because TORC can give no assurance that they will prove to be
correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and
uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks, including,
without limitation, factors and risks associated with oil and gas exploration, development, exploitation, production, marketing and
transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks,
changes in royalty rates and other governmental regulations, competition from other producers, inability to retain drilling rigs and other
services, incorrect assessment of the value of acquisitions, the inability to fully realize the benefits of acquisitions, delays resulting from or
inability to obtain required regulatory approvals and inability to access sufficient capital from internal and external sources. Additional
information on these and other factors and risks that could affect the Company’s operations and financial results are included in reports
on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) or at the
Company’s website (www.torcoil.com). Furthermore, the forward looking statements contained in this document are made as at the date
of this document and the Company does not undertake any obligation to update publicly or to revise any of the included forward looking
statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Asset Transactions
Southeast Saskatchewan and Manitoba asset acquisitions
On June 15, 2015, the Company closed an acquisition of various properties and working interests in and around its core southeast
Saskatchewan area. The strategic acquisition included 4,750 boe/d (approximately 98% light oil and liquids) of low decline, high netback,
light oil producing assets in southeast Saskatchewan and Manitoba (the "June Acquisition").
In addition, the June Acquisition included
ownership of freehold mineral title on more than 80 net sections of land in southeast Saskatchewan. Net consideration paid was $428.5
million.
On February 25, 2015, the Company closed an acquisition of various properties and working interests in its core southeast Saskatchewan
area (the "February Acquisition"). Consideration paid was $146.7 million which included the issuance of 16,000,000 common shares
valued at $9.17 per share based on TORC's trading price on February 25, 2015 (the closing date of the February Acquisition). During the
three months ended December 31, 2015, the Company paid an additional cash consideration of $7.2 million to acquire various top-up
working interests complementary to the February Acquisition properties.
The acquisition of these assets increased and consolidated the Company’s exposure to light oil in southeast Saskatchewan where the
Company continues to achieve drilling and operational success.
Asset swap
On March 31, 2015, the Company closed a swap of certain petroleum and natural gas properties in southeast Saskatchewan (the “Asset
Swap”).
In the Asset Swap, the Company swapped properties with a carrying value of $50.2 million and received properties with an
equivalent fair value.
TORC Oil & Gas Ltd. Q4 2015 Page 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Production
Crude oil (Bbl per day) (1)
NGL (Bbl per day) (1) (2)
Natural gas (Mcf per day) (3)
Total (Boe per day)
Production mix:
Crude oil
NGL
Crude oil and NGL ("Liquids")
Natural gas
(1)
(2)
(3)
"Bbl" refers to barrels.
"NGL" refers to natural gas liquids.
"Mcf" refers to thousand cubic feet.
Three months
ended
Dec 31, 2015
15,641
447
12,118
18,108
Three months
ended
Dec 31, 2014
9,690
428
11,033
11,957
Year ended
Dec 31, 2015
13,206
472
11,461
15,588
Year ended
Dec 31, 2014
9,051
442
10,626
11,264
86%
3%
89%
11%
81%
4%
85%
15%
85%
3%
88%
12%
80%
4%
84%
16%
Production in the three months and year ended December 31, 2015 increased 51% and 38%, respectively, compared to the three months
and year ended December 31, 2014 (the "Corresponding Periods").
In addition to the Company's ongoing drilling activities, the increase
includes production from the June Acquisition (adding approximately 4,750 boe/d effective June 15, 2015), as well as the February
Acquisition (adding approximately 1,550 boe/d effective February 25, 2015).
Pricing
Average realized prices:
Crude oil ($ per Bbl)
NGL ($ per Bbl)
Crude oil and NGL ($ per Bbl)
Natural gas ($ per Mcf)
Boe ($ per Boe)
Three months
ended
Dec 31, 2015
Three months
ended
Dec 31, 2014
Year ended
Dec 31, 2015
Year ended
Dec 31, 2014
$47.84
15.36
$46.94
2.21
$43.18
$73.31
40.99
$71.94
3.83
$64.41
$51.67
17.21
$50.48
2.52
$46.15
$89.25
53.06
$87.56
4.62
$78.16
During the three months and year ended December 31, 2015, TORC realized oil prices of $47.84 per Bbl and $51.67 per Bbl,
respectively (Corresponding periods: $73.31 per Bbl and $89.25 per Bbl, respectively).
During the three months and year ended December 31, 2015, TORC's crude oil discount to WTI converted to Canadian dollars
approximated $8.47 per Bbl and $10.70 per Bbl, respectively (Corresponding Periods: $9.74 per Bbl and $13.41 per Bbl, respectively). In
the three months and year ended December 31, 2015, TORC's crude oil discount to Edmonton Par averaged approximately $5.02 per
Bbl and $5.44 per Bbl, respectively (Corresponding Periods: $2.21 per Bbl and $5.19 per Bbl, respectively). The crude oil pricing
differentials are a function of North American refinery supply/demand fundamentals as well as crude quality.
(continued)
TORC Oil & Gas Ltd. Q4 2015 Page 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
In the three months and year ended December 31, 2015, the Company realized gas prices of $2.21 per Mcf and $2.52 per Mcf,
respectively (Corresponding Periods: $3.83 per Mcf and $4.62 per Mcf, respectively). In the three months and year ended December 31,
2015, the Company's realized gas prices were 10% and 6% below AECO benchmarks, respectively (Corresponding Periods: 18% and
14% above AECO benchmarks, respectively). Similar to crude oil price differentials, gas price differentials are a function of North
American supply/demand fundamentals, heat content of gas as well as pipeline capacity.
In the three months and year ended December 31, 2015, the average realized price across all products was $43.18 per Boe and $46.15
per Boe, respectively. For the three months and year ended December 31, 2015, the average realized price was lower by $21.23 per Boe
and $32.01 per Boe, respectively, compared to the Corresponding Periods.
Average Benchmark Prices:
Crude oil – WTI (US$ per Bbl)
Crude oil – Edmonton Par (CDN$ per Bbl)
Natural gas – AECO Daily Spot ($ per Mcf)
Natural gas – AECO Monthly Spot ($ per Mcf)
Exchange rate – (CDN$/US$)
Three months
ended
Dec 31, 2015
Three months
ended
Dec 31, 2014
Year ended
Dec 31, 2015
Year ended
Dec 31, 2014
$42.17
$52.86
$2.46
$2.64
1.34
$73.12
$75.52
$3.24
$3.61
1.14
$48.77
$57.11
$2.69
$2.76
1.28
$92.92
$94.44
$4.04
$3.98
1.10
Revenues
($ thousands)
Crude oil
NGL
Natural gas
Three months
ended
Dec 31, 2015
$68,873
624
2,438
$71,935
Three months
ended
Dec 31, 2014
$65,417
1,565
3,872
$70,854
Year ended
Dec 31, 2015
$249,139
2,942
10,507
$262,588
Year ended
Dec 31, 2014
$294,988
8,450
17,891
$321,329
Revenues in the three months and year ended December 31, 2015 increased 2% and decreased 18%, respectively, compared to the
Corresponding Periods. The increase in revenues for the three months ended December 31, 2015 are due to increased volumes, offset
largely due to significant decreases in crude oil prices, compared to the three months ended December 31, 2014. The decrease in
revenues for the year ended December 31, 2015, compared to the previous year, is due to significant decreases in crude oil prices
somewhat offset by increased volumes from drilling activity and asset acquisitions.
Revenues from the sale of crude oil and NGL continue to be greater than 90% of all revenues.
Royalties
($ thousands, unless otherwise noted)
Royalties
$ per Boe
Percentage of revenue
Three months
ended
Dec 31, 2015
$13,242
$7.95
18%
Three months
ended
Dec 31, 2014
$12,338
$11.22
17%
Year ended
Dec 31, 2015
$47,818
$8.40
18%
Year ended
Dec 31, 2014
$53,539
$13.02
17%
Compared to the Corresponding Periods, the Company's corporate royalty rate (as a percentage of revenue) for the three months and
year ended December 31, 2015, increased approximately 1%, due to the integration of the Saskatchewan properties associated with the
June Acquisition and the February Acquisition (described above). Royalty rates associated with properties in Saskatchewan includes the
Saskatchewan Resource Tax. The increase in royalties is also due to Alberta Crown royalty incentives that have expired for certain wells.
TORC Oil & Gas Ltd. Q4 2015 Page 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating and Transportation Expenses
($ thousands, unless otherwise noted)
Operating expenses
$ per Boe
Transportation expenses
$ per Boe
Operating and transportation expenses
$ per Boe
Three months
ended
Dec 31, 2015
$22,279
$13.37
Three months
ended
Dec 31, 2014
$14,408
$13.10
Year ended
Dec 31, 2015
$77,011
$13.54
Year ended
Dec 31, 2014
$52,953
$12.88
$3,111
$1.87
$25,390
$15.24
$2,222
$2.02
$16,630
$15.12
$11,118
$1.95
$88,129
$15.49
$10,009
$2.43
$62,962
$15.31
For the three months and year ended December 31, 2015, the Company's operating expenses on a per Boe basis increased 2% and 5%,
respectively, compared to the Corresponding Periods. This increase primarily reflects the relatively higher operating costs associated
with certain properties acquired in Saskatchewan.
For the three months and year ended December 31, 2015, the Company's transportation expenses on a per Boe basis decreased 7%
and 20%, respectively, compared to the Corresponding Periods. This largely reflects the benefits associated with continued development
of
infrastructure, economies of scale associated with greater volumes, and lower transportation costs associated with certain
Saskatchewan properties.
For the three months and year ended December 31, 2015, the Company's combined operating and transportation expenses on a per Boe
It is expected that in a lower commodity
basis remained relatively the same, increasing 1%, compared to the Corresponding Periods.
price environment, operating and transportation expenses per Boe will continue to improve as industry cost savings and the benefits of
efficiency initiatives are realized.
Operating Netbacks
($ per Boe, unless otherwise noted)
Average daily production (Boepd)
Crude oil ($ per Bbl)
NGL ($ per Bbl)
Natural gas ($ per Mcf)
Average price prior to hedging
Realized gain (loss) on financial derivatives (hedging)
Royalties
Operating
Transportation
Operating netback
Operating netback (prior to hedging)
Three months
ended
Dec 31, 2015
Three months
ended
Dec 31, 2014
Year ended
Dec 31, 2015
Year ended
Dec 31, 2014
18,108
$47.84
$15.36
$2.21
$43.18
$3.27
($7.95)
($13.37)
($1.87)
$23.26
$19.99
11,957
$73.31
$40.99
$3.83
$64.41
$3.94
($11.22)
($13.10)
($2.02)
$42.01
$38.07
15,588
$51.67
$17.21
$2.52
$46.15
$4.56
($8.40)
($13.54)
($1.95)
$26.82
$22.26
11,264
$89.25
$53.06
$4.62
$78.16
($0.04)
($13.02)
($12.88)
($2.43)
$49.79
$49.83
TORC Oil & Gas Ltd. Q4 2015 Page 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
General and Administrative Expenses
During the three months and year ended December 31, 2015, the Company incurred the following general and administrative expenses
("G&A"):
($ thousands)
Gross general and administrative expenses
Recoveries (1)
Capitalized general and administrative expenses (2)
Total general and administrative
$ per Boe
Three months
ended
Dec 31, 2015
$5,189
Three months
ended
Dec 31, 2014
$5,377
Year ended
Dec 31, 2015
$21,355
Year ended
Dec 31, 2014
$18,379
(1,334)
(1,163)
$2,692
$1.61
(748)
(1,817)
$2,812
$2.56
(3,893)
(6,244)
$11,218
$1.97
(2,218)
(6,422)
$9,739
$2.37
(1)
(2)
Recoveries refers to those G&A expenditures which under industry practice are reclassified to operating expenses, exploration
and evaluation assets, or property, plant and equipment, dependent on their nature.
Capitalized general and administrative expenses are those G&A expenditures which are directly attributable to the acquisition or
exploration activities of the Company, and are therefore reclassified to exploration and evaluation assets, or property, plant and
equipment, dependent on their nature.
In the three months and year ended December 31, 2015, total general and administrative expenses decreased 4% and increased 15%,
respectively, compared to the Corresponding Periods. The increase in the year ended December 31, 2015 was due to additional
employees (resulting in additional employee compensation costs) and other administrative costs largely associated with the Company's
growing operations.
On a per Boe basis, G&A decreased 37% and 17%, respectively, compared to the Corresponding Periods. This cost reduction reflects
administrative efficiencies as production volumes associated with organic drilling activity and asset acquisitions are fully reflected.
Transaction Related Costs
($ thousands, unless otherwise noted)
Transaction related costs
$ per Boe
Three months
ended
Dec 31, 2015
-
-
Three months
ended
Dec 31, 2014
$38
$0.03
Year ended
Dec 31, 2015
$4,855
$0.85
Year ended
Dec 31, 2014
$142
$0.03
Transaction related expenses are those costs related to acquisitions that cannot be capitalized as part of the cost of such transactions
under IFRS. These costs generally include, but are not limited to, legal fees, advisory fees, regulatory and administrative integration
expenses.
The transaction related costs in the year ended December 31, 2015 are associated with the June Acquisition and February Acquisition
(described above) and reflect less than 1% of the total acquisition costs of these acquisitions.
TORC Oil & Gas Ltd. Q4 2015 Page 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
Finance Costs
($ thousands)
Interest expense and financing charges
$ per Boe
Accretion on decommissioning obligations
$ per Boe
Total
$ per Boe
Three months
ended
Dec 31, 2015
$2,093
$1.26
Three months
ended
Dec 31, 2014
$1,660
$1.51
Year ended
Dec 31, 2015
$8,403
$1.48
Year ended
Dec 31, 2014
$6,211
$1.51
$1,115
$0.67
$3,208
$1.93
$751
$0.68
$2,411
$2.19
$3,829
$0.67
$12,232
$2.15
$2,819
$0.69
$9,030
$2.20
For the three months and year ended December 31, 2015, interest expense and financing charges increased 26% and 35%, respectively,
compared to the Corresponding Periods, due to higher outstanding bank debt levels associated with asset acquisitions which closed in
the fourth quarter of 2014, as well as ongoing business operations. On a per Boe basis, interest expense and financing charges for the
three months and year ended December 31, 2015, decreased 17% and 2%, respectively, compared to the Corresponding Periods.
