CROWN POINT ENERGY INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis ("MD&A") of the consolidated financial results of Crown Point Energy Inc. ("Crown Point" or the "Company") is at and for the three and nine months ended September 30, 2023.
This MD&A is dated as of and was approved by the Company's Board of Directors on November 10, 2023 and should be read in conjunction with the Company's unaudited September 30, 2023 condensed interim consolidated financial statements (the "Q3 Financial Statements") and the audited December 31, 2022 consolidated financial statements. The Q3 Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").
The Q3 Financial Statements include the accounts of the Company and its wholly owned subsidiaries, CanAmericas (Argentina) Energy Ltd. and Crown Point Energía S.A.
The functional currency of the Company's two subsidiaries is the United States dollar ("USD"); the functional currency of the Company is the Canadian dollar ("CAD"). The Company's presentation currency is the USD. In this MD&A, unless otherwise noted, all dollar amounts are expressed in USD. References to "ARS" are to Argentina Pesos.
Throughout this MD&A and in other materials disclosed by the Company, we adhere to IFRS, however the Company also employs certain non-IFRS measures to analyze financial performance, financial position, and cash flow, including "operating netback". Additionally, other financial measures are also used to analyze performance. These non-IFRS and other financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures provided by other issuers. The non-IFRS and other financial measures should not be considered to be more meaningful than financial measures which are determined in accordance with IFRS, such as net income (loss), oil and natural gas sales revenue and net cash provided by (used in) operating activities, as indicators of our performance. This MD&A also contains oil and natural gas information, abbreviations and forward-looking information relating to future events and the Company's future performance. Please refer to "Non-IFRS and Other Financial Measures", "Abbreviations and BOE Presentation" and "Advisories" sections at the end of this MD&A for further information.
Additional information relating to Crown Point, including Crown Point's Q3 Financial Statements, audited December 31, 2022 consolidated financial statements and other filings are available on SEDAR+ at www.sedarplus.ca.
In the following discussion, the three and the nine months ended September 30, 2023 may be referred to as "Q3 2023" and "the September 2023 period", respectively, and as "the 2023 periods" collectively. The comparative three and nine months ended September 30, 2022 may be referred to as "Q3 2022" and "the September 2022 period", respectively, and as "the 2022 periods", collectively. The previous three-month period ended June 30, 2023 may be referred to as "Q2 2023".
CORPORATE OVERVIEW AND STRATEGY
Crown Point (TSX-V:CWV) is a Calgary-based junior international oil and gas company with producing assets and an opportunity base in three producing basins in Argentina: the Austral basin in the Province of Tierra del Fuego ("TDF") and the Neuquén and Cuyo (or Cuyana) basins, in the Province of Mendoza.
The Company's strategy is designed to deliver low-risk growth and capitalize on large potential exploration upside. Specifically, Crown Point is focused on increasing its production base in TDF and Mendoza through exploration and development drilling supplemented by recompletion and fracture stimulation of select older producing wells. The Company's production is derived from its participating interest in the Rio Cullen, Las Violetas and La Angostura exploitation concessions in TDF (the "TDF Concessions"), the Chañares Herrados concession in Mendoza (the "CH Concession" or "CH") and the Puesto Pozo Cercado Oriental concession in Mendoza (the "PPCO Concession" or "PPCO"). CH and PPCO may be referred to collectively as the Mendoza Concessions.
Crown Point is also conducting an exploration program in its 100% interest in the Cerro de Los Leones ("CLL") exploration concession permit (the "CLL Permit") in the Province of Mendoza.
OPERATIONAL UPDATE
TDF Concessions
The Company, along with its joint venture partners, is reviewing the schedule to complete the remaining 15% of the oil pipeline from the Cruz del Sur oil storage facility to the Rio Cullen marine terminal operated by Total Austral. In the meantime, Crown Point and its joint venture partners are exporting oil by truck to the ENAP refinery at San Gregorio, Chile, and to the Total Austral facilities in Rio Cullen. Crude oil trucked to both San Gregorio and Rio Cullen is sold at a discount to the Brent oil price.
