SAMSON OIL & GAS LIMITED The following is management's discussion and analysis of certain significant
factors that have affected aspects of our financial position and the results of
operations during the periods included in the accompanying Condensed Financial
Statements. You should read this in conjunction with the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited Financial Statements for the year ended
Throughout this report, a barrel of oil or "Bbl" means a stock tank barrel ("STB") and a thousand cubic feet of gas or "Mcf" means a thousand standard cubic feet of gas ("Mscf").
Overview
We are an independent energy company whose business plan is to acquire, explore
and develop oil, natural gas and natural gas liquids ("NGL's") in
Our financial statements have been prepared on the going concern basis, which
contemplates the continuity of normal business activities and the realization of
assets and settlement of liabilities in the normal course of business. We had
net income of
On
On
On
We are seeking a waiver of our breaches of the Credit Agreement from our Lender and thereafter plan to increase our cash flows from operations through the successful development of the Foreman Butte project and reducing our operating and general and administrative costs. In addition, we have been negotiating a potential transaction to divest substantially all of our oil and gas assets. If those negotiations are successful and the transaction is effected, we believe, it will result in proceeds not less than our obligations under the Credit Agreement and to our vendors.
However, there can be no assurances that we will successfully obtain a waiver, divest our assets or increase our cash flows from operations. Given our current financial situation we may be forced to accept terms on some or all of these transactions that are less favorable than would be otherwise available.
20
--------------------------------------------------------------------------------
Table of Contents
As of the date of this report the Lender has not waived our breaches of the Credit Agreement.
To provide an understanding of our past performance, financial condition and prospects for the future we discuss and provide our analysis of the following:
· Results of operations; · Liquidity and capital resources; · Contractual obligations; · Off balance sheet arrangements; · Critical accounting policies; and · New accounting pronouncements. Fiscal quarter overview Oil, Gas, and NGL Prices
Our financial condition and the results of our operations are significantly affected by the prices we receive for our oil, gas, and NGL production, which can fluctuate dramatically. Our oil and gas are sold under contracts paying us various industry posted prices, adjusted for basis differentials. We are paid the average of the daily settlement price for the respective posted prices for the period in which the product is sold, adjusted for quality, transportation and location differentials.
We expect future prices for oil, gas, and NGLs to continue to be volatile. In addition to supply and demand fundamentals, as a global commodity, the price of oil is affected by real or perceived geopolitical risks in all regions of the world as well as the relative strength of the dollar compared to other currencies. Oil markets continue to be unstable.
Results of Operations
Presented below is a discussion of our results of operations for the three and
nine month periods ended
Net Income (Loss) Applicable to Common Stockholders
Our net income applicable to common stockholders for the nine month period ended
21
--------------------------------------------------------------------------------
Table of Contents
Oil and Gas Producing Activities
The results of our producing oil and gas properties are presented below:
Three Months Ended Nine Months Ended
March 31, March 31,
2020 2019 2020 2019
Sales Volume
Oil (Bbls) 52,474 46,258 194,725 164,655
Natural gas (Mcf) 9,553 5,213 26,144 27,737
BOE (Barrels of oil equivalent - based on
one barrel of oil to six Mcf of natural
gas) 54,066 47,127 199,082 169,278
Sales Price
Realized Oil ($/Bbls) $ 39.07 $ 51.69 $ 46.90 $ 53.72
Impact of settled derivative instruments $ 8.04 $ (9.41) $ 2.86 $ (7.35)
Derivative adjusted price $ 47.09 $ 42.28 $ 49.76 $ 46.37
Expense per BOE:
Lease operating expenses $ 33.53 $ 60.66 $ 41.67 $ 49.26
Depletion, depreciation and amortization
Production taxes, gathering and processing fees as a % of sales Production taxes, gathering and processing fees 8.52% 9.39% 8.82% 8.50%
The following table sets forth results of operations for the following periods:
m
Three Months Ended
March 31,
2020 2019 change
Oil sales $ 2,049,993 $ 2,391,155 $ (341,162)
Gas sales 21,821 84,912 (63,091)
Other liquids 2,754 2,701 53
Total oil and gas income 2,074,568 2,478,768 (404,200)
Lease operating expense 1,812,754 2,858,848 (1,046,094)
Exploration and evaluation expenditure 18,254 11,001 7,253
Abandonment expense 76,260 51,402 24,858
Depletion, depreciation and amortization 546,535 448,927 97,608
Accretion of asset retirement obligations 147,760 368,374 (220,614)
Total oil & gas operating expenses 2,601,563 3,738,552 (1,136,989)
-