For the three months and year ended December 31, 2015, the dollar values of accretion on decommissioning obligations increased 48%
and 36%, respectively, compared to the Corresponding Periods, largely due to the addition of properties acquired in Saskatchewan. On a
per Boe basis, accretion on decommissioning obligations remained relatively the same.
Under IFRS, non-cash accretion expenses related to decommissioning obligations are presented as part of finance costs.
Average bank debt was as follows:
($ thousands)
Bank debt
Stock-Based Compensation Expenses
Three months
ended
Dec 31, 2015
$231,890
Three months
ended
Dec 31, 2014
$168,477
Year ended
Dec 31, 2015
$228,193
Year ended
Dec 31, 2014
$133,304
Stock-based compensation expenses reflect the value ascribed to the non-cash compensation provided by the Company, and are
calculated utilizing a fair value assessment methodology. These amounts are net of stock-based compensation costs capitalized to
exploration and evaluation assets, and property, plant and equipment when they are related to exploration or acquisition activities (in the
same manner that G&A expenses are capitalized).
($ thousands)
Stock-based compensation expenses
Capitalized stock-based compensation expenses
Total
$ per Boe
Three months
ended
Dec 31, 2015
$3,175
(1,492)
$1,683
$1.01
Three months
ended
Dec 31, 2014
$3,425
(1,777)
$1,648
$1.50
Year ended
Dec 31, 2015
$16,758
(7,876)
$8,882
$1.56
Year ended
Dec 31, 2014
$20,893
(10,446)
$10,447
$2.54
On a dollar basis, for the three months and year ended December 31, 2015, stock-based compensation expenses decreased 7% and
20%, respectively, compared to the Corresponding Periods. While the decrease for the three months is not significant, the decrease for
the year is largely due to lower stock-based compensation expenses associated with incentive shares and stock options, as these
instruments vested with no subsequent reissuances as these instruments are no longer issued as part of the Company's ongoing
compensation plans.
On a per Boe basis, similar to the efficiencies realized in G&A expenses, for the three months and year ended December 31, 2015, stock-
based compensation expenses decreased 33% and 39%, respectively, compared to the Corresponding Periods.
TORC Oil & Gas Ltd. Q4 2015 Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
Depletion and Depreciation Expenses
($ thousands)
Depletion and depreciation expenses
$ per Boe
Three months
ended
Dec 31, 2015
$42,117
$25.28
Three months
ended
Dec 31, 2014
$29,217
$26.56
Year ended
Dec 31, 2015
$150,314
$26.42
Year ended
Dec 31, 2014
$114,360
$27.82
For the three months and year ended December 31, 2015, the depletion and depreciation expenses on a total dollar basis increased 44%
and 31%, respectively, compared to the Corresponding Periods. This increase is largely due to depletable base additions, primarily from
acquisitions (including the June Acquisition and February Acquisition), as well as ongoing drilling operations. On a per Boe basis, for the
three months and year ended December 31, 2015,
the depletion and depreciation expenses decreased 5% compared to the
Corresponding Periods.
Impairment
Exploration and Evaluation Assets
For the year ended December 31, 2015, the Company recognized impairment of $54.2 million on E&E assets related to certain southern
Alberta projects with carrying values estimated to exceed the recoverable amounts. The Company determined there to be indicators of
impairment regarding these E&E assets, based on the prolonged decline of crude oil prices, upcoming land expiries and near term
reallocations of future capital spending. As a result, the Company impaired these E&E assets principally comprised of historic land
acquisition costs.
Property, Plant and Equipment
For the year ended December 31, 2015, the Company recognized impairment of $114.0 million on PP&E assets (the “Impaired PP&E
Assets”) with carrying values exceeding the recoverable amounts principally due to the decline in crude oil prices. The Company
determined there to be indicators of impairment regarding these PP&E assets, based on the prolonged decline of crude oil prices,
upcoming land expiries and near term reallocations of future capital spending. The impairment consisted of $62.0 million related to
assets in the Cardium CGU, $45.0 million to assets in the Southern Alberta CGU and $7.0 million to the Southeast Saskatchewan CGU.
The recoverable amount, determined using value in use, of a CGU is the greater of (i) its value in use, and (ii) its fair value less selling
costs. The recoverable amounts for the Impaired PP&E Assets were $426.0 million in the Cardium CGU, $41.0 million in the Southern
Alberta CGU and $1.1 billion in the Southeast Saskatchewan CGU, reflecting the 10-12% pre-tax present value of future cash flows from
proved and probable reserves and values for undeveloped land.
In determining the future cash flows, the Company utilized the following benchmark pricing forecasts from its independent reserves
evaluator:
Canadian Light
Sweet Crude
($/Bbl)
55.20
69.00
78.43
89.41
91.71
93.08
94.48
95.90
97.34
98.80
100.28
Western Canada
Select
($/Bbl)
45.26
57.96
65.88
75.11
77.03
78.19
79.36
80.55
81.76
82.99
84.23
Alberta
AECO - C Spot
($/MMBtu)
2.25
2.95
3.42
3.91
4.20
4.28
4.35
4.43
4.51
4.59
4.67
Edmonton
Pentanes Plus
($/Bbl)
59.10
73.88
83.98
95.73
98.19
99.66
101.16
102.68
104.22
105.78
107.37
Year
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Edmonton
Butane
($/Bbl)
39.09
51.43
58.46
66.64
68.35
69.38
70.42
71.48
72.55
73.64
74.74
Edmonton
Propane ($/Bbl)
9.09
13.64
25.84
35.35
42.30
42.94
43.58
44.24
44.90
45.57
46.26
Exchange Rate
($US/$CAD)
0.75
0.80
0.83
0.85
0.85
0.85
0.85
0.85
0.85
0.85
0.85
TORC Oil & Gas Ltd. Q4 2015 Page 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
Taxes
For the three months and year ended December 31, 2015, the Company recorded deferred income tax recoveries of $35.2 million and
$55.0 million, respectively (Corresponding Periods: deferred income tax recovery of $8.4 million and a deferred income tax expense of
$6.9 million, respectively).
In the three months and year ended December 31, 2015 the deferred income tax recoveries were consistent with the Company's pre-tax
losses.
Net Loss
Net loss for the three months and year ended December 31, 2015 were $89.6 million and $172.7 million, respectively (Corresponding
Periods: net loss of $30.4 million and net income of $6.3 million, respectively), largely due to the impairments of property, plant and
equipment of $114.0 million and exploration and evaluation assets of $54.2 million, combined with significantly reduced crude oil prices.
Basic net loss per share for the three months and year ended December 31, 2015 were $0.56 and $1.27, respectively (Corresponding
Periods: net loss per share of $0.32 and net income per share of $0.07, respectively).
Diluted net loss per share for the three months and year ended December 31, 2015 were $0.56 and $1.27, respectively (Corresponding
Periods: net loss per share of $0.32 and net income per share of $0.07, respectively).
Funds Flow from Operations
($ thousands)
Funds flow from operations, including transaction related costs
Transaction related costs
Funds flow from operations, excluding transaction related costs
On a weighted average basic common share basis:
Funds flow from operations, including transaction related costs
Funds flow from operations, excluding transaction related costs
On a weighted average diluted common share basis:
Funds flow from operations, including transaction related costs
Funds flow from operations, excluding transaction related costs
Three months
ended
Dec 31, 2015
$33,961
-
$33,961
Three months
ended
Dec 31, 2014
$41,710
38
$41,748
Year ended
Dec 31, 2015
$128,128
4,855
$132,983
Year ended
Dec 31, 2014
$188,577
142
$188,719
$0.21
$0.21
$0.21
$0.21
$0.43
$0.43
$0.43
$0.43
$0.94
$0.98
$0.93
$0.96
$2.02
$2.02
$1.97
$1.97
In the three months and year ended December 31, 2015, funds flow from operations, excluding transaction related costs decreased 19%
and 30%, respectively, compared to the Corresponding Periods. This decrease reflects the lower US$ WTI and Edmonton Par oil prices,
somewhat offset by funds flow gained from increased production related to ongoing drilling operations and asset acquisitions.
Net Cash from Operating Activities
($ thousands)
Net cash from operating activities
Basic net cash from operating activities per share
Diluted net cash from operating activities per share
Three months
ended
Dec 31, 2015
$37,224
$0.23
$0.23
Three months
ended
Dec 31, 2014
$72,191
$0.75
$0.74
Year ended
Dec 31, 2015
$137,562
$1.01
$1.00
Year ended
Dec 31, 2014
$198,982
$2.13
$2.08
In the three months and year ended December 31, 2015, net cash from operating activities decreased compared to the Corresponding
Periods which reflects the decrease in crude oil prices.
TORC Oil & Gas Ltd. Q4 2015 Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
Capital Expenditures
Capital expenditures are summarized as follows:
($ thousands)
Cash:
Land retention costs
Geological and geophysical
Drilling and completions
Equipment and facilities
Administrative assets
Exploration and development expenditures
Capitalized general and administrative expenses
Exploration and development expenditures,
including capitalized G&A
Property acquisitions, net of dispositions
Total capital expenditures - cash items
Non-cash:
Property acquisitions, net of dispositions
Decommissioning obligations
Capitalized stock-based compensation
Total capital expenditures
Three months
ended
Dec 31, 2015
Three months
ended
Dec 31, 2014
Year ended
Dec 31, 2015
Year ended
Dec 31, 2014
$76
(120)
17,216
8,205
6
25,383
1,163
26,546
4,863
$31,409
-
9,650
1,492
$42,551
$103
(168)
29,816
5,406
32
35,189
1,817
37,006
44,907
$81,913
-
2,089
1,777
$85,779
$520
944
75,287
22,264
263
99,278
6,244
105,522
443,878
$549,400
187,045
155,406
7,876
$899,727
$559
(31)
114,896
19,827
138
135,389
6,422
141,811
137,037
$278,848
(64)
10,153
10,446
$299,383
In the three months and year ended December 31, 2015, the Company drilled 8 (7.4 net) wells and 36 (29.8 net) wells, respectively.
Comparatively, in the Corresponding Periods, the Company drilled 14 (8.5 net) wells and 47 (30.7 net) wells, respectively. Year over
year, the Company drilled a similar number of net wells with 27% less exploration and development expenditures. Operational efficiency
improvements and cost reductions were realized during the year resulting in significant capital expenditure savings.
During the year ended December 31, 2015, the Company closed the June Acquisition and February Acquisition.
The Company does not set a budget for acquisitions. When making acquisitions, the Company considers opportunities that align with
strategic parameters and evaluates and finances each prospect on a case-by-case basis.
TORC Oil & Gas Ltd. Q4 2015 Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
Share Capital
Weighted average outstanding common shares:
Basic
Diluted
Outstanding Securities:
Common shares
Stock options
Incentive shares
Restricted awards
Performance awards
Warrants
Three months
ended
Dec 31, 2015
Three months
ended
Dec 31, 2014
Year ended
Dec 31, 2015
Year ended
Dec 31, 2014
160,472,437
160,472,437
96,087,489
97,815,323
135,726,501
135,726,501
93,320,376
95,823,544
161,241,928
1,531,555
6,077
1,263,660
2,158,662
-
96,765,123
1,631,686
68,668
1,121,715
1,710,755
2,345,756
161,241,928
1,531,555
6,077
1,263,660
2,158,662
-
96,765,123
1,631,686
68,668
1,121,715
1,710,755
2,345,756
In conjunction with the June Acquisition, TORC secured an equity investment by the Canada Pension Plan Investment Board ("CPPIB")
for gross proceeds of $150.0 million through a private placement of 14.85 million common shares.
In addition, TORC also closed a
bought deal prospectus offering of 28.52 million common shares for gross proceeds of $288.0 million. The combined gross proceeds
were $438.0 million.
In the year ended December 31, 2015, 4,640 Warrants were exercised for total cash proceeds of $0.03 million. All remaining Warrants
outstanding or exercisable expired on December 16, 2015.
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares, issuable in
series.
As at March 3, 2016, the Company had 162,461,553 common shares issued and outstanding, 1,531,555 stock options outstanding, 2,249
incentive shares outstanding, 2,189,130 performance awards outstanding and 1,280,901 restricted awards outstanding.
Liquidity and Capital Resources
The Company's net debt, as defined above in Non-IFRS Measurements , is as follows:
Current assets (excluding financial derivative assets)
Less: current liabilities (excluding financial derivative liabilities)
Less: bank debt
Less: non-current deferred lease incentives
Net debt
As at
Dec 31, 2015
$32,552
(99,545)
(230,087)
-
($297,080)
As at
Dec 31, 2014
$24,754
(89,459)
(179,849)
(104)
($244,658)
Despite the Company's net debt position, it believes that cash flow from operations, combined with undrawn credit facility and its ability to
access additional funding from capital markets, will provide sufficient resources for it to execute its business plans for the foreseeable
future.
(continued)
TORC Oil & Gas Ltd. Q4 2015 Page 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company may access the following capital resources:
Credit facility
At December 31, 2015, the Company had a reserves-based revolving credit facility of $450 million with a syndicate of banks (the "Credit
Facility"), comprised of a $55 million operating facility from the operating lender (the "Operating Facility") and a $395 million syndicated
facility with a syndicate of banks (the "Syndicated Facility"). As at December 31, 2015 the amount drawn from the Credit Facility was
$230.1 million. Advances under the Credit Facility are available by way of direct advances, bankers' acceptances and standby letters of
credit/guarantees. Direct advances bear interest at the prime rate, U.S. base rate or Libor rate, as applicable, plus a margin which is
dependent on the Company's debt to trailing funds flow ratio. The bankers' acceptances bear interest at the applicable bankers'
acceptance rate plus a stamping fee, based on the Company's debt to trailing funds flow ratio.
Both the Syndicated Facility and the Operating Facility are available on a revolving basis until April 28, 2016. On or before April 28, 2016,
at TORC's request and subject to the approval of the lending syndicate, the Credit Facility may be extended for an additional 364 day
period. In the event of non-extension, the undrawn portion of the Credit Facility will be cancelled and the amount outstanding will convert
to a 364 day non-revolving term facility with repayment of the Credit Facility due on April 28, 2017. The Credit Facility is secured by a
fixed and floating charge debenture on all of the Company's assets.
The borrowing base is primarily based on reserves and commodity prices estimated by the lenders. The borrowing base of the
Company's Credit Facility is subject to review and redetermination by the lenders on a semi-annual basis and in the event of a change in
the Company's borrowing base properties (including due to a disposition of assets beyond certain defined limits or a change which results
in a material adverse effect, as determined by the lenders).