During Q3 2023, San Martin oil production averaged 502 (net 174) bbls of oil per day. During Q2 2023, the SM.a-1003 well was converted to a disposal well to capture formation water from the San Martin field. It has been used to inject formation water since June 17, 2023. During Q3 2023, the SM.a-1003 well injected at a rate of 4,403 (net 1,529) bbls of water per day, managing the disposal of water produced from the TDF Concessions and thereby reducing the associated trucking and water treatment costs.
During Q3 2023, natural gas sales from the Las Violetas concession averaged 9,005 (net 3,128) mcf per day and oil production averaged 259 (net 90) bbls of oil per day.
Mendoza Concessions
During Q3 2023, the UTE carried out workovers on four oil wells in the CH Concession. Oil production from the CH Concession for Q3 2023 averaged 1,066 (net 533) bbls of oil per day.
During Q3 2023, the UTE carried out workovers on two oil wells and one injector well in the PPCO Concession. Oil production from the PPCO Concession for Q3 2023 averaged 230 (net 115) bbls of oil per day.
CLL Permit
In February 2023, the Province of Mendoza issued Resolution N°208 which formally granted the CLL Permit over the CLL area for a term of 18 months until October 23, 2023.
The Company is in conversations with the Province of Mendoza for the extension of the CLL Permit or other alternatives for the CLL Permit, including the potential compensation of the Company's only outstanding commitment, consisting of a well repair, with working units performed by the Company in excess during the exploration period of the CLL Permit.
OUTLOOK
Capital Spending - Developed and Producing Assets included in Property and Equipment
Previous guidance | Updated guidance | ||
for 2023 | for 2023 | Explanation | |
TDF Concessions ($) | 1.1 million | 0.9 million | Updated estimation of the facilities |
improvements cost | |||
Reschedule of drilling program into 2024 and | |||
updated estimation of drilling and workover | |||
Mendoza Concessions ($) | 11.7 million | 6.5 million | capital expenditures. |
12.8 million | 7.4 million |
The Company's capital spending on developed and producing assets for fiscal 2023 is budgeted at approximately $7.4 million. During the September 2023 period, the Company incurred $4.9 million of capital expenditures comprised of $0.4 million in the TDF Concessions and $4.5 million in the Mendoza Concessions.
The Company intends to spend the remaining $2.5 million during the last quarter of 2023 on expenditures for the following proposed activities:
- $0.5 million for improvements to facilities in the TDF Concessions; and
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Crown Point Energy Inc. September 30, 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
- $2.0 million for well workovers in the Mendoza Concessions.
The Company's capital spending on developed and producing assets for fiscal 2024 is budgeted at approximately $20.0 million based on expenditures for the following proposed activities:
- $0.2 million on improvements to facilities in the TDF Concessions;
- $15.0 million to drill five vertical wells in the Mendoza Concessions;
- $1.8 million for well workovers in the Mendoza Concessions; and
- $3.0 million for facilities improvements and optimization in the Mendoza Concessions. Capital Spending - Exploration and Evaluation Assets
The Company plans to spend $0.5 million on the testing of the gas bearing sandstone layers of the Neuquén Group at CLL during 2023.
Crown Point expects to fund its capital spending, along with its other anticipated expenses, using cash held in bank accounts, cash flow from operations and/or new debt. See the Liquidity and Capital Resources section of this MD&A.
Argentina - Economic Summary
The International Monetary Fund ("IMF") Executive Board has completed the fifth and sixth reviews of Argentina's 30-month Extended Fund Facility ("EFF"). Since the completion of the fourth review, key program targets have been missed reflecting the historic drought in Argentina along with policy slippages. Against the backdrop of high inflation and rising balance of payments pressures, an agreement was reached on a new policy package centered on rebuilding reserves and enhancing fiscal order. Continued strong policy implementation will be critical in the period ahead to safeguard stability and strengthen medium-term sustainability.
In October 2023, general elections were held in Argentina to elect the president, vice president, members of the national congress, and the governors of most provinces. As a result, Sergio Massa, the actual Economy Minister, and Javier Milei, from the libertarian block, will go to a run-off vote on November 19, 2023, the winner of which will take the presidency from mid-December 2023.
During the last few months, Argentina's economic situation has become very challenging. Inflation rates continue to climb, reaching 103.2% in the September 2023 period and 138.3% during the 12-month period ending September 30, 2023.