Gross loss from oil and gas operations (526,995) (1,259,784) 732,789
General and administrative (506,396) (846,918) 340,522
Interest expense, net (1,405,634) (395,254) (1,010,380)
Realized gain (loss) on derivative instruments 421,650 (435,345) 856,995
Unrealized gain (loss) on derivative instruments 10,227,219 (863,266) 11,090,485
Gain from insurance proceeds 133,317 - 133,317
Other income 8,460 - 8,460
Total other income (expenses) 8,878,616 (2,540,783) 11,419,399
Net loss before income taxes 8,351,621 (3,800,567) 12,152,188
Income tax benefit (loss) - - -
Net income (loss) before income taxes $ 8,351,621 $ (3,800,567) $ 12,152,188
22
--------------------------------------------------------------------------------
Table of Contents
Comparison of three months ended
Our oil sales for the three month periods ended
Lease operating expense decreased
We generally expect absolute production tax expense to trend as a percentage
with our oil, natural gas, and NGL sales revenue, which is typically around 9.0%
of sales revenue. Production taxes as a percentage of revenue for the three
month periods ended
Our depletion, depreciation and amortization ("DD&A") expenses were
We perform assessments of our long-lived assets to be held and used, including oil and gas properties, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. To the extent such assessments indicate a reduction of the estimated useful life or estimated future cash flows of our oil and gas properties, the carrying value may not be recoverable and, therefore, an impairment charge would be required to reduce the carrying value of the proved properties to their fair value.
The cash flow model we use to assess proved properties for impairment includes numerous assumptions. The primary factors that may affect estimates of future cash flows are (i) future reserve adjustments, both positive and negative, to proved reserves and appropriate risk-adjusted probable and possible reserves, (ii) results of future drilling activities, (iii) management's price outlook (iv) increases or decreases in production costs and capital costs associated with those reserves and (v) our ability to fund the capital costs related to undeveloped reserves. All inputs to the cash flow model are evaluated at each measurement date.
There were no charges to impairment expense related to our oil and gas properties based on the assumptions that management used to evaluate the future cash flows.
General and administrative expenses were
Interest expense, net of interest income, for the three month periods ended
We received
23
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth results of operations for the following periods:
m
Nine Months Ended
March 31,
2020 2019 change
Oil sales $ 9,133,048 $ 8,846,003 $ 287,045
Gas sales 73,850 227,653 (153,803)
Other liquids 5,196 11,534 (6,338)
Total oil and gas income 9,212,094 9,085,190 126,904
Lease operating expense 8,295,474 8,339,180 (43,706)
Exploration and evaluation expenditure 32,347 50,311 (17,964)
Abandonment expense 101,676 51,402 50,274
Depletion, depreciation and amortization 2,567,700 1,879,272 688,428
Accretion of asset retirement obligations 388,820 277,356 111,464
Total oil & gas operating expenses 11,386,017 10,597,521 788,496
-
Gross loss from oil and gas operations (2,173,923) (1,512,331) (661,592)
General and administrative (4,082,365) (2,624,788) (1,457,577)
Interest expense, net (3,795,584) (1,150,942) (2,644,642)
Realized gain (loss) on derivative instruments 556,158 (1,210,795) 1,766,953 Unrealized gain on derivative instruments
9,960,050 347,529 9,612,521
Income from forfeiture of non-refundable deposit - 1,000,000 (1,000,000)
Gain from insurance proceeds 513,321 - 513,321
Other income 23,248 - 23,248
Total other income (expenses) 3,174,828 (3,638,996) 6,813,824
Net income (loss) before income taxes 1,000,905 (5,151,327) 6,152,232
Income tax benefit (loss) - - -
Net income (loss) before income taxes $ 1,000,905 $ (5,151,327) $ 6,152,232 Comparison of nine months ended
Our oil sales for the nine month periods ended
Lease operating expense decreased remained flat in the current period compared
to the same period in the prior year. Our largest costs included in lease
operating expense are salt water disposal, environmental and workover expense.
Salt water disposal costs are approximately
We generally expect absolute production tax expense to trend as a percentage
with our oil, natural gas, and NGL sales revenue, which is typically around 9.0%
of sales revenue. Production taxes as a percentage of revenue for the nine month
periods ended
24
--------------------------------------------------------------------------------
Table of Contents
Our depletion, depreciation and amortization ("DD&A") expenses were
We perform assessments of our long-lived assets to be held and used, including oil and gas properties, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. To the extent such assessments indicate a reduction of the estimated useful life or estimated future cash flows of our oil and gas properties, the carrying value may not be recoverable and, therefore, an impairment charge would be required to reduce the carrying value of the proved properties to their fair value.