In the normal course, the Company's next credit facility evaluation is due to
be completed by April 28, 2016.
Significant investor
The Company has a significant investor, CPPIB. For so long as CPPIB owns greater than 10% of the outstanding common shares of the
Company, it has the right to participate in future offerings of securities by the Company, whether by way of public offering or private
placement. This includes any offering of common shares and securities convertible or exchangeable into common shares, up to its pro
rata ownership interest immediately prior to such offering in the case of a public offering or a private placement to five or more investors,
in order to maintain its pro rata percentage ownership interest in the Company, and up to all of the offering in the case of a private
placement to less than five investors.
Risk Management - Financial Derivatives
From time to time, the Company may enter into commodity price, interest rate and foreign exchange rate derivative contracts (also known
as hedges) in order to protect acquisition economics and provide some stability of cash flows for capital spending planning purposes.
Commodity prices, interest rates and foreign exchange rates fluctuate due to economic and political events. As well, commodity prices
may fluctuate due to weather conditions and changes in supply and demand. The Company’s risk management activities are conducted
pursuant to the Company’s risk management policies approved by the Board of Directors.
As at December 31, 2015, there were no commodity contracts outstanding.
TORC Oil & Gas Ltd. Q4 2015 Page 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
Contractual Obligations
The following table lists the Company's contractual obligations as at December 31, 2015 and the expected timing of these obligations:
($ thousands)
Trade and other payables
Dividends payable
Operating leases (office rent)
Bank debt
Total
Operating commitments
Total
$92,186
7,256
8,260
230,087
$337,789
Less than
1 year
$92,186
7,256
1,316
-
$100,758
1-2 years
-
-
1,878
230,087
$231,965
3-5 years
-
-
5,066
-
$5,066
Thereafter
-
-
-
-
-
The Company is, or will be, obligated to pay various costs associated with operations incurred in the normal course of business. These
costs include royalties paid to provincial governments, surface and mineral
lease rentals and royalties on mineral rights to various
landowners, abandonment and reclamation costs, farm-in commitments and office leases. These costs are highly dependent on the
future operating environment and are subject to changes in commodity prices, ownership, production volumes and government policies.
Working capital
The Company manages the pace of its capital spending related to drilling operations by continuously monitoring production, commodity
prices and resulting cash flows. When circumstances affect cash flow in a detrimental way, the Company is capable of reducing its
capital spending levels.
The industry has a pre-arranged monthly clearing day for payment of revenues from all buyers of crude oil, NGL and natural gas. This
occurs on the 25th day following the month of sale. As a result, the Company’s production revenues are collected in an orderly fashion.
To the extent that the Company has joint venture partners in its activities it collects the partners’ share of capital and operating expenses
on a monthly basis. These are subject to normal collection risk.
Accounts payable consist of amounts payable to suppliers relating to capital spending, field operating activities and office expenses.
These invoices are processed within the Company’s normal payment cycle.
Dividend
Subsequent to December 31, 2015, as a result of continued volatility and uncertainty in commodity prices, the Company reduced its
monthly dividend from $0.045 per common share to $0.02 per common share, commencing with the dividend to be paid on March 15,
2016 to common shareholders.
Business Conditions and Risks
The Company is engaged in the acquisition, exploration, development and production of crude oil and natural gas assets. TORC’s
business is inherently risky and there is no assurance that hydrocarbon reserves will be discovered and economically produced.
Financial risks associated with the petroleum industry include fluctuations in commodity prices, interest rates, currency exchange rates,
and the ability to access debt and equity financing at reasonable cost. Operational risks include competition, environmental factors,
reservoir performance uncertainties, a complex regulatory environment and safety concerns.
TORC uses its technical, technological and industry knowledge to evaluate potential hydrocarbon plays in order to pay what it believes
are economically sound prices that benefit shareholders. The Company's focus is on areas in which the prospects are understood by
management.
The Company minimizes its business risks by operating a large number of its properties. This enables TORC to control the timing,
direction and costs related to exploration and development opportunities. TORC’s geological focus is on areas in which the prospects are
understood by management. Technological tools are regularly used to reduce risk and increase the probability of success.
The Company complies with all government regulations and has an up-to-date emergency response plan that has been communicated to
field operations by management. The Company also carries insurance coverage to protect itself against potential losses. Maintaining a
highly motivated and talented staff of petroleum and natural gas professionals further minimizes the business risk.
(continued)
TORC Oil & Gas Ltd. Q4 2015 Page 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
TORC relies on appropriate sources of funding to support the various stages of its business strategy:
●
●
●
Internally-generated cash flow from production is used to fund business activities;
New equity, if available on favourable terms, may be utilized to fund acquisitions and to expand capital programs, when
appropriate; and
Debt may be utilized to fund acquisitions and to expand capital programs.
The Company is exposed to commodity price and market risk for its principal products of crude oil and natural gas. Commodity prices
are influenced by a wide variety of factors, most of which are beyond TORC’s control. To manage this risk, from time to time, the
Company may enter into a number of financial derivative contracts for hedging purposes. These derivative contracts may include
contracts related to crude oil and natural gas prices, as well as foreign exchange and interest rates. The Company may also, from time to
time, enter into fixed physical contracts. The Company monitors the cost and associated benefit of these instruments and contracts as
well as any debt levels and utilization rates on bank lines, and utilizes these derivatives and contracts when warranted.
Inflation risks subject the Company to potential erosion of product netbacks. For example, increasing domestic prices for oil and natural
gas production equipment and services can inflate the costs of operations.
In addition, increasing costs of undeveloped land can inflate
costs of both asset and corporate acquisitions.
The supply of service and production equipment at competitive prices is critical to the ability to add reserves at a reasonable cost and
In periods of increased activity, these services and supplies can become difficult to
produce them in an economic and timely fashion.
obtain. The Company attempts to mitigate this risk by developing strong long-term relationships with suppliers and contractors and
maintaining an appropriate inventory of production equipment.
Demand for crude oil, NGL and natural gas produced by the Company exists within Canada and the United States; however, crude oil
prices are affected by worldwide supply and demand fundamentals while natural gas prices are currently primarily affected by North
American supply and demand fundamentals. Demand for natural gas liquids is influenced mainly by the demand for petrochemicals in
North American and off-shore markets. TORC mitigates these risks as follows:
●
●
●
●
TORC attempts to explore for and produce crude oil that is of high quality, mitigating its exposure to adverse quality differentials;
Natural gas production will generally be connected to established pipeline infrastructures that operate with minimal interruptions;
Sale arrangements will vary in term and pricing structure creating a diverse portfolio that minimizes risk of exposure to any one
market; and
Financial derivative contracts may be used where appropriate to manage commodity price volatility.
Off Balance Sheet Arrangements
TORC is not involved with any contractual arrangement under which a non-consolidated entity may have an obligation under certain
guarantee contracts, a retained or contingent interest in assets transferred to a non-consolidated entity or similar arrangement that serves
as credit, liquidity or market risk support to that entity for such assets. TORC has no obligation under financial instruments or a variable
interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company.
Critical Accounting Estimates
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates and
underlying assumptions are reviewed on an ongoing basis. Actual results may differ from these estimates.
Reserves
The estimation of reserves is critical to various accounting estimates.
It requires judgments based on available geophysical, geological,
engineering and economic data. These estimates can change materially as information from ongoing exploratory, development and
production activities becomes available. These estimates can also change as economic conditions impacting crude oil and natural gas
prices, royalties and operating costs change. Reserve estimates can change net income through depletion expense, accretion expense
from decommissioning obligations and the application of impairment tests. Revisions or changes in reserve estimates can have either a
positive or a negative impact on net income.
(continued)
TORC Oil & Gas Ltd. Q4 2015 Page 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
Decommissioning obligations
The calculation of decommissioning obligations is based on estimated costs to abandon and reclaim its net ownership in all wells and
facilities, the estimated timing of the costs to be incurred and economic inflation and discount rates. These estimates can change due to
technological advances, governmental and regulatory laws and regulations or economic conditions and can impact the amount of the
decommissioning obligations and net income.
Stock-based compensation
The Company’s estimate of stock-based compensation is dependent upon estimates of historic volatility,
assessment of achieving performance conditions. These estimates can impact net income and contributed surplus.
forfeiture rates and an
Financial derivatives
By their very nature, the estimated fair value of financial derivative contracts resulting in financial derivative contract assets and liabilities
are subject to measurement uncertainty.
Deferred income taxes
The calculation of deferred income taxes includes estimates of reversal of temporary differences, tax rates substantively enacted and
likelihood of assets being realized. These estimates can impact net income and deferred tax liabilities.
Environmental Regulation and Risk
The oil and gas industry has various environmental risks subject to regulation by various governmental bodies. Environmental legislation
includes, but is not limited to, operational controls, site restoration and abandonment requirements and restrictions on emissions of
various substances related to the production of oil and natural gas. Compliance with this legislation may require additional costs and a
failure to comply may result in fines and penalties.
TORC is committed to minimizing the environmental
stakeholder communication, resource conservation and site restoration.
impact from its operations through an environmental program which includes
Disclosure Controls and Internal Controls Over Financial Reporting
The Chief Executive Officer and Chief Financial Officer are responsible for the design and operating effectiveness of internal controls
over financial reporting ("ICFR") and disclosure controls and procedures ("DCP") of the Company.
In accordance with National Instrument NI 52-109, the Chief Executive Officer and Chief Financial Officer have filed certifications that
DCP and ICFR have been adequately designed and are operating effectively, and that there have been no changes in ICFR that
materially affected, or are reasonably likely to materially affect, ICFR.
Additional Information
Additional information can be obtained by contacting the Company at TORC Oil & Gas Ltd., Suite 1800, Eighth Avenue Place, 525 - 8th
Avenue SW, Calgary, Alberta, Canada T2P 1G1. Additional information is also available on www.sedar.com and on the Company's
website www.torcoil.com.
TORC Oil & Gas Ltd. Q4 2015 Page 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
Summary of Quarterly and Annual Results
(in $000's of dollars, except per share
amounts)
Q4 2015
(1)
Q3 2015
(1)
Q2 2015
(1)
Q1 2015
(1)
Q4 2014
(1)
Q3 2014
Q2 2014
Q1 2014
Petroleum and natural gas sales
71,935
74,413
68,964
47,276
70,854
83,798
87,509
79,168
Net income (loss)
Per share – basic
Per share – diluted
(89,590)
(0.56)
(0.56)
(52,882)
(0.33)
(0.33)
(14,925)
(0.12)
(0.12)
(15,258)
(0.15)
(0.15)
(30,411)
(0.32)
(0.32)
15,146
0.16
0.16
Funds flow from operations, including
transaction related costs (2)
Per share – basic
Per share – diluted
Funds flow from operations, excluding
transaction related costs (2)
Per share – basic
Per share – diluted
Net cash from operating activities (3)
Per share – basic
Per share – diluted
33,961
0.21
0.21
33,961
0.21
0.21
37,224
0.23
0.23
35,220
0.22
0.22
35,220
0.22
0.22
45,937
0.29
0.29
33,332
0.28
0.27
37,434
0.31
0.30
30,346
0.25
0.25
25,615
0.25
0.24
26,368
0.26
0.25
24,055
0.23
0.23
41,710
0.43
0.43
41,748
0.43
0.43
72,191
0.50
0.48
49,005
0.52
0.51
49,029
0.52
0.51
46,236
0.50
0.48
13,494
0.15
0.14
50,655
0.55
0.53
50,735
0.55
0.53
42,436
0.46
0.45
8,029
0.09
0.09
47,207
0.52
0.50
47,207
0.52
0.50
38,119
0.42
0.40
Total assets
1,894,082
2,006,363
2,070,641
1,568,736
1,326,891
1,325,007
1,273,256
1,214,575
Total long-term financial liabilities
494,790
510,809
528,555
429,966
301,176
265,212
252,502
198,189
Dividends declared per share
0.1350
0.1350
0.1350
0.1350
0.1350
0.1350
0.1350
0.1350
Net debt (4)
(297,080)
(285,681)
(269,933)
(266,581)
(244,658)
(213,391)
(181,169)
(145,528)
(footnotes on next page)
TORC Oil & Gas Ltd. Q4 2015 Page 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in $000's of dollars, except per share
amounts)
Year ended
Dec 2015 (1)
Year ended
Dec 2014
Year ended
Dec 2013 (1)
Petroleum and natural gas sales
262,588
321,329
164,074
Net income (loss)
Per share – basic
Per share – diluted
Funds flow from operations, including
transaction related costs (2)
Per share – basic
Per share – diluted
Funds flow from operations, excluding
transaction related costs (2)
Per share – basic
Per share – diluted
Net cash from operating activities (3)
Per share – basic
Per share – diluted
Total assets
Total long-term financial liabilities
Dividends declared per share
Net debt (4)
(172,655)
(1.27)
(1.27)
128,128
0.94
0.93
132,983
0.98
0.96
137,562
1.01
1.00
6,258
0.07
0.07
188,577
2.02
1.97
188,719
2.02
1.97
198,982
2.13
2.08
(10,084)
(0.18)
(0.18)
89,536
1.63
1.60
96,512
1.76
1.72
78,785
1.44
1.40
1,894,082
1,326,891
1,215,153
494,790
0.5400
301,176
0.5400
183,725
0.1700
(297,080)
(244,658)
(145,183)
(1)
(2)
(3)
(4)
The diluted number of shares is equivalent to the basic number of shares due to stock options, incentive shares, performance and restricted awards, and/or warrants being
antidilutive in periods where the Company has a "net loss" or "net cash used in operating activities". Therefore, the diluted per share amounts in these periods are equivalent
to the basic per share amounts.
"Funds flow from operations, including transaction related costs" and "funds flow from operations, excluding transaction related costs" should not be considered an alternative
to, or more meaningful than, "net cash from (used in) operating activities" as determined in accordance with International Financial Reporting Standards (“IFRS”) as an
indicator of TORC’s performance. "Funds flow from operations, including transaction related costs" represents net cash from (used in) operating activities prior to changes in
non-cash working capital and settlement of decommissioning obligations. "Funds flow from operations, excluding transaction related costs" represents net cash from (used in)
operating activities prior to changes in non-cash working capital, settlement of decommissioning obligations and transaction related costs. TORC also presents "funds flow
from operations, including transaction related costs" and "funds flow from operations, excluding transaction related costs" on a per share basis, whereby per share amounts are
calculated using weighted average shares outstanding consistent with the calculation of earnings per share.