Commodity Prices
Oil
Oil from the Company's TDF Concessions is sold at a discount to the Brent oil price. Oil from the Company's Mendoza Concessions is sold at a price negotiated with the customer. During Q3 2023, the Company received an average of $69.43 per bbl for its TDF oil, all of which was exported and $57.16 per bbl for oil from the Mendoza Concessions, all of which was sold to the domestic market.
Natural gas
Crown Point can sell its natural gas production to both industrial and residential consumers. During Q3 2023, the Company received an average of $6.77 per mcf for its TDF natural gas, all of which was sold to the industrial market.
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Crown Point Energy Inc. September 30, 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL INFORMATION
SUMMARY OF FINANCIAL INFORMATION
(expressed in $, except shares outstanding) | September 30 | December 31 | December 31 | |
2023 | 2022 | 2021 | ||
Current assets | 7,791,757 | 9,852,182 | 10,261,684 | |
Current liabilities | (14,645,097) | (11,125,229) | (7,335,026) | |
Working capital (3) | (6,853,340) | (1,273,047) | 2,926,658 | |
Exploration and evaluation assets | 14,115,371 | 14,115,555 | 12,210,949 | |
Property and equipment | 42,360,780 | 43,963,610 | 35,536,342 | |
Total assets | 64,426,315 | 68,183,547 | 58,308,535 | |
Non-current financial liabilities (1)(3) | 17,014,523 | 16,055,005 | 3,803,031 | |
Share capital | 56,456,328 | 56,456,328 | 56,456,328 | |
Total common shares outstanding | 72,903,038 | 72,903,038 | 72,903,038 |
(expressed in $, except shares outstanding) | Three months ended | Nine months ended | ||
September 30 | September 30 | |||
2023 | 2022 | 2023 | 2022 | |
Oil and natural gas sales revenue | 7,400,992 | 10,751,784 | 21,235,332 | 24,453,878 |
Gain on acquisition of working interest | - | (1,046,626) | - | (1,046,626) |
Loss before taxes | (2,084,976) | (469,506) | (7,751,038) | (2,604,912) |
Net loss | (2,027,637) | (884,657) | (6,031,549) | (3,194,246) |
Net loss per share (2) | (0.03) | (0.01) | (0.08) | (0.04) |
Net cash (used) provided by operating activities | 2,144,720 | 2,749,800 | 2,453,571 | 1,164,437 |
Net cash per share - operating activities (2)(3) | 0.03 | 0.04 | 0.03 | 0.02 |
Funds flow (used) provided by operating activities | 622,333 | 1,182,335 | (501,188) | 2,875,609 |
Funds flow per share - operating activities (2)(3) | 0.01 | 0.02 | (0.01) | 0.04 |
Weighted average number of shares - basic and diluted | 72,903,038 | 72,903,038 | 72,903,038 | 72,903,038 |
- Non-currentfinancial liabilities are comprised of the non-current portions of trade and other payables, notes payable and lease liabilities. The total amount of notes payable at September 30, 2023 is $22,034,071, of which $6,301,732 is classified as current (December 31, 2022 - $14,542,382 of which $7,233 is classified as current; December 31, 2021 - $5,379,245, of which $2,169,965 was classified as current). The total amount of lease liabilities at September 30, 2023 is $1,087,172 of which $508,883 is classified as current (December 31, 2022 - $1,455,890, of which $483,527 was classified as current; December 31, 2021 - $319,913 of which $76,900 was classified as current). The total amount of contingent consideration liability at September 30, 2023 is $412,180 of which $nil is classified as current and is included in trade and other payables (December 31, 2022 - $632,068 of which $219,888 is classified as current and included in trade and other payables; December 31, 2021 - $81,259, all classified as current and included in trade and other payables).
- All per share figures are based on the basic weighted average number of shares outstanding in the period. The effect of options is anti-dilutive in loss periods. Per share amounts may not add due to rounding.
- "Working capital" is a capital management measure. "Non-current financial liabilities" is a supplemental financial measure. "Net cash per share - operating activities" is a supplemental financial measure. "Funds flow per share - operating activities" is a supplemental financial measure. See "Non-IFRS and Other Financial Measures" for additional disclosures.