The cash flow model we use to assess proved properties for impairment includes numerous assumptions. The primary factors that may affect estimates of future cash flows are (i) future reserve adjustments, both positive and negative, to proved reserves and appropriate risk-adjusted probable and possible reserves, (ii) results of future drilling activities, (iii) management's price outlook (iv) increases or decreases in production costs and capital costs associated with those reserves and (v) our ability to fund the capital costs related to undeveloped reserves. All inputs to the cash flow model are evaluated at each measurement date.
There were no charges to impairment expense related to our oil and gas properties based on the assumptions that management used to evaluate the future cash flows.
General and administrative expenses include a charge in the amount of
Interest expense, net of interest income, for the nine month periods ended
We received
Cash Flows
The table below shows cash flows for the following periods:
Nine Months Ended
March 31,
2020 2019
Cash used in operating activities
-
Liquidity, Capital Resources and Capital Expenditures
We do not generate adequate revenue to satisfy our current operations, we
continue to have negative cash flows from operations, and we have incurred
significant net operating losses during the past two fiscal years which raise
substantial doubt about our ability to continue as a going concern. Our
financial statements have been prepared on the going concern basis, which
contemplates the continuity of normal business activities and the realization of
assets and settlement of liabilities in the normal course of business. We are in
breach of several of our covenants related to the Credit Agreement resulting in
our borrowings payable of
Our ability to continue as a going concern is dependent on the re-negotiation of the Credit Agreement, the sale or refinancing of our oil and gas assets and/or raising further capital. These factors raise substantial doubt over our ability to continue as a going concern and therefore whether we will realize our assets and extinguish our liabilities in the normal course of business and at the amounts stated in the financial statements.
25
--------------------------------------------------------------------------------
Table of Contents
We are seeking a waiver of our breaches of the Credit Agreement from our Lender and thereafter plan to increase our cash flows from operations through the successful development of the Foreman Butte project and reducing our operating and general and administrative costs. In addition, we have been negotiating a potential transaction to divest substantially all of our oil and gas assets. If those negotiations are successful and the transaction effected, we believe it will result in proceeds not less than our obligations under the Credit Agreement and to our vendors.
However, there can be no assurances that we will successfully obtain a waiver, divest our oil and gas assets or increase our cash flows from operations. Given our current financial situation we may be forced to accept terms on some or all of these transactions that are less favorable than would be otherwise available.
We used
Cash flows used in investing activities during the nine month period ended
In
Off-Balance Sheet Arrangements
We had no existing off-balance sheet arrangements at
Critical Accounting Policies
Going concern. Our financial statements have been prepared on the going concern
basis, which contemplates the continuity of normal business activities and the
realization of assets and settlement of liabilities in the normal course of
business. We had net income of
We believe that we can negotiate a waiver with our Lender and increase our cash flows from operations through the successful development of the Foreman Butte project and reducing our operating and general and administrative costs. In addition, we are negotiating with a prospective party a transaction to divest all of our oil and gas assets, which we believe, if successful, will result in proceeds not less than our obligations under the Credit Agreement and to our vendors.
However, there can be no assurances that we will successfully obtain a waiver, successfully divest our assets or increase our cash flows from operations. Given our current financial situation we may be forced to accept terms on these transactions that are less favorable than would be otherwise available.
ASC 842, Leases. In
We implemented ASU 2016-02 Leases (Topic 842) ("ASC 842") as of
26
--------------------------------------------------------------------------------
Table of Contents
leases, or (iii) initial direct costs for any existing leases. Additionally, we elected the practical expedient to not evaluate existing or expired land easements not previously accounted for as leases prior to the effective date.
We identified each of our leases and determined the impact of this new guidance
on each of the identified leases. As a result, we recorded a right-of-use asset
and liability associated with operating leases of
Commitments and Contingencies
We may be subject to various other lawsuits and disputes incidental to our business operations, including commercial disputes, personal injury claims, and claims for underpayment of royalties, property damage claims and contract actions.
We record an associated liability when a loss is probable and the amount is reasonably estimable. Although the outcome of litigation cannot be predicted with certainty, management is of the opinion that no pending or threatened lawsuit or dispute incidental to our business operations is likely to have a material adverse effect on our consolidated financial position, results of operations or cash flows. The final resolution of such matters could exceed amounts accrued, however, and actual results could differ materially from management's estimates.
On
© Edgar Online, source