Net cash from operating activities is determined in accordance with IFRS and includes changes in non-cash working capital.
Net debt is calculated as current assets (excluding financial derivative assets) less: i) current liabilities (excluding financial derivative liabilities), ii) bank debt, and iii) non-
current deferred lease incentives.
In November 2012, the Company acquired Vero Energy Inc. and completed an equity financing.
Since its incorporation on March 23, 2010, the Company has accumulated light oil resource prone acreage and is delineating and developing its
In September 2013, the Company
resource base.
In the second, third and fourth quarters of 2014, the
acquired significant assets in southeast Saskatchewan, along with another equity financing.
Company acquired various properties and working interests in its core Cardium and southeast Saskatchewan areas.
In the fourth quarters of 2012,
2013, and 2014, the Company recorded impairment charges of $13.3 million, $38.4 million, and $72.6 million, respectively, related to its exploration
and evaluation assets, contributing to a net loss for these periods.
In February 2015, the Company issued 16 million common shares to acquire
In June 2015, the Company acquired additional assets in southeast Saskatchewan and southwest Manitoba for
assets in southeast Saskatchewan.
net consideration of $428.5 million; concurrently, the Company issued 43.4 million common shares for gross proceeds of $438.0 million.
In the third
quarter of 2015, the Company recorded impairment charges of $16.0 million and $43.0 million related to its E&E and PP&E assets, respectively,
contributing to a net loss in this period. Similarly, in the fourth quarter of 2015, the Company recorded impairment charges of $38.2 million and $71.0
million related to its E&E and PP&E assets, respectively. These events, along with organic drilling growth, have resulted in an increase in total assets,
comprised largely of land and wells, as well as increased petroleum and natural gas sales, influenced by commodity prices and commodity mix.
TORC Oil & Gas Ltd. Q4 2015 Page 17
Financial Statements
As at and for the years ended
December 31, 2015 and 2014
FINANCIAL STATEMENTS
MANAGEMENT’S STATEMENT OF RESPONSIBILITY
The accompanying financial statements of TORC Oil & Gas Ltd. were prepared by and are the responsibility of management. They have been
prepared in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and
include certain assessments that reflect management’s best estimates and judgments. Management has determined such amounts on a
reasonable basis in order to ensure that the financial statements are presented fairly in all material respects. The financial
information
contained elsewhere in Management's Discussion and Analysis has been reviewed to ensure consistency with the financial statements.
Management has developed and maintains systems of internal controls designed to provide reasonable assurance that all transactions are
properly recorded in the Company’s financial records, that procedures and policies are adhered to, that the financial statements realistically
report the Company’s operating and financial results, and that assets are safeguarded from unauthorized use. Management believes that this
system of internal controls has operated effectively for the year ended December 31, 2015.
KPMG LLP, an independent firm of chartered professional accountants, has been engaged to examine the financial statements in accordance
with Canadian generally accepted auditing standards and to provide an independent auditors’ report thereon.
The Board of Directors, through its Audit Committee, has reviewed the financial statements including notes thereto with management and
KPMG LLP. The Audit Committee is composed of three unrelated and independent members of the Board of Directors and meets quarterly
with the financial officers of the Company. KPMG LLP has access to the Audit Committee to review the planning and scope of testing and to
discuss the results of their audit work. On the recommendation of the Audit Committee, the accompanying financial statements have been
approved by the Board of Directors.
(signed)
Brett Herman
President and
Chief Executive Officer
March 3, 2016
Calgary, Canada
(signed)
Jason Zabinsky
Vice President, Finance and
Chief Financial Officer
TORC Oil & Gas Ltd. 2015 Page 1
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To the Shareholders of TORC Oil & Gas Ltd.
We have audited the accompanying financial statements of TORC Oil & Gas Ltd., which comprise the statements of financial position as at
December 31, 2015 and December 31, 2014, the statements of income (loss) and comprehensive income (loss), changes in equity and cash
flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of TORC Oil & Gas Ltd. as at December
31, 2015 and December 31, 2014, and its financial performance and its cash flows for the years then ended in accordance with International
Financial Reporting Standards.
(signed)
KPMG LLP
Chartered Professional Accountants
March 3, 2016
Calgary, Canada
TORC Oil & Gas Ltd. 2015 Page 2
TORC Oil & Gas Ltd.
Statements of Financial Position
(in $000's of Canadian dollars)
Assets
Trade and other receivables
Deposits and prepaid expenses
Financial derivative asset
Total current assets
Exploration and evaluation assets
Property, plant and equipment
Deferred tax asset
Total non-current assets
Total assets
Liabilities
Trade and other payables
Dividends payable
Deferred lease incentives
Total current liabilities
Bank debt
Deferred premium on flow-through shares
Deferred lease incentives
Decommissioning obligations
Deferred tax liability
Total non-current liabilities
Total liabilities
Equity
Share capital
Contributed surplus
Deficit
Total equity
Total liabilities and equity
Subsequent event (note 17)
Commitment (note 22)
See accompanying notes to the financial statements.
Approved on behalf of the Board
(signed)
Raymond Chan
Director
FINANCIAL STATEMENTS
Note
As at
December 31, 2015
As at
December 31, 2014
21
12
13
15
17
20
14
15
16
$22,670
2,084
24,596
49,350
54,596
1,222,945
-
1,277,541
$1,326,891
$84,928
4,354
177
89,459
179,849
1,925
104
105,670
13,628
301,176
$390,635
$1,010,428
19,543
(93,715)
936,256
$1,326,891
$30,027
2,525
-
32,552
-
1,858,745
2,785
1,861,530
$1,894,082
$92,186
7,256
103
99,545
230,087
-
-
264,703
-
494,790
$594,335
$1,621,035
19,992
(341,280)
1,299,747
$1,894,082
(signed)
Brett Herman
Director
TORC Oil & Gas Ltd. 2015 Page 3
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Statements of Income (Loss) and Comprehensive Income (Loss)
(in $000's of Canadian dollars, except per share amounts)
Three months
ended
December 31,
Three months
ended
December 31,
Note
Year ended
Dec 31, 2015
Year ended
Dec 31, 2014
Revenues
Petroleum and natural gas sales
Royalties
Realized gain (loss) on financial derivatives
Unrealized gain (loss) on financial derivatives
21
Expenses
Operating
Transportation
General and administrative
Transaction related costs
Finance costs
Stock-based compensation
Depletion and depreciation
Impairment
6, 7
10
18
13
12, 13
$71,935
(13,242)
58,693
5,443
(4,643)
59,493
22,279
3,111
2,692
-
3,208
1,683
42,117
109,209
184,299
$70,854
(12,338)
58,516
4,334
23,695
86,545
14,408
2,222
2,812
38
2,411
1,648
29,217
72,567
125,323
$262,588
(47,818)
214,770
25,963
(24,596)
216,137
77,011
11,118
11,218
4,855
12,232
8,882
150,314
168,209
443,839
$321,329
(53,539)
267,790
(159)
24,816
292,447
52,953
10,009
9,739
142
9,030
10,447
114,360
72,567
279,247
Income (loss) before income taxes
(124,806)
(38,778)
(227,702)
13,200
Deferred income tax (recovery)
Income (loss) and comprehensive income (loss)
Income (loss) per share:
Basic
Diluted
15
19
19
See accompanying notes to the financial statements.
(35,216)
(8,367)
(55,047)
6,942
($89,590)
($30,411)
($172,655)
$6,258
($0.56)
($0.56)
($0.32)
($0.32)
($1.27)
($1.27)
$0.07
$0.07
TORC Oil & Gas Ltd. 2015 Page 4
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Statements of Changes in Equity
(in $000's of Canadian dollars, unless otherwise noted)
Number of
common shares
(000's)
Number of
warrants
(000's)
Share
capital
Contributed
surplus
Deficit
Total
equity
3,480
$958,754
$11,881
($49,398)
$921,237
Balance at December 31, 2013
Common shares issued (note 16)
Stock-based compensation
Issued on vesting/exercise of:
Incentive shares
Restricted shares
Performance shares
Stock options
Warrants
Transfer of stock-based
compensation on vesting/exercise of:
Incentive shares
Restricted awards
Performance awards
Stock options
Share issue costs,
net of tax of $0.3 million
Dividends to shareholders
Issued pursuant to the share
dividend program
Flow-through share liability
Income for the year
Balance at December 31, 2014
Balance at December 31, 2014
Common shares issued (note 16)
Stock-based compensation
Issued on vesting/exercise of:
Incentive shares
Restricted awards
Performance awards
Warrants
Transfer of stock-based
compensation on vesting/exercise of:
Incentive shares
Restricted awards
Performance awards
Warrants expired
Share issue costs,
net of tax of $3.9 million
Dividends to shareholders (note 17)
Issued pursuant to the share
dividend program (note 17)
Loss for the year
Balance at December 31, 2015
91,423
1,442
-
60
424
931
8
1,134
-
-
-
-
-
-
1,343
-
-
96,765
96,765
59,370
-
63
519
1,188
5
-
-
-
-
-
-
3,332
-
161,242
See accompanying notes to the financial statements.
-
-
-
-
-
-
(1,134)
-
-
-
-
-
-
-
-
-
2,346
2,346
-
-
-
-
-
-
-
-
(2,341)
-
-
-
-
-
19,710
-
-
-
-
61
8,148
1,000
3,790
8,311
130
(820)
-
14,832
(3,488)
-
$1,010,428
$1,010,428
582,805
-
-
-
-
900
4,563
10,846
-
(11,504)
-
22,964
-
(5)
33
-
20,893
-
-
-
-
-
(1,000)
(3,790)
(8,311)
(130)
-
-
-
-
-
$19,543
$19,543
-
16,758
-
-
-
-
(900)
(4,563)
(10,846)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,710
20,893
-
-
-
61
8,148
-
-
-
-
(820)
(50,575)
(50,575)
-
-
6,258
14,832
(3,488)
6,258
($93,715)
$936,256
($93,715)
$936,256
-
-
-
-
-
-
-
-
-
-
-
(74,910)
582,805
16,758
33
-
-
-
-
-
-
-
(11,504)
(74,910)
-
22,964
(172,655)
(172,655)
$1,621,035
$19,992
($341,280)
$1,299,747
TORC Oil & Gas Ltd. 2015 Page 5
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Statements of Cash Flows
(in $000's of Canadian dollars)
Cash flows from (used in) operating activities:
Income (loss) for the year
Depletion and depreciation
Stock-based compensation
Deferred income tax (recovery)
Accretion on decommissioning obligations
Unrealized loss (gain) on financial derivatives
Impairment
Settlement of decommissioning obligations
Change in non-cash working capital
Net cash from operating activities
Cash flows from (used in) investing activities:
Additions to exploration and evaluation assets
Additions to property, plant and equipment
Property acquisitions
Proceeds from disposition of oil and gas properties
Change in non-cash working capital
Net cash used in investing activities
Cash flows from (used in) financing activities:
Proceeds from bank debt
Proceeds from issue of share capital
Share issue costs
Dividends
Net cash from financing activities
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Three months
ended
December 31,
Three months
ended
December 31,
Year ended
Dec 31, 2015
Year ended
Dec 31, 2014
$
(89,590)
42,117
1,683
(35,216)
1,115
4,643
109,209
(132)
3,395
37,224
$
(30,411)
29,217
1,648
(8,367)
751
(23,695)
72,567
(225)
30,706
72,191
$
(172,655)
150,314
8,882
(55,047)
3,829
24,596
168,209
(205)
9,639
137,562
$
6,258
114,360
10,447
6,942
2,819
(24,816)
72,567
(347)
10,752
198,982
-
(26,657)
(4,891)
445
1,770
(29,333)
5,779
1
(6)
(13,665)
(7,891)
-
-
(51)
(37,211)
(44,706)
55
(38,039)
(119,952)
38,515
19,710
(965)
(9,499)
47,761
-
-
(56)
(105,693)
(446,463)
549
(7,900)
(559,563)
50,238
436,119
(15,312)
(49,044)
422,001
-
-
(308)
(141,761)
(137,575)
860
(19,992)
(298,776)
94,849
27,919
(1,097)
(35,503)
86,168
(13,626)
13,626
Cash and cash equivalents, end of year
$
-
$
-
$
-
$
-
See accompanying notes to the financial statements.
TORC Oil & Gas Ltd. 2015 Page 6
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
1. Reporting entity
TORC Oil & Gas Ltd. (the “Company” or "TORC") was incorporated pursuant to the Business Corporations Act (Alberta) on March 23,
2010 as 1525893 Alberta Ltd. The Company's name was changed to TORC Oil & Gas Ltd. on December 17, 2010. The Company's
principal business activity is the exploration for and production of petroleum and natural gas in the Western Canadian Sedimentary Basin.
The Company's principal place of business is located at Suite 1800, Eighth Avenue Place, 525 - 8th Avenue SW, Calgary, Alberta,
Canada T2P 1G1.
2. Basis of preparation
Operating expenses in the statement of income and comprehensive income are presented as a combination of function and nature to
conform with industry practice. Depletion and depreciation is presented on a separate line by its nature, while operating expenses and
general and administrative expenses are presented on a functional basis. Significant expenses such as key management personnel's
short-term employee benefits and stock-based compensation are presented by their nature in the notes to the financial statements.
(a) Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and were
authorized for issue by the Board of Directors on March 3, 2016.
(b) Basis of measurement
The financial statements have been prepared on the historical cost basis, except for derivative financial instruments which are measured
at fair value when outstanding.
(c) Functional and presentation currency
The financial statements are presented in Canadian dollars, which is the Company’s functional currency.
(d) Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may
differ materially from these estimates.
Estimates and their underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
year in which the estimates are revised and for any future years affected.
Critical judgments in applying accounting policies:
The following are critical judgments that management has made in the process of applying accounting policies and that have the most
significant effect on the amounts recognized in the financial statements.
The Company’s assets are aggregated into cash generating units for the purpose of calculating impairment. Cash generating units
("CGU" or "CGUs") are based on an assessment of the unit’s ability to generate independent cash inflows. The determination of these
CGUs was based on management’s judgment in regards to shared infrastructure, geographical proximity, petroleum type and similar
exposure to market risk and materiality.