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Crown Point Energy Inc. September 30, 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Operating Netback
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2023 | 2022 | 2023 | 2022 | |
Oil and natural gas sales revenue ($) | 7,400,992 | 10,751,784 | 21,235,332 | 24,453,878 |
Export tax ($) | (139,494) | (470,681) | (377,964) | (892,217) |
Royalties and turnover tax ($) | (1,299,685) | (2,053,781) | (3,557,850) | (4,207,109) |
Operating costs ($) | (4,793,415) | (4,948,226) | (15,048,736) | (11,473,732) |
Operating netback (1) ($) | 1,168,398 | 3,279,096 | 2,250,782 | 7,880,820 |
- "Operating netback" is a non-IFRS measure. See "Non-IFRS and Other Financial Measures".
Per BOE, except total BOE sales volumes | Three months ended | Nine months ended | ||
September 30 | September 30 | |||
2023 | 2022 | 2023 | 2022 | |
Total BOE sales volumes | 138,243 | 171,446 | 407,863 | 433,763 |
Oil and natural gas sales revenue ($) | 53.54 | 62.71 | 52.06 | 56.38 |
Export tax ($) | (1.01) | (2.75) | (0.93) | (2.06) |
Royalties and turnover tax ($) | (9.40) | (11.98) | (8.72) | (9.70) |
Operating costs ($) | (34.67) | (28.86) | (36.90) | (26.45) |
Operating netback (1) ($) | 8.46 | 19.12 | 5.51 | 18.17 |
- "Operating netback per BOE" is a non-IFRS ratio. See "Non-IFRS and Other Financial Measures".
Variances in the operating netback for Q3 2023 as compared to Q3 2022 are explained by changes in sales volumes and revenues, export taxes, royalties and turnover tax and operating costs as detailed below.
Sales Volumes and Sales Revenues
Three months ended | Nine months ended | |||
Sales volumes | September 30 | September 30 | ||
2023 | 2022 | 2023 | 2022 | |
Light oil (bbls) | 88,507 | 118,623 | 256,845 | 272,766 |
NGL (bbls) | 1,770 | 1,479 | 4,818 | 2,717 |
Natural gas (mcf) | 287,803 | 308,068 | 877,198 | 949,677 |
Total BOE | 138,243 | 171,446 | 407,863 | 433,763 |
Light oil bbls per day | 962 | 1,289 | 941 | 999 |
NGL bbls per day | 19 | 16 | 18 | 10 |
Natural gas mcf per day | 3,128 | 3,349 | 3,213 | 3,479 |
Total BOE per day | 1,502 | 1,863 | 1,495 | 1,589 |
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Crown Point Energy Inc. September 30, 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
Three months ended | Nine months ended | |||
Sales revenue | September 30 | September 30 | ||
2023 | 2022 | 2023 | 2022 | |
Light oil ($) | 5,410,358 | 8,858,920 | 16,217,489 | 20,018,169 |
NGL ($) | 42,484 | 53,362 | 175,375 | 110,904 |
Natural gas ($) | 1,948,150 | 1,839,502 | 4,842,468 | 4,324,805 |
Total sales revenue | 7,400,992 | 10,751,784 | 21,235,332 | 24,453,878 |
Light oil per bbl ($) | 61.13 | 74.68 | 63.14 | 73.39 |
NGL per bbl ($) | 24.00 | 36.08 | 36.40 | 40.82 |
Natural gas per mcf ($) | 6.77 | 5.97 | 5.52 | 4.55 |
Total sales revenue per BOE ($) | 53.54 | 62.71 | 52.06 | 56.38 |
Sales Volumes
During Q3 2023, the Company's average daily sales volumes were 1,502 BOE per day, higher than 1,415 BOE per day in Q2 2023 due to higher oil sales in both the TDF Concessions and the Mendoza Concessions and lower than 1,863 BOE per day in Q3 2022 mainly due to lower oil sales in the TDF Concessions.
Sales volumes were weighted as follows:
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2023 | 2022 | 2023 | 2022 | |
Light oil | 64% | 69% | 63% | 63% |
NGL | 1% | 1% | 1% | 1% |
Natural gas | 35% | 30% | 36% | 36% |
Total | 100% | 100% | 100% | 100% |
Production Volumes
Average daily production volumes for Q3 2023 were 1,452 BOE per day, slightly higher than 1,421 BOE per day in Q2 2023 and lower than 1,748 BOE per day in Q3 2022 mainly due to lower production volumes in the San Martin field in the TDF Concessions caused by the increase in water production and the interventions needed to stabilize the oil production combined with the natural decline rates on natural gas wells.