(continued)
TORC Oil & Gas Ltd. 2015 Page 7
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
Judgments are required to assess when impairment indicators exist and impairment testing is required.
In determining the recoverable
amount of assets, in the absence of quoted market prices, impairment tests are based on estimates of reserves, production rates, future
oil and natural gas prices, future costs, discount rates, market value of land and other relevant assumptions.
the Company’s accounting policy for exploration and evaluation assets requires management to make certain
The application of
judgments as to future events and circumstances as to whether economic quantities of reserves will be found so as to assess if technical
feasibility and commercial viability has been achieved.
Judgments are made by management to determine the likelihood of whether deferred income tax assets at the end of the reporting period
will be realized from future taxable earnings.
Key sources of estimation uncertainty:
The following are key estimates and their assumptions made by management affecting the measurement of balances and transactions in
these financial statements.
Estimation of recoverable quantities of proven and probable reserves include estimates and assumptions regarding future commodity
prices, exchange rates, discount rates and production and transportation costs for future cash flows as well as the interpretation of
the
complex geological and geophysical models and data. Changes in reported reserves can affect
decommissioning obligations, the economic feasibility of exploration and evaluation assets and the amounts reported for depletion,
depreciation and amortization of property, plant and equipment. These reserve estimates are verified by third party professional
engineers, who work with information provided by the Company to establish reserve determinations in accordance with National
Instrument 51-101.
the impairment of assets,
In most
The Company estimates the decommissioning obligations for oil and natural gas wells and their associated production facilities and
instances, removal of assets and remediation occurs many years into the future. Amounts recorded for the
pipelines.
decommissioning obligations and related accretion expense require assumptions regarding removal date,
future environmental
legislation, the extent of reclamation activities required, the engineering methodology for estimating cost, inflation estimates, future
removal technologies in determining the removal cost, and the estimate of the liability specific discount rates to determine the present
value of these cash flows.
In a business combination, management makes estimates of the fair value of assets acquired and liabilities assumed which includes
assessing the value of oil and gas properties based upon the estimation of recoverable quantities of proven and probable reserves being
acquired.
The Company’s estimate of stock-based compensation is dependent upon estimates of historic volatility,
assessment of achieving performance conditions.
forfeiture rates and an
The Company’s estimate of the fair value of derivative financial instruments is dependent on estimated forward prices and volatility in
those prices.
The deferred tax liability is based on estimates as to the timing of the reversal of temporary differences, substantively enacted tax rates
and the likelihood of assets being realized.
TORC Oil & Gas Ltd. 2015 Page 8
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
3.
Significant accounting policies
The accounting policies set out below have been applied consistently to the years presented in the financial statements by the Company.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Company. Control exists when the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
In assessing control, substantive potential voting rights are
taken into consideration. The financial statements of subsidiaries are included in consolidated financial statements from the date
that control commences until the date that control ceases.
The purchase method of accounting is used to account for acquisitions of subsidiaries and assets that meet the definition of a
business under IFRS. The cost of an acquisition is measured as the fair value of assets given, equity instruments issued and
liabilities incurred or assumed at
Identifiable assets acquired and liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value
If the cost of acquisition is less than the fair value of the net
of the identifiable assets and liabilities acquired is recorded as goodwill.
assets of the subsidiary acquired, the difference is recognized immediately in the statement of income and comprehensive income.
the date of exchange.
(ii) Jointly owned assets
Many of the Company’s oil and natural gas activities involve jointly owned assets. The financial statements include the Company’s
share of these jointly owned assets and a proportionate share of the relevant revenue and related costs. The relationships with
jointly owned asset partners have been referred to as joint venture in the remainder of the financial statements as is common in the
Canadian oil and gas industry.
(iii) Transactions eliminated on consolidation
Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are
eliminated in preparing consolidated financial statements.
(b) Foreign currency
Transactions in foreign currencies are translated to Canadian dollars at exchange rates at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies are translated to Canadian dollars at the period end exchange rate. Non-
monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to Canadian dollars
at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are
recognized in the statement of income and comprehensive income.
(c) Financial instruments
Non-derivative financial instruments
Non-derivative financial
trade and other
receivables, trade and other payables, dividends payable and bank debt. Non-derivative financial instruments are recognized initially
at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments
are measured as described below.
instruments are comprised of cash and cash equivalents including bank overdrafts,
(continued)
TORC Oil & Gas Ltd. 2015 Page 9
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
Cash and cash equivalents:
Cash and short term deposits on the statement of financial position comprise cash at banks and on hand and short term deposits
with an original maturity of three months or less.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents defined above, net
of outstanding bank overdrafts.
Other:
Other non-derivative financial instruments, such as bank debt, trade and other receivables, trade and other payables and dividends
payable, are measured at amortized cost using the effective interest method, less any impairment losses.
Derivative financial instruments
The Company may enter into certain financial derivative contracts (often known as "hedges") in order to manage the exposure to
market risks from fluctuations in commodity prices, interest rates and foreign exchange rates. These instruments are not used for
trading or speculative purposes. The Company has not designated its financial derivative contracts as effective accounting hedges,
and thus has not applied hedge accounting, even though the Company considers all commodity contracts to be economic hedges.
As a result, all financial derivative contracts are classified at fair value through profit and loss and are recorded on the statement of
financial position at fair value. Related transaction costs such as trading commissions are recognized in the statement of income
and comprehensive income when incurred.
Forward physical delivery and sales contracts of oil and natural gas products are entered into under normal course of business and
therefore not recorded at fair value on the statement of financial position. These physical delivery contracts are not considered to be
derivative financial instruments or hedges. Settlements on these physical delivery contracts are recognized in oil and natural gas
revenue on the statement of income and comprehensive income.
Share capital
Common shares are classified as equity.
options are recognized as a deduction from equity, net of any tax effects.
Incremental costs directly attributable to the issue of common shares, warrants and share
(d) Exploration and evaluation assets ("E&E")
Costs incurred prior to the ownership of licenses and rights to drill on properties are expensed in the statement of income and
comprehensive income as incurred, if the related licenses and rights are not subsequently acquired.
The costs incurred to acquire licenses and rights to drill, including seismic costs, and the subsequent drilling and completing costs
related to these licenses (including employee remuneration, materials and fuel used, rig costs and payments made to contractors)
are capitalized as E&E assets until the drilling of the well is complete and the results have been evaluated.
E&E assets are accumulated in cost centers pending the determination of technical feasibility and commercial viability of the drilling
project. Technical feasibility and commercial viability is considered to be achieved when proven and probable reserves are
determined to exist for a project area. Upon determination of proven and probable reserves, the related E&E assets in the
associated project area are typically reclassified to a different long-term asset category, Property, Plant and Equipment ("PP&E") ,
where the assets may be subject to depletion expense.
E&E assets are measured at cost less accumulated impairment losses and not subject to depletion expense until after these assets
are reclassified to PP&E.
(continued)
TORC Oil & Gas Ltd. 2015 Page 10
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
As facts and circumstances suggest, E&E assets are tested for impairment. The Company compares the carrying amount of its total
E&E assets to the assets' recoverable amount, which, for E&E assets, is generally the fair market value of undeveloped land at the
time of impairment testing.
In addition, E&E assets related to specific technically feasible and commercially viable cost centers are
tested for impairment if and when they are reclassified to PP&E. E&E assets are aggregated with the associated cash generating
units for the purposes of impairment testing.
Impairment losses recognized in prior periods are assessed as facts and circumstances suggest to evaluate if those losses have
decreased or no longer exist. If those impairment losses have decreased or no longer exist (recovered), they are reversed
accordingly. Previously recognized impairment losses may be recovered in future reporting periods due to changes in estimates
used to determine the recoverable amount. An impairment loss recovery is recorded only to the extent that the E&E asset’s carrying
amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognized.
Impairment losses and recoveries are recorded in the statement of income and comprehensive income.
(e)
Property, plant and equipment ("PP&E")
There are two categories of PP&E: Developed and Producing ("D&P") assets and Other PP&E assets.
D&P assets include capital costs (i) related to drilling projects where the drilling location is already determined to hold proven
reserves, (ii) that have been reclassified from E&E assets because proven reserves have been determined, and (iii) incurred to
improve an already technically feasible and commercially viable well.
Other PP&E typically includes furniture, fixtures, leasehold improvements and office equipment.
For statement of financial position presentation, both D&P assets and Other PP&E are included in the PP&E category.
(i) Recognition and measurement
PP&E is measured at cost less accumulated depletion and depreciation and accumulated impairment losses. For the purposes of
depletion and depreciation, when significant parts of PP&E have different useful lives, they are accounted for separately so that
depletion and depreciation rates appropriately reflect useful lives.
Gains and losses on disposal of PP&E, property swaps and farm-outs, including oil and natural gas interests, are determined by
comparing the proceeds from disposal of fair value of the asset received or given up, with the carrying amount of the PP&E sold,
and are recognized on a net basis in profit or loss.
For the purposes of impairment testing, assets are grouped into the smallest group of assets that generate independent cash inflows
from continuing use that are largely independent of the cash inflows of other assets or groups of assets. These groups of assets are
called cash generating units ("CGU's").
Impairment testing of PP&E is performed as facts and circumstances suggest by comparing the carrying amount of each CGU to
each CGU's recoverable amount. The recoverable amount of a CGU is the greater of (i) its value in use, and (ii) its fair value less
selling costs.
In assessing value in use for D&P assets, the estimated future cash flows from the production of proven and probable
reserves are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. Value in use is generally computed by reference to the present value of the
future cash flows expected to be derived from proved and probable reserves.
Impairment losses recognized in prior periods are assessed at each reporting date to evaluate if those losses have decreased or no
longer exist.
If those impairment losses have decreased or no longer exist (recovered), they are reversed accordingly. Previously
recognized impairment losses may be recovered in future reporting periods due to changes in estimates used to determine the
recoverable amount. An impairment loss recovery is recorded only to the extent that the PP&E carrying amount does not exceed the
carrying amount that would have been determined, net of depletion and depreciation, if no impairment loss had been recognized.
Impairment losses and recoveries are recorded in the statement of income and comprehensive income.
(continued)
TORC Oil & Gas Ltd. 2015 Page 11
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
(ii) Proven and probable reserves
Proven and probable reserves represent the estimated quantities of crude oil, natural gas and natural gas liquids which geological,
geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known
reservoirs and which are considered commercially producible. There should be a 50 percent statistical probability that the actual
quantity of recoverable reserves will be more than the amount estimated as proven and probable and a 50 percent statistical
probability that it will be less. At least annually, reserves are evaluated by independent reserve evaluators.
Such reserves may be considered commercially producible if management has the intention of developing and producing them and
such intention is based upon:
●
●
●
a reasonable assessment of the future economics of such production;
a reasonable expectation that there is a market for all or substantially all the expected oil and natural gas production; and
evidence that the necessary production, transmission and transportation facilities are available or can be made available.
Where amounts are expressed on a barrel of oil equivalent (“Boe”) basis, natural gas volumes have been converted to Boe using a
ratio of 6,000 cubic feet of natural gas to one barrel of oil equivalent. This conversion ratio is based upon an energy equivalent
conversion method primarily applicable at the burner tip and does not represent value equivalence at the wellhead. Boe figures may
be misleading, particularly if used in isolation.
(iii) Subsequent costs
Subsequent costs are capital costs incurred to improve an existing D&P asset (such as a well) that is technically feasible and
commercially viable. These costs are capitalized as D&P assets only if they increase the future economic benefits of the asset. All
other expenditures are expensed in the statement of income and comprehensive income as incurred. These improvement costs
include capital costs of further developing proven reserves or enhancing production. The costs of routine maintenance of D&P
assets are recognized in the statement of income and comprehensive income as incurred. The carrying value of any replaced or
sold component is derecognized.
(iv) Depletion and depreciation
The net carrying value of D&P assets is depleted using the unit-of-production method by calculating the ratio of production in the
period to the related proven and probable reserves. The carrying value to be depleted includes estimated future development costs
necessary to produce proven and probable reserves. Future development costs are estimated by considering the level of
development required to produce the proven and probable reserves and are reviewed by independent reserve engineers at least
annually. Undeveloped land related to a proven project area, for which specific proven and probable reserves have not yet been
assigned, are withheld from depletion.
For Other PP&E, depreciation is recognized in the statement of income and comprehensive income on a straight-line basis over
their estimated useful lives. Finance lease assets are depreciated over the shorter of the lease term and their useful lives unless it
is reasonably certain that the Company will obtain ownership by the end of the lease term. Depreciation methods, useful lives and
residual values are reviewed at each reporting date.
(f) Goodwill
The Company records goodwill relating to corporate acquisitions when the purchase price exceeds the fair value of the net
identifiable assets and liabilities acquired by the Company. When goodwill is negative, it is recognized immediately in the statement
of income and comprehensive income. The goodwill balance is assessed for impairment annually or as events occur that could
result in an impairment. Goodwill is measured at cost less accumulated impairment losses.
(continued)
TORC Oil & Gas Ltd. 2015 Page 12
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
For the purposes of impairment testing, goodwill is allocated to CGU’s that are expected to economically benefit from the business
combination from which the goodwill arose. An impairment loss is recognized if the carrying amount of a CGU exceeds its estimated
recoverable amount.
Impairment losses
Impairment losses are recognized in the statement of income and comprehensive income.
identified in a CGU are first charged against any goodwill related to that CGU, with any remaining impairment losses charged
against E&E or PP&E assets remaining in that CGU. Impairment losses of goodwill cannot be reversed.
(g) Leased assets
Leases where the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon
initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of minimum
lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to
that asset.
Minimum lease payments made under finance leases are apportioned between the finance expenses and the reduction of the
outstanding liability. The finance expenses are allocated to each year during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
Other leases are operating leases, which are not recognized on the Company's statement of financial position.
Payments made under operating leases are recognized in the statement of income and comprehensive income on a straight-line
basis over the term of the lease and not recognized as a liability on the Company's statement of financial position. Lease incentives
received are recognized as an integral part of the total lease expense, over the term of the lease.
(h) Stock-based compensation
The grant date fair value of stock-based compensation on equity instruments, such as stock options, incentive shares and restricted
and performance awards granted to employees,
is recognized as stock-based compensation expense, with a corresponding
increase in contributed surplus over the vesting period. A forfeiture rate is estimated at the grant date and is adjusted to reflect the
actual number of stock-based compensation equity instruments that vest including adjustments for performance conditions. The
inputs used in the calculation of the fair value of stock-based compensation are estimated on the grant date.
(i)
Flow-through shares
The Company may finance a portion of its exploration activities through the issuance of flow-through common shares. Under the
terms of the flow-through share agreements, the resource expenditure deductions for income tax purposes are renounced to
investors in accordance with the appropriate income tax legislation.
The proceeds from the sale of flow-through shares are allocated between the offering of shares and the sale of tax benefits. The
allocation is made based on the difference between the fair market price of the existing shares and the amount the investor pays for
the flow-through shares (given no other differences between the securities). A flow-through share liability is recognized for this
difference. On a pro-rata basis, the previously recorded flow-through share liability is reversed and a corresponding deferred tax
liability (equal
to the Company’s effective tax rate multiplied by the flow-through commitment) is recognized as qualifying
expenditures are incurred. Any difference between the reversal of the flow-through share liability and corresponding deferred tax
liability is recognized as deferred tax expense in the statement of income and comprehensive income.
(j) Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. Provisions are not recognized for future operating losses.
(continued)
TORC Oil & Gas Ltd. 2015 Page 13
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
Examples of provisions include dismantling, decommissioning and site disturbance remediation activities, and anticipated losses
from lawsuits. Provision is made for the estimated cost of these activities and capitalized in the relevant asset category or expensed
in the statement of income and comprehensive income.
Decommissioning obligations
Decommissioning obligations (also called asset retirement obligations) are measured at the present value of management’s best
estimate of expenditure required to settle the present obligation at the statement of financial position date. Subsequent to initial
measurement, the obligation is adjusted at the end of each reporting period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The increase in the provision due to the passage of time, known as accretion,
is recognized in the statement of income and comprehensive income as finance costs whereas increases/decreases due to changes
in the estimated future cash flows are capitalized. Actual costs incurred upon settlement of the decommissioning obligations are
charged against the provision to the extent the provision was established.
(k) Revenue
Revenue from the sale of oil and natural gas is recorded when the significant risks and rewards of ownership of the product are
transferred to the buyer which is usually when legal title passes to the external party. This is generally at the time product enters a
third party pipeline or facility. Revenue is measured net of discounts, customs duties and royalties. With respect to the latter, the
entity is acting as a collection agent on behalf of others.
Tariffs and tolls charged to other entities for use of pipelines and facilities owned by the Company are recognized as revenue as they
accrue in accordance with the terms of the service or tariff and tolling agreements.
Royalty income is recognized as it accrues in accordance with the terms of the overriding royalty agreements.
(l)
Finance income and costs
Finance costs comprise of interest expense on bank debt, accretion of the discount on decommissioning obligations, and impairment
losses recognized on financial assets.
Interest income is recognized as it accrues in the statement of income and comprehensive income, using the effective interest
method.
(m)
Income tax
Income tax expense comprises current and deferred tax.
Income tax expense is recognized in the statement of income and
comprehensive income except to the extent that it relates to items recognized directly in equity, such as share issue costs, in which
case it is recognized in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized on
the initial recognition of assets or liabilities in a transaction that is not a business combination. Deferred tax is measured at the tax
rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or
substantively enacted at the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to
offset, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but
they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realized.
(continued)
TORC Oil & Gas Ltd. 2015 Page 14
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
(n) Earnings per share
Basic earnings per share is calculated by dividing the net income or loss attributable to common shareholders of the Company by
the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by
adjusting the net income or loss attributable to common shareholders and the weighted average number of common shares
outstanding for the effects of dilutive instruments such as options, incentive shares, and restricted and performance awards granted
to employees.
(o) Future accounting pronouncements
The following accounting standards and amendments, issued by the International Accounting Standards Board (“IASB”), become
effective between January 1, 2016 and January 1, 2018:
IFRS 11 (amendments to Accounting for Acquisitions of Interests in Joint
Operations ), IAS 16 and IAS 38 (amendments to Clarification of Acceptable Methods of Depreciation and Amortization ), IFRS 15
Revenue from Contracts with Customers , IFRS 16 Leases and IFRS 9 Financial Instruments . The impact of these accounting
standards and amendments are not expected to have a material
impact on the Company's financial statements, although the
Company is still finalizing its assessment.
4. Determination of fair values
A number of the Company’s accounting policies and disclosures require the determination of fair value for both financial and non-financial
assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that
asset or liability.
The Company classifies the fair value of financial instruments according to the following hierarchy based on the amount of
observable inputs used to value the instruments:
●
●
●
Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date
for identical assets or liabilities.
Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either
directly or indirectly for substantially the full term of the asset or liability.
Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement.
Exploration and evaluation assets, and property, plant and equipment
The fair value of exploration and evaluation assets and property, plant and equipment recognized in a business combination, is based on
market value. The market value of E&E assets and PP&E is the estimated amount for which E&E assets and PP&E could be exchanged
on the acquisition date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently and without compulsion. The market value of oil and natural gas interests included in
E&E assets and PP&E is estimated with reference to the discounted cash flows expected to be derived from oil and natural gas
production based on internally and externally prepared reserve reports. The risk-adjusted discount rate is specific to the asset with
reference to general market conditions.
(continued)
TORC Oil & Gas Ltd. 2015 Page 15
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
Cash and cash equivalents, bank overdrafts, trade and other receivables, trade and other payables, dividends payable and bank debt
The fair value of cash and cash equivalents, bank overdrafts, trade and other receivables, trade and other payables, dividends payable
and bank debt is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. As at
December 31, 2015 and 2014, the fair value of cash and cash equivalents, trade and other receivables, trade and other payables and
dividends payable approximated their carrying value due to their short term to maturity. The fair value of bank debt approximates its
carrying value as it bears a floating rate of interest and the margin charged by the lenders are indicative of current credit spreads.
Derivatives
The fair value of financial forward contracts and swaps is determined by discounting the difference between the contracted prices and
published forward price curves as at the statement of financial position date, using the remaining contracted oil and natural gas volumes
and a risk-free interest rate. The fair value of costless collars is based on option models that use published information with respect to
volatility, prices and interest rates. The Company classifies its derivatives as Level 2. Level 2 values are based on quoted prices in
markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or
liability.
Stock-based compensation
The fair value of employee stock options is measured using a Black-Scholes option pricing model. Measurement inputs include share
price on measurement date, exercise price of the option, expected volatility, weighted average expected life of the instruments (based on
historical experience and general option holder behaviour), expected dividends, forfeiture rate and the risk-free interest rate (based on
Incentive shares and restricted and performance awards are fair valued based on the share price on the
government bonds).
measurement date with a forfeiture rate applied.
5.
Financial risk management
(a) Overview
The Company’s activities expose it to a variety of financial risks such as credit risk, liquidity risk and market risk that arise as a result of
its exploration, development, production and financing activities.
This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and
processes for measuring and managing risk and the Company’s management of capital. Further quantitative disclosures are included
throughout these financial statements.
framework.
The Board of Directors oversees management's establishment and execution of
Management has implemented and monitors compliance with risk management policies. The Company’s risk management policies are
established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and
market conditions.
the Company’s risk management
(b) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual
obligations.
The carrying amount of the Company’s trade and other receivables represents the maximum credit exposure.
With respect to trade and other receivables, the Company’s exposure to credit risk is influenced mainly by the individual characteristics of
each customer.
(continued)
TORC Oil & Gas Ltd. 2015 Page 16
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
Receivables from petroleum and natural gas marketers are collected on the 25th day of each month following production. The
Company's policy to mitigate credit risk associated with these balances is to establish relationships with credit-worthy marketers, as well
as to carefully assess the extent of credit granted to these parties.
Joint venture receivables are normally collected within one to three months of the joint venture bill being issued to the partner. The
Company attempts to mitigate the risk from joint venture receivables by obtaining partner approval of capital expenditures prior to
expenditure. However, the receivables are from participants in the petroleum and natural gas sector and collection of the outstanding
balances is dependent on industry factors such as commodity price fluctuations, escalating costs and the risk of unsuccessful drilling.
Further risks exist with joint venture partners as disagreements occasionally arise, increasing the risk of non-collection.
The Company does not typically obtain collateral from petroleum and natural gas marketers or joint venture partners. However, the
Company does have the ability to withhold production from joint venture partners in the event of non-payment, as well as requiring
prepayment (cash calls) for significant expenditures.
The Company does not anticipate any default as it transacts with credit-worthy customers and management does not expect any losses
from non-performance by these customers. As such, a provision for doubtful accounts has not been recorded at December 31, 2015 or
2014.
The maximum exposure to credit risk for trade and other receivables at the reporting date by type of customer was:
Petroleum and natural gas marketing companies
Joint venture partners
Other parties
Bank (1)
Total trade and other receivables
December 31, 2015
$22,528
3,787
1,607
2,105
$30,027
December 31, 2014
$13,994
5,328
33
3,315
$22,670
(1) Bank is comprised of commodity derivative contract settlements receivable from certain members of the Company's bank syndicate.
The Company’s trade and other receivables are aged as follows:
Current (less than 90 days)
Past due (greater than 90 days)
Total
(c) Liquidity risk
December 31, 2015
$29,935
92
$30,027
December 31, 2014
$22,670
-
$22,670
Liquidity risk relates to the risk that the Company will encounter difficulty in meeting its obligations associated with financial liabilities.
The financial liabilities on the statement of financial position consist of trade and other payables, dividends payable and bank debt. Trade
and other payables and dividends payable are considered due within one year. The terms for bank debt are outlined in note 20. The
liabilities. The Company has had no defaults or
Company anticipates it will continue to have adequate liquidity to fund its financial
breaches on its financial liabilities.
(d) Market risk
Market risk is the risk that changes in market prices relating to currency, commodity prices and interest rates will affect the Company’s
net earnings, future cash flows, the value of financial instruments, or the fair value of its assets and liabilities. The objective of market
risk management is to manage and control market risk exposure within acceptable parameters.
(continued)
TORC Oil & Gas Ltd. 2015 Page 17
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
Although the Company generally does not sell or transact in foreign currency, the United States dollar influences the price of petroleum
and natural gas sold in Canada. Furthermore, exchange rate fluctuations can affect the fair value and cash flow from derivative
contracts. For the years ended December 31, 2015 and 2014, the Company did not enter into any foreign currency derivative contracts.
Commodity prices for crude oil, natural gas liquids and natural gas are also impacted by political events, meteorological conditions and
changes in supply and demand. The Company may enter into commodity derivative contracts that provide downside price protection in
order to provide some stability of cash flows for capital spending and planning purposes. The Company’s risk management activities are
conducted pursuant to its risk management policies approved by the Board of Directors.
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in interest rates. The Company’s interest rate risk
arises from its floating rate credit facility. For the years ended December 31, 2015 and 2014, the Company did not enter into any interest
rate derivative contracts. Assuming all other variables remain constant, an increase or decrease of one percent in market interest rates
in the year ended December 31, 2015 would have decreased or increased shareholders’ equity and net income by
$2.3 million.
(e) Capital management
The Company's policy is to maintain a strong capital base in order to maintain financial flexibility and to sustain the future development of
the business. The Company manages its capital structure and makes adjustments relative to changes in economic conditions and the
Company's risk profile.
In order to maintain the capital structure, the Company may from time to time issue shares and adjust its capital
spending to manage current and projected debt levels. The Company considers its capital structure to include working capital, bank debt
and shareholders’ equity.
The same as in the prior year, in order to optimize capital and operating efficiency, the Company monitors its net debt. Net debt is
calculated as current assets (excluding financial derivative assets) less: i) current liabilities (excluding financial derivative liabilities), ii)
bank debt, and iii) non-current deferred lease incentives.
In times of net debt, the Company monitors debt levels based on a ratio of net
debt to annualized funds flow from operations. The Company defines funds flow from operations as cash flow from operating activities
prior to changes in non-cash working capital and settlement of decommissioning obligations.
TORC Oil & Gas Ltd. 2015 Page 18
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
6.
Southeast Saskatchewan and Manitoba asset acquisition
On June 15, 2015, the Company closed an acquisition of various properties and working interests in and around its core southeast
Saskatchewan area (the "June Acquisition"). Cash consideration paid was $428.4 million, net of $2.5 million of working capital included
in the purchase price.
The Company believes the nature and characteristics of the June Acquisition are complementary to TORC’s light oil focused strategy.
Transaction costs incurred by the Company totaling $4.1 million related to the June Acquisition were expensed.
The June Acquisition has been accounted for using the acquisition method of accounting, with the operating results included in the
Company's financial and operating results commencing on the closing date of the acquisition.
Consideration paid
Net assets acquired, at estimated fair value
Property, plant and equipment
Working capital
Decommissioning obligations
$430,925
$461,760
2,457
(33,292)
$430,925
The above amounts are estimates, which were made by management at the time of the preparation of these financial statements based
on information then available. Amendments may be made to these amounts as values subject to estimate are finalized.
The fair value of property, plant and equipment has been determined with reference to a reserve report. The fair value of
decommissioning obligations was initially estimated using a credit adjusted rate of 7%.
Included in the statement of loss and comprehensive loss are the following amounts relating to the June Acquisition, from the June 15,
2015 closing date to December 31, 2015:
Petroleum and natural gas sales
Net income and comprehensive income
$56,028
$16,808
If the June Acquisition had occurred on January 1, 2015, the Company's pro forma results of petroleum and natural gas sales and net
loss and comprehensive loss for the year ended December 31, 2015 would have been as follows:
Petroleum and natural gas sales
Net loss and comprehensive loss
TORC,
as stated in the statement of income and
comprehensive income
$262,588
($172,655)
June Acquisition
(from Jan 1, 2015
to closing date)
$40,830
$12,249
Pro forma
(unaudited)
$303,418
($160,406)
TORC Oil & Gas Ltd. 2015 Page 19
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
7.
Southeast Saskatchewan asset acquisition
In February 2015, the Company closed an acquisition of various properties and working interests in its core southeast Saskatchewan
area (the "February Acquisition"). Consideration paid was $146.7 million which included the issuance of 16,000,000 common shares
valued at $9.17 per share based on TORC's trading price on February 25, 2015 (the date the February Acquisition closed).
The Company believes the nature and characteristics of the February Acquisition are complementary to TORC’s light oil focused
strategy.
Transaction costs incurred by the Company totaling $0.7 million related to the February Acquisition were expensed.
The February Acquisition has been accounted for using the acquisition method of accounting, with the operating results included in the
Company's financial and operating results commencing on the closing date of the acquisition.