Three months ended | Nine months ended | |||
Production volumes | September 30 | September 30 | ||
2023 | 2022 | 2023 | 2022 | |
Light oil (bbls) | 83,910 | 108,223 | 250,199 | 320,756 |
NGL (bbls) | 1,710 | 1,323 | 4,502 | 2,488 |
Natural gas (mcf) | 287,803 | 308,068 | 877,198 | 949,677 |
Total BOE | 133,587 | 160,891 | 400,901 | 481,523 |
Light oil bbls per day | 912 | 1,176 | 916 | 1,175 |
NGL bbls per day | 19 | 14 | 16 | 9 |
Natural gas mcf per day | 3,128 | 3,349 | 3,213 | 3,479 |
Total BOE per day | 1,452 | 1,748 | 1,468 | 1,764 |
All of the Company's natural gas production is sold in the period produced, therefore natural gas sales volumes equal production volumes.
Oil (and related NGL) production from TDF may be either (1) stored then shipped for sale to the domestic market and/or international brokers for export or (2) trucked and sold to Chile. The sale of crude oil
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Crown Point Energy Inc. September 30, 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
transported by ship from TDF can be impacted by intermittent shipments due to storage levels and weather conditions and/or by delivery restrictions arising as a result of repair and maintenance activities at the shipping terminal.
Oil production from the Mendoza Concessions is sold to the domestic market and may be stored and then trucked to the delivery point in Tupungato, Mendoza.
Oil and NGL sales volumes may include both previously inventoried volumes as well as current period production.
As at September 30, 2023, all previously inventoried oil production had been sold as well as a portion of oil produced in Q3 2023, with excess oil production stored in inventory for sale in subsequent months.
For the nine months ended | Oil | NGL | |||||||
September 30 | 2023 | 2022 | 2023 | 2022 | |||||
bbls per | bbls per | bbls per | bbls per | ||||||
bbls | day | bbls | day | bbls | day | bbls | day | ||
Inventory, January 1 | 39,364 | 8,480 | 2,446 | 2,298 | |||||
PPCO acquisition, July 1 | - | 318 | - | - | |||||
Production | 250,199 | 916 | 320,756 | 1,175 | 4,502 | 16 | 2,488 | 9 | |
Sales | (256,845) | (941) | (272,767) | (999) | (4,818) | (18) | (2,717) | (10) | |
Inventory, September 30 | 32,718 | 56,787 | 2,130 | 2,069 | |||||
Revenues and Pricing
Revenue per BOE earned in Q3 2023 was approximately $53.54 per BOE, higher than revenue per BOE of $52.33 earned in Q2 2023 due mainly to the increase in gas prices, and lower than $62.71 per BOE earned in Q3 2022 due to a year-over-year decrease in domestic and export oil prices.
The price earned by the Company on TDF natural gas sales in Q3 2023 averaged $6.77 per mcf, higher than $5.51 per mcf earned in Q2 2023 and higher than $5.97 per mcf earned in Q3 2022. The price of natural gas earned by the Company varies with the composition of sales to the residential and industrial markets and price fluctuations within each market. 100% of sales were to the industrial market in both the 2023 periods and 2022 periods.
Oil from Crown Point's concessions earned $61.13 per bbl in Q3 2023, lower than $63.95 per bbl in Q2 2023 and $74.68 per bbl in Q3 2022 due to a decrease in oil prices for domestic and export oil sales.
During Q3 2023, the Company earned $24.00 per bbl on TDF NGL sales as compared to $60.07 per bbl earned in Q2 2023 and $36.08 per bbl earned in Q3 2022.
Export Tax
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2023 | 2022 | 2023 | 2022 | |
Export tax ($) | 139,494 | 470,681 | 377,964 | 892,217 |
Export tax as a % of TDF oil sales revenue | 7% | 9% | 7% | 8% |
TDF export tax per BOE ($) | 1.01 | 2.75 | 0.93 | 2.06 |
The Government of Argentina imposes an export tax on all goods exported from Argentina. The Company recognizes export taxes related to TDF oil sales to the export market. The rate of export tax is determined by a formula based on the price of Brent oil, ranging from 0% when the price of Brent oil is at or below $45 per bbl to a maximum of 8% when the price of Brent oil is at or higher than $60 per bbl.