Consideration paid
16,000,000 common shares issued
Net assets acquired, at estimated fair value
Property, plant and equipment
Deferred tax liability
Decommissioning obligations
$146,720
$196,673
(40,626)
(9,327)
$146,720
The above amounts are estimates, which were made by management at the time of the preparation of these financial statements based
on information then available. Amendments may be made to these amounts as values subject to estimate are finalized.
The fair value of property, plant and equipment has been determined with reference to a reserve report. The fair value of
decommissioning obligations was initially estimated using a credit adjusted rate of 7%.
Included in the statement of loss and comprehensive loss are the following amounts relating to the February Acquisition, from the
February 25, 2015 closing date to December 31, 2015.
Petroleum and natural gas sales
Net income and comprehensive income
$21,553
$6,466
If the February Acquisition had occurred on January 1, 2015, the Company's pro forma results of petroleum and natural gas sales and net
loss and comprehensive loss for the year ended December 31, 2015 would have been as follows:
Petroleum and natural gas sales
Net loss and comprehensive loss
TORC,
as stated in the statement of income and
comprehensive income
$262,588
($172,655)
February Acquisition
(from Jan 1, 2015
to closing date)
$3,836
$1,151
Pro forma
(unaudited)
$266,424
($171,504)
During the three months ended December 31, 2015, the Company paid an additional cash consideration of $7.2 million to acquire various
top-up working interests complementary to the February Acquisition properties.
TORC Oil & Gas Ltd. 2015 Page 20
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
8. Cardium and southeast Saskatchewan asset acquisitions
During the year ended December 31, 2014, the Company acquired various properties and working interests in its core Cardium and
southeast Saskatchewan areas (together the "Asset Acquisitions").
The Company believes the nature and characteristics of the Asset Acquisitions are complementary to TORC’s light oil focused strategy.
Transaction costs incurred by the Company totaling $0.1 million related to the Asset Acquisitions were expensed.
The Asset Acquisitions have been accounted for using the acquisition method of accounting, with the operating results included in the
Company's financial and operating results commencing on the respective closing dates of the acquisitions.
Consideration paid
Net assets acquired, at estimated fair value
Property, plant and equipment
Decommissioning obligations
$137,151
$145,080
(7,929)
$137,151
The above amounts are estimates, which were made by management at the time of the preparation of these financial statements based
on information then available. Amendments may be made to these amounts as values subject to estimate are finalized.
The fair value of property, plant and equipment has been determined with reference to an independent reserve report with consideration
also given for land and seismic values that have been included based on estimated market value.
Included in the statement of income and comprehensive income are the following amounts relating to the Asset Acquisitions, from their
respective closing dates to December 31, 2014.
Petroleum and natural gas sales
Net income and comprehensive income
Year ended
Dec 31, 2014
$26,347
$7,904
If the Asset Acquisitions had occurred on January 1, 2014, the Company's pro forma results of petroleum and natural gas sales and net
income and comprehensive income for the year ended December 31, 2014 would have been as follows:
Year ended
December 31, 2014
Petroleum and natural gas sales
Net income and comprehensive income
TORC,
as stated in the
statement of
income and
comprehensive
income
$321,329
$6,258
Asset
Acquisitions
(from
Jan 1, 2014 to
closing dates)
$24,557
$7,367
Pro forma
(unaudited)
$345,886
$13,625
TORC Oil & Gas Ltd. 2015 Page 21
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
9. Key management personnel compensation
Remuneration and short-term benefits
Stock-based compensation
Capitalized portion of total compensation
Year ended
Dec 31, 2015
$4,567
7,284
$11,851
Year ended
Dec 31, 2014
$4,383
10,804
$15,187
(5,805)
$6,046
(7,466)
$7,721
Key management personnel includes the officers and directors of the Company.
Short-term employee benefits and stock-based compensation include both the capitalized and non-capitalized portion of
expenditures. Stock-based compensation reflects amounts amortized during the respective periods.
these
10. Finance costs
Interest expense and financing charges
Accretion on decommissioning obligations
11. Supplemental cash flow information
Changes in non-cash working capital is comprised of:
Source/(use) of cash:
Trade and other receivables
Deposits and prepaid expenses
Trade and other payables
Deferred lease incentives
Non-cash working capital acquired
Related to operating activities
Related to investing activities
The following table summarizes interest and taxes paid:
Interest paid
Taxes paid
ended
December 31,
2,093
1,115
3,208
$
Three months
ended
December 31,
1,660
751
2,411
$
Year ended
Dec 31, 2015
$8,403
3,829
$12,232
Year ended
Dec 31, 2014
$6,211
2,819
$9,030
ended
December 31,
Three months
ended
December 31,
Year ended
Dec 31, 2015
Year ended
Dec 31, 2014
$
$
(7,357)
(441)
7,258
(178)
2,457
4,641
(38,484)
43,125
4,641
$
$
$
$
$
$
11,748
(60)
(20,752)
(176)
-
(9,240)
(52,365)
43,125
(9,240)
($7,357)
(441)
7,258
(178)
2,457
$1,739
$9,639
(7,900)
$1,739
$11,748
(60)
(20,752)
(176)
-
($9,240)
$10,752
(19,992)
($9,240)
Year ended
Dec 31, 2015
$7,321
-
$7,321
Year ended
Dec 31, 2014
$5,715
-
$5,715
TORC Oil & Gas Ltd. 2015 Page 22
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
12. Exploration and evaluation assets
Balance at December 31, 2013
Property acquisitions
Property dispositions
Capital expenditures
Impairment
Transferred to property, plant and equipment
Balance at December 31, 2014
Property dispositions
Capital expenditures
Impairment
Balance at December 31, 2015
$129,093
707
(100)
308
(72,567)
(2,845)
$54,596
(443)
56
(54,209)
-
Exploration and evaluation assets ("E&E assets") consist of
including undeveloped land and
development costs which are pending the determination of proven reserves. Property acquisitions and capital expenditures represent the
Company’s share of costs incurred on E&E assets during the period.
the Company’s exploration projects,
Impairment
For the year ended December 31, 2015, the Company recognized impairment of $54.2 million (year ended December 31, 2014: $72.6
million) on E&E assets related to certain southern Alberta projects with carrying values estimated to exceed the recoverable amounts.
The Company determined there to be indicators of impairment regarding these E&E assets, based on the prolonged decline of crude oil
prices, upcoming land expiries and near term reallocations of future capital spending. As a result, the Company impaired these E&E
assets principally comprised of historic land acquisition costs.
TORC Oil & Gas Ltd. 2015 Page 23
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
13. Property, plant and equipment
Cost:
Balance at December 31, 2013
Property acquisitions
Property dispositions
Capital expenditures
Change in decommissioning obligations
Transferred from exploration and evaluation assets
Balance at December 31, 2014
Property acquisitions
Property dispositions
Capital expenditures
Change in decommissioning obligations
Balance at December 31, 2015
Accumulated depletion and depreciation:
Balance at December 31, 2013
Depletion and depreciation for the year
Balance at December 31, 2014
Depletion and depreciation for the year
Accumulated depletion pursuant to the Asset Swap
Impairment
Balance at December 31, 2015
Net amount:
As at December 31, 2014
As at December 31, 2015
$1,116,245
144,797
(760)
152,207
2,224
2,845
$1,417,558
724,159
(58,624)
113,551
112,790
$2,309,434
$80,253
114,360
$194,613
150,314
(8,238)
114,000
$450,689
$1,222,945
$1,858,745
Included in the net amount of property, plant and equipment ("PP&E assets") at December 31, 2015 is office equipment of $0.4 million,
net of accumulated depreciation of $0.5 million (December 31, 2014: $0.3 million, net of accumulated depreciation of $0.4 million).
At December 31, 2015, the Company had $185.1 million of property, plant and equipment which was excluded from depletion at the time
and largely related to undeveloped land (December 31, 2014: $104.2 million). Estimated future development costs of $529.6 million were
included in the depletion calculation (December 31, 2014: $406.4 million).
On March 31, 2015, the Company closed a swap of certain petroleum and natural gas properties in southeast Saskatchewan (the “Asset
In the Asset Swap, the Company gave up properties with a carrying value of $50.2 million and received properties with an
Swap”).
equivalent fair value, and therefore no gain or loss was recognized. The fair value was determined based on the properties given up.
For the year ended December 31, 2015, the Company has capitalized $6.2 million of general and administrative expenses and $7.9
million of stock-based compensation, which are directly attributable to the acquisition or exploration activities of the Company (for the
year ended December 31, 2014: $6.4 million and $10.4 million, respectively).
(continued)
TORC Oil & Gas Ltd. 2015 Page 24
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
Impairment
For the year ended December 31, 2015, the Company recognized impairment of $114.0 million on PP&E assets (the “Impaired PP&E
Assets”) with carrying values exceeding the recoverable amounts principally due to the decline in crude oil prices. The Company
determined there to be indicators of impairment regarding these PP&E assets, based on the prolonged decline of crude oil prices,
upcoming land expiries and near term reallocations of future capital spending. The impairment consisted of $62.0 million related to
assets in the Cardium CGU, $45.0 million to assets in the Southern Alberta CGU and $7.0 million to the Southeast Saskatchewan CGU.
The recoverable amount, determined using value in use, of a CGU is the greater of (i) its value in use, and (ii) its fair value less selling
costs. The recoverable amounts for the Impaired PP&E Assets were $426.0 million in the Cardium CGU, $41.0 million in the Southern
Alberta CGU and $1.1 billion in the Southeast Saskatchewan CGU, reflecting the 10-12% pre-tax present value of future cash flows from
proved and probable reserves and values for undeveloped land.
In determining the future cash flows, the Company utilized the following benchmark pricing forecasts from its independent reserves
evaluator:
Canadian Light
Sweet Crude
($/Bbl)
55.20
69.00
78.43
89.41
91.71
93.08
94.48
95.90
97.34
98.80
100.28
Western
Canada Select
($/Bbl)
45.26
57.96
65.88
75.11
77.03
78.19
79.36
80.55
81.76
82.99
84.23
Alberta
AECO - C Spot
($/MMBtu)
2.25
2.95
3.42
3.91
4.20
4.28
4.35
4.43
4.51
4.59
4.67
Edmonton
Pentanes Plus
($/Bbl)
59.10
73.88
83.98
95.73
98.19
99.66
101.16
102.68
104.22
105.78
107.37
Edmonton
Butane ($/Bbl)
39.09
51.43
58.46
66.64
68.35
69.38
70.42
71.48
72.55
73.64
74.74
Edmonton
Propane ($/Bbl)
9.09
13.64
25.84
35.35
42.30
42.94
43.58
44.24
44.90
45.57
46.26
Exchange Rate
($US/$CAD)
0.75
0.80
0.83
0.85
0.85
0.85
0.85
0.85
0.85
0.85
0.85
Year
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
14. Decommissioning obligations
Balance, beginning of year
Obligations incurred
Obligations acquired
Obligations settled
Change in discount rate, pursuant to asset acquisitions
Change in estimates
Accretion
Balance, end of year
As at
December 31, 2015
$105,670
3,979
42,619
(205)
87,574
21,237
3,829
$264,703
As at
December 31, 2014
$93,045
2,224
7,929
(347)
-
-
2,819
$105,670
The total future decommissioning obligations are based on the Company’s net ownership in wells and facilities, estimated costs to
reclaim and abandon the wells and facilities, and the estimated timing of the costs to be incurred in future periods. The Company has
estimated an undiscounted total future liability of $280.1 million as at December 31, 2015 (at December 31, 2014: $131.4 million) to be
incurred on average in 25 years.
(continued)
TORC Oil & Gas Ltd. 2015 Page 25
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
For the year ended December 31, 2015, the Company used a risk free rate of 2.15 percent and an inflation rate of 1.8 percent to calculate
the net present value of the decommissioning obligations, compared to the year ended December 31, 2014 when the risk free rate was
2.85 percent and the inflation rate was 1.8 percent, resulting in a change in estimate of $21.2 million. Actual costs may differ from
estimated costs due to changes in laws and regulations, timing of costs, changes in technology and market conditions.
The decommissioning obligations acquired pursuant to the February Acquisition and June Acquisition, during the year ended December
31, 2015, were initially recognized using a fair value interest rate of 7 percent. They were subsequently revalued using the risk free rates
of 2.0 percent and 2.3 percent, respectively, resulting in a combined change of $87.6 million.
15. Taxes
Tax expense
The combined provision for taxes in the statement of income (loss) and comprehensive income (loss) reflects an effective tax rate which
differs from the expected statutory rate. The reasons for the difference are as follows:
Income (loss) before taxes
Statutory income tax rate
Expected income tax (recovery)
Add (deduct):
Non-deductible stock-based compensation
Flow-through share liability
Permanent depletion
Rate adjustments
Other
Deferred income tax
Year ended
Dec 31, 2015
($227,702)
26.3%
(59,992)
Year ended
Dec 31, 2014
$13,200
25.6%
3,376
2,340
881
428
2,236
(940)
($55,047)
2,672
672
264
145
(187)
$6,942
As a result of the Alberta corporate tax rate increasing from 10% to 12% effective July 1, 2015, the corporate statutory income tax rate
increased in 2015, such that the combined Federal and Provincial statutory income tax rate increased from 25.6% in 2014 to 26.3% in
2015.
(continued)
TORC Oil & Gas Ltd. 2015 Page 26
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
Deferred tax liability
The following table summarizes the continuity of the deferred tax liability (asset):
E&E and PP&E
Decommissioning obligations
Loss carryforwards
Financial derivatives
Deferred lease incentives
Share issue costs
E&E and PP&E
Decommissioning obligations
Loss carryforwards
Financial derivatives
Deferred lease incentives
Share issue costs
As at
Dec 31, 2013
$80,494
(23,554)
(44,316)
(56)
(116)
(7,052)
$5,400
Recognized in
profit or loss
$7,226
(1,448)
(7,606)
6,348
44
2,378
$6,942
As at
Dec 31, 2014
$91,311
(27,030)
(51,922)
6,292
(72)
(4,951)
$13,628
Recognized in
profit or loss
$12,735
(41,960)
(21,423)
(6,292)
44
1,849
($55,047)
Recognized
in equity
-
-
-
-
-
(277)
($277)
Recognized
in equity
-
-
-
-
-
(3,917)
($3,917)
Asset
acquisition
(note 8)
$2,028
(2,028)
-
-
-
-
-
Asset
acquisition
(note 7)
$43,012
(2,386)
-
-
-
-
$40,626
Flow-through
share premium
$1,563
-
-
-
-
-
$1,563
Flow-through
share premium
$1,925
-
-
-
-
-
$1,925
As at
Dec 31, 2014
$91,311
(27,030)
(51,922)
6,292
(72)
(4,951)
$13,628
As at
Dec 31, 2015
$148,983
(71,376)
(73,345)
-
(28)
(7,019)
($2,785)
As at December 31, 2015, the Company has tax deductions of approximately $1.6 billion (2014: $1.1 billion) available to shelter future
taxable income.
CEE
CDE
COGPE
UCC
Share issue costs
Loss carry forwards (expiring between 2026 to 2033)
As at December 31, 2015
$67,263
154,843
768,176
278,299
25,996
271,650
$1,566,227
As at December 31, 2014
$73,187
170,202
505,353
139,688
19,356
202,990
$1,110,776
TORC Oil & Gas Ltd. 2015 Page 27
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
16. Share capital
The Company has a significant investor, the CPP Investment Board (“CPPIB”). For so long as CPPIB owns greater than 10% of the
outstanding common shares of the Company, it has the right to participate in future offerings of securities by the Company, whether by
way of public offering or private placement. This includes any offering of common shares and securities convertible or exchangeable into
common shares, up to its pro rata ownership interest immediately prior to such offering in the case of a public offering or a private
placement to five or more investors, in order to maintain its pro rata percentage ownership interest in the Company, and up to all of the
offering in the case of a private placement to less than five investors.
Share capital - authorized
At December 31, 2015, the Company was authorized to issue an unlimited number of Class A voting common shares, an unlimited
number of Class B non-voting common shares and an unlimited number of preferred shares. The Company has not issued any Class B
non-voting common shares nor any preferred shares.
Share capital - issued
In conjunction with the June Acquisition described in note 6, TORC secured an equity investment by the Canada Pension Plan
In
Investment Board ("CPPIB") for gross proceeds of $150.0 million through a private placement of 14.85 million common shares.
addition, TORC also closed a bought deal prospectus offering of 28.52 million common shares for gross proceeds of $288.0 million. The
combined gross proceeds were $438.0 million.
In February 2015, the Company closed an acquisition various properties and working interests in its core southeast Saskatchewan area
(the "February Acquisition") described in note 7. Consideration paid was $146.7 million which included the issuance of 16,000,000
common shares valued at $9.17 per share based on TORC's trading price on February 25, 2015 (the date the February Acquisition
closed).
On October 29, 2014, the Company completed an equity financing by issuing 1,441,900 common shares on a flow-through basis at a
weighted average of $13.67 per Common Share for gross proceeds of $19.7 million, before share issue costs. As at December 31, 2015,
the Company had spent the necessary qualifying resource expenditures and there is no further obligation remaining for this financing.
Warrants
On December 17, 2010, the Company closed a private placement to insiders and service providers whereby 5 million units ("Units") were
issued at $4.00 per Unit, for gross proceeds of $20.0 million. Each Unit was comprised of 0.52 common shares, 0.17 common shares
issued on a flow-through basis and 0.7 common share purchase warrants ("Warrants"). Each Warrant entitled the holder to acquire one
common share at a price of $7.18, subject to the following conditions:
●
●
●
●
one-third of the Warrants may be exercised after the Company's stock price (the "Stock Price") exceeds $11.49;
one-third of the Warrants may be exercised after the Company's Stock Price exceeds $14.37;
one-third of the Warrants may be exercised after the Company's Stock Price exceeds $17.24; and
the Stock Price is defined as the weighted average price per share for the 20 consecutive trading days ending immediately before
such date on the Toronto Stock Exchange on which the Company's shares are listed.
In the year ended December 31, 2014, 1,134,244 Warrants were exercised for total cash proceeds of $8.1 million. At December 31,
2014, there were 2.3 million Warrants outstanding of which 1.2 million of the Warrants were exercisable.
In the year ended December
31, 2015, 4,640 Warrants were exercised for total cash proceeds of $0.03 million. All remaining Warrants outstanding or exercisable
expired on December 16, 2015.
TORC Oil & Gas Ltd. 2015 Page 28
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
17. Dividends
(thousands, except
per share amounts)
Dividends declared per share
Cash dividends paid
Dollar value of common shares
ended
December 31,
$0.135
Three months
ended
December 31,
$0.135
Year ended
Dec 31, 2015
$0.54
Year ended
Dec 31, 2014
$0.54
$13,665
$9,499
$49,044
$35,503
issued under the Share Dividend Program
Total dividends
7,965
$21,630
3,460
$12,959
22,964
$72,008
14,832
$50,335
The Company's dividend plan enables common shareholders to elect to receive dividends in common shares rather than cash, calculated
at 95% of the weighted average trading price for the five days immediately prior to the payment date (the "Share Dividend Program").
During the period between January 1, 2016 and March 3, 2016, $10.5 million of dividends have been declared.
Subsequent to December 31, 2015, as a result of continued volatility and uncertainty in commodity prices, the Company reduced its
monthly dividend from $0.045 per common share to $0.02 per common share, commencing with the dividend to be paid on March 15,
2016 to common shareholders.
18. Stock-based compensation
In September 2013, the Company's shareholders approved an award plan (the ‘‘Share Award Plan’’) whereby restricted awards and
performance awards (collectively, ‘‘Share Awards’’) may be granted to the directors, officers and employees of the Company. The
maximum number of common shares issuable under the Share Award Plan, combined with the Company's existing stock option and
incentive share plans, cannot exceed ten percent of the outstanding common shares.
In addition, the combined number of restricted and
performance awards cannot exceed 6.5 percent of the outstanding common shares. Share Awards are earned over various periods,
generally up to three years from the date of grant. Upon being earned, the restricted awards are converted into common shares and
issued from treasury at no cost to the recipient. The performance awards are converted into common shares using a multiplier between
zero and two, dependent on the Company's performance on a set criteria as determined by the Board of Directors.
In the case of both
restricted and performance awards, the number of common shares to be issued on the applicable issue date is adjusted to account for
the payment of dividends from the grant date to the applicable issue date.
Stock options
Stock options granted have a term of five years to expiry and have various vesting periods up to three years. The following table
summarizes the Company's stock option activity:
(thousands, except exercise prices)
Balance at December 31, 2013
Exercised
Balance at December 31, 2014
Forfeited
Balance at December 31, 2015
Exercisable at December 31, 2015
Number of stock
options
1,640
(8)
1,632
(100)
1,532
1,502
Weighted
average
exercise price
$16.38
7.15
$16.43
16.66
$16.42
$16.57
(continued)
TORC Oil & Gas Ltd. 2015 Page 29
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
The following table summarizes stock options outstanding and exercisable at December 31, 2015:
(thousands, unless otherwise noted)
Exercise price:
$7.15 to $9.85
$11.65 to $13.05
$14.94 to $22.99
$7.15 to $22.99
Incentive shares
The following table summarizes incentive share activity:
(thousands)
Balance at December 31, 2013
Common shares issued upon vesting
Balance at December 31, 2014
Common shares issued upon vesting
Balance at December 31, 2015
Convertible into common shares at December 31, 2015
Number
outstanding
Number
exercisable
Weighted
average
remaining term
(years)
31
156
1,345
1,532
18
129
1,355
1,502
2.1
1.8
0.4
0.5
Number of incentive shares
129
(60)
69
(63)
6
-
Incentive shares are earned over various periods, up to three years from the date of grant. Upon being earned, the incentive shares are
converted into common shares and issued from treasury at no cost to the incentive shareholder. The fair value of incentive shares is
deemed to equal the stock price on the date of grant.
Restricted awards
The following table summarizes restricted award activity:
(thousands)
Balance at December 31, 2013
Granted
Adjustment for payment of dividends
Forfeited
Common shares issued upon vesting
Balance at December 31, 2014
Granted
Adjustment for payment of dividends
Forfeited
Common shares issued upon vesting
Balance at December 31, 2015
Convertible into common shares at December 31, 2015
Number of restricted awards
1,249
268
60
(31)
(424)
1,122
622
90
(51)
(519)
1,264
-
(continued)
TORC Oil & Gas Ltd. 2015 Page 30
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
Restricted awards are earned over various periods, generally up to three years from the date of grant. Upon being earned, the restricted
awards are converted into common shares and issued from treasury at no cost to the restricted award holder. The fair value of restricted
awards is deemed to equal the stock price on the date of grant. The number of common shares to be issued upon being earned is
adjusted to account for the payment of dividends from the grant date to the earning date. For the year ended December 31, 2015, the
weighted average fair value of restricted awards granted was $8.82 per restricted award (year ended December 31, 2014: $12.07 per
restricted award). There is no forfeiture rate included in the calculation of fair values of restricted awards granted.
Performance awards
The following table summarizes performance award activity:
(thousands)
Balance at December 31, 2013
Granted
Granted pursuant to performance multiplier (1)
Adjustment for payment of dividends
Forfeited
Common shares issued upon vesting
Balance at December 31, 2014
Granted
Granted pursuant to performance multiplier (1)
Adjustment for payment of dividends
Forfeited
Common shares issued upon vesting
Balance at December 31, 2015
Convertible into common shares at December 31, 2015
Number of performance awards
1,818
474
299
103
(52)
(931)
1,711
1,190
388
144
(86)
(1,188)
2,159
-
(1)
Performance awards granted pursuant to performance multipliers are not further increased or decreased by future performance
multipliers.
Performance awards are earned over various periods, generally up to three years from the date of grant. On the earning date, the
performance awards are converted into common shares and issued from treasury at no cost to the performance award holder, using a
multiplier between zero and two, dependent on the Company's relative performance on a set criteria as determined by the Board of
Directors. The multiplier, which was determined during the earning period, is considered to have been applied at the grant date. The
number of common shares to be issued upon being earned is adjusted to account for the payment of dividends from the grant date to the
earning date. As performance multipliers are known, past grants are adjusted to reflect the multiplier. The fair value of performance
awards is deemed to equal the stock price on the date of grant. For the year ended December 31, 2015, the weighted average fair value
of performance awards granted was $7.13 per performance award (year ended December 31, 2014: $10.94 per performance award).
There is no forfeiture rate included in the calculation of fair values of performance awards granted.
TORC Oil & Gas Ltd. 2015 Page 31
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
19. Earnings per share
Earnings per share amounts are calculated by dividing the net income (loss) for the year attributable to common shareholders of the
Company by the weighted average number of common shares outstanding during the year.
(thousands, except number of common shares and
per share amounts)
Income (loss) for the year
Basic weighted average number of common shares
Diluted weighted average number of common shares
Basic income (loss) per common share
Diluted income (loss) per common share
ended
December 31,
($89,590)
160,472,437
160,472,437
($0.56)
($0.56)
Three months
ended
December 31,
($30,411)
96,087,489
97,815,323
($0.32)
($0.32)
Year ended
Dec 31, 2015
($172,655)
135,726,501
135,726,501
($1.27)
($1.27)
Year ended
Dec 31, 2014
$6,258
93,320,376
95,823,544
$0.07
$0.07
For the year ended December 31, 2015, the diluted number of shares is equivalent to the basic number of shares due to antidilutive stock
options, incentive shares, performance and restricted awards. Therefore, the diluted per share amounts for net loss are equivalent to the
basic per share amounts.
In computing diluted earnings per share for the year ended December 31, 2014, 945,285 warrants, 127,144 stock options, 62,198
incentive shares, 824,772 performance awards and 543,769 restricted awards were added to the basic weighted average common
shares outstanding.
20. Credit facility
At December 31, 2015, the Company had a reserves-based revolving credit facility of $450 million with a syndicate of banks (the "Credit
Facility"), comprised of a $55 million operating facility from the operating lender (the "Operating Facility") and a $395 million syndicated
facility with a syndicate of banks (the "Syndicated Facility"). As at December 31, 2015 the amount drawn from the Credit Facility was
$230.1 million. Advances under the Credit Facility are available by way of direct advances, bankers' acceptances and standby letters of
credit/guarantees. Direct advances bear interest at the prime rate, U.S. base rate or Libor rate, as applicable, plus a margin which is
dependent on the Company's debt to trailing funds flow ratio. The bankers' acceptances bear interest at the applicable bankers'
acceptance rate plus a stamping fee, based on the Company's debt to trailing funds flow ratio.
Both the Syndicated Facility and the Operating Facility are available on a revolving basis until April 28, 2016. On or before April 28, 2016,
at TORC's request and subject to the approval of the lending syndicate, the Credit Facility may be extended for an additional 364 day
period.
In the event of non-extension, the undrawn portion of the Credit Facility will be cancelled and the amount outstanding will convert
to a 364 day non-revolving term facility with repayment of the Credit Facility due on April 28, 2017. The Credit Facility is secured by a
fixed and floating charge debenture on all of the Company's assets.
The borrowing base is primarily based on reserves and commodity prices estimated by the lenders. The borrowing base of the
Company's Credit Facility is subject to review and redetermination by the lenders on a semi-annual basis and in the event of a change in
the Company's borrowing base properties (including due to a disposition of assets beyond certain defined limits or a change which results
In the normal course, the Company's next credit facility evaluation is due to
in a material adverse effect, as determined by the lenders).
be completed by April 28, 2016.
TORC Oil & Gas Ltd. 2015 Page 32
FINANCIAL STATEMENTS
TORC Oil & Gas Ltd.
Notes to the Financial Statements
As at and for the years ended December 31, 2015 and December 31, 2014
(in $000's of Canadian dollars, unless otherwise noted)
21. Financial derivatives
The following table presents a reconciliation of the change in the unrealized amounts for the years ended December 31, 2015 and 2014:
Financial derivative liability at December 31, 2013
Unrealized gain on financial derivatives
Financial derivative asset at December 31, 2014
Unrealized loss on financial derivatives
Financial derivative asset at December 31, 2015
As at December 31, 2015, there were no commodity contracts outstanding.
22. Commitment
Operating lease commitment
Future minimum lease payments for the Company's office space as at December 31, 2015 are as follows:
2016
2017
2018
2019
2020
Total
Fair value
($220)
24,816
$24,596
(24,596)
-
$1,316
1,878
1,926
1,973
1,167
$8,260
TORC Oil & Gas Ltd. 2015 Page 33