Q3 2022 export tax of 9% is due to certain TDF export tax adjustments related to previous quarters.
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Crown Point Energy Inc. September 30, 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
Royalties and Turnover Tax
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2023 | 2022 | 2023 | 2022 | |
Provincial royalties and turnover tax ($) | 1,299,685 | 2,053,781 | 3,557,850 | 4,207,109 |
Royalties and turnover tax as a % of total | ||||
sales revenue | 17.6% | 19.1% | 16.8% | 17.2% |
Royalties and turnover tax per BOE ($) | 9.40 | 11.98 | 8.72 | 9.70 |
The base royalty rate for revenue from the TDF Concessions is 15% plus turnover tax at an average rate of 2% on revenues for which the base royalty is paid in cash rather than in-kind. Variances in TDF royalties are also impacted by commodity prices over certain thresholds which may increase the base rate by 0.5% increments and by the level of export sales volumes which bear an additional royalty of 2% compared to domestic sales which carry a 1% royalty.
Under the terms of the CH exploitation license agreement, the Company pays a 13% royalty on oil production from the CH Concession plus turnover tax at an average rate of 3% on revenues.
Under the terms of the PPCO exploitation license agreement, the Company pays an 18.2% royalty on oil production from the PPCO Concession plus turnover tax at an average rate of 3% on revenues.
Operating Costs
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2023 | 2022 | 2023 | 2022 | |
Production and processing ($) | 3,980,634 | 3,956,912 | 12,304,042 | 9,598,801 |
Transportation and hauling ($) | 812,781 | 991,314 | 2,744,694 | 1,874,931 |
Total operating costs ($) | 4,793,415 | 4,948,226 | 15,048,736 | 11,473,732 |
Production and processing per BOE ($) | 28.79 | 23.08 | 30.17 | 22.13 |
Transportation and hauling per BOE ($) | 5.88 | 5.78 | 6.73 | 4.32 |
Operating costs per BOE ($) | 34.67 | 28.86 | 36.90 | 26.45 |
Production and processing costs per BOE in the 2023 periods are higher than those incurred in the 2022 periods, mainly due to a greater quantity of well repair services required in both the TDF and Mendoza Concessions and cost increases related to labor, supervision and repairs and maintenance combined with a decrease in sales volumes which increased fixed costs per BOE.
Transportation and hauling costs consist of contracted services hired to perform vacuum truck and transportation activities for crude oil. Transportation and hauling costs per BOE are higher in the 2023 periods than in the 2022 periods due to increases in the cost of trucking oil to the ENAP refinery at San Gregorio, Chile.
Gas Processing Income
During Q3 2023 and the September 2023 period, the Company recognized $64,507 and $191,658, respectively, of gas processing income as compared to $71,536 and $172,192 during Q3 2022 and the September 2022 period, respectively.
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Crown Point Energy Inc. September 30, 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
G&A Expenses
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2023 | 2022 | 2023 | 2022 | |
Salaries and benefits ($) | 375,178 | 417,502 | 1,178,907 | 1,490,231 |
Professional fees ($) | 158,743 | 161,663 | 493,135 | 572,380 |
Office and general ($) | 57,145 | 146,360 | 328,285 | 369,693 |
Travel and promotion ($) | 14,178 | 33,363 | 47,912 | 138,175 |
605,244 | 758,888 | 2,048,239 | 2,570,479 | |
Salaries and benefits are lower in Q3 2023 than in Q3 2022 due mainly to the devaluation of the ARS and are lower in the September 2023 period than in the September 2022 period mainly due to a retirement allowance paid in Q1 2022 pursuant to the terms of the employment agreement with the former President and Chief Executive Officer who retired in March 2022, to bonuses granted in Q2 2022 combined with the devaluation of the ARS during 2023.
Professional fees include reserve reports fees, consulting fees for financial reporting and investor relations services, legal and consulting fees related to assistance with the preparation of various documents for regulatory compliance and consulting fees related to geological and engineering assistance. Professional fees are lower in the 2023 periods than in the 2022 periods due mainly to a reduction in legal services.
Office and general expenses are lower in Q3 2023 and the September 2023 period than in Q3 2022 and the September 2022 period due to cost-savings efforts.
Travel and promotion expenses are lower in the 2023 periods than in the 2022 periods due mainly to reduced travel between Canada and Argentina.
Depletion and Depreciation
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2023 | 2022 | 2023 | 2022 | |
Depletion ($) | 1,784,754 | 1,980,998 | 5,302,052 | 4,870,997 |
Depreciation ($) | 140,847 | 37,330 | 422,271 | 81,766 |
1,925,601 | 2,018,328 | 5,724,323 | 4,952,763 | |
Depletion rate per BOE ($) | 12.91 | 11.55 | 13.00 | 11.23 |
Depletion rates reflect the all-in combined charge of drilling operations, various asset acquisitions and investments in facilities and gathering systems. Office furniture, equipment and other assets are recorded at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using a straight-line basis over 3 to 10 years for Argentina office furniture and equipment and a straight- line basis over the term of the lease for leasehold improvements and right-of-use assets.
The depletion rate per BOE is higher in the 2023 periods than in the 2022 periods due mainly to the decrease of the proved plus probable reserves of the TDF Concessions and the effect of the acquisition of the PPCO Concession in Q3 2022. The decrease in TDF proved and probable reserves is attributable to the absence of a drilling campaign to replace 2022 oil and gas production.
Depreciation expense is higher in the 2023 periods than in the 2022 periods due to the addition of depreciable right-of-use assets in the latter part of 2022.
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Crown Point Energy Inc. September 30, 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
Share-based Payments
During Q3 2023 and the September 2023 period, the Company recognized $nil and $16,148 (Q3 2022 and the September 2022 period - $10,165 and $64,961) respectively, of share-based payment expense.
As at September 30, 2023, the balance of unvested share-based payments was $nil.
Foreign Exchange Gain (Loss)
Foreign exchange gains (losses) reported in the consolidated statement of (loss) income and comprehensive (loss) income occur as a result of translation of foreign denominated monetary assets and liabilities to the functional currency of the respective entity and the related currency fluctuations between the CAD and the USD and the USD and the ARS.
September 30 | December 31 | |
Exchange rates as at: | 2023 | 2022 |
CAD to USD (1) | 0.7396 | 0.7383 |
ARS to USD (2) | 0.0029 | 0.0056 |
USD to ARS (2) | 349.45 | 177.06 |
- Source Bank of Canada (2) Source BNA (National Bank of Argentina)
In Crown Point, the translation of USD denominated foreign net monetary liabilities to CAD during the September 2023 period resulted in a foreign exchange loss of approximately $18,800 (September 2022 period - $60,600 foreign exchange gain).
Notwithstanding that the functional currency of the Company's Argentine subsidiary is the USD, a portion of monetary assets and liabilities such as certain accounts receivable, accounts payable and loans are denominated in ARS and re-measured into the functional currency at each reporting date, making net monetary assets and liabilities somewhat sensitive to currency fluctuations.
In the Argentine subsidiary, the translation of ARS denominated net monetary liabilities to USD during the September 2023 period resulted in a foreign exchange gain of approximately $649,400 (September 2022 period - $1,122,000 foreign exchange loss).
Currency devaluation in Argentina partially impacts the cost of ARS denominated items which are translated to the USD functional currency of the Argentine subsidiary. A portion of the Company's operating costs and general and administrative expenses incurred in Argentina are denominated in ARS and are also subject to inflation adjustments. During the September 2023 period, the devaluation of ARS resulted in lower operating costs and general and administrative expenses incurred in Argentina by approximately 26% (September 2022 period- devaluation of ARS; lower by 18%), offset by cost increases related to inflation.
During the September 2023 period, the devaluation of ARS resulted in a reduction in the USD equivalent of ARS denominated foreign currency denominated financial instruments, excluding loans and notes payable, by approximately $2.1 million (September 2022 period - devaluation of ARS; reduction by approximately $0.7 million).
The effect of currency devaluation on ARS denominated loans during the September 2023 period was a $1.8 million reduction in the USD equivalent amount (September 2022 period - $1.9 million reduction in the USD equivalent amount of loans and notes payable).
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Crown Point Energy Inc. September 30, 2023 MANAGEMENT'S DISCUSSION AND ANALYSIS
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Crown Point Energy Inc. published this content on 10 November 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 November 2023 20:14:58 UTC.
