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PetroFrontier Corp. Management Reports 2024
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Management Reports
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PetroFrontier
Management’s Discussion & Analysis
September 30, 2024
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
PetroFrontier Corp. (the "Corporation") is a public company, which is engaged in the business of exploring and developing petroleum and natural gas properties in western Canada. The Corporation has a fiscal year end of December 31.
This Management's Discussion & Analysis ("MD&A") is a review of how the Corporation performed during the period covered by the condensed interim consolidated financial statements (the "Interim Statements") and of the Corporation's financial condition and future prospects. The MD&A complements and supplements the Interim Statements of the Corporation and should be read in conjunction with the Corporation's Interim Statements and the related notes for the nine months ended September 30, 2024 and the audited consolidated financial statements for the year ended December 31, 2023. The Interim Statements have been prepared in Canadian dollars in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"), which are also generally accepted accounting principles ("GAAP") for publicly accountable enterprises in Canada.
The Corporation's Board of Directors has reviewed and approved the consolidated financial statements and MD&A, both of which are effective November 28, 2024.
Forward-Looking Statements
Certain statements contained in this document, including Management's assessment of the Corporation's future plans and operations, may constitute forward-looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "plan" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Corporation, or industry results, to differ materially from those expressed or implied by such forward-looking statements. The Corporation believes the expectations reflected in these forward-looking statements are based on reasonable assumptions but no assurance can be given that these expectations will prove to be correct and the forward-looking statements included in this document should not be unduly relied upon. These statements speak only as of the date of this document.
Non-IFRS Measures
The financial data presented herein has been prepared in accordance with IFRS. The Corporation has also used certain measures of financial reporting that are commonly used as benchmarks within the oil and natural gas production industry in the following MD&A discussion. The measures are widely accepted measures of performance and value within the industry and are used by investors and analysts to compare and evaluate oil and natural gas exploration and producing entities. The most notable measure is "operating netback" which is a benchmark used in the crude oil and natural gas industry to measure the contribution of oil and natural gas sales calculated by deducting royalties and operating expenses and adding back lease rentals from non-producing properties from revenues on a dollar basis, divided by total production for the period on a boe or bbl basis. This measure is not defined under IFRS and should not be considered in isolation or as an alternative to conventional IFRS measures. This measure and its underlying calculations are not necessarily comparable or calculated in an identical manner to a similarly titled measure of another entity. When this measure is used, it is defined as "non IFRS" and should be given careful consideration by the reader.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Notes
Any note references correlate to the Corporation’s Q3-24 condensed interim consolidated financial statements. Other terms used in this report are as follows:
- bbl – barrel
- WTI – West Texas Intermediate (a light oil reference price)
- bbls/d – barrels per day
- WCS – Western Canadian Select (a heavy oil reference price)
- CHOPS – Cold heavy oil produced with sand
- API – American Petroleum Institute
Corporate Overview
The Corporation is engaged in exploring for, and the production of, petroleum and natural gas in western Canada. The current core properties are Cold Lake and Wabasca, both conventional heavy oil projects.
Significant events which may impact the Corporation are described below in the section Subsequent Events.
The Corporation has two wholly-owned inactive Australian subsidiaries, PetroFrontier (Australia) Pty Ltd and Texalta (Australia) Pty Ltd (collectively “PetroFrontier (Australia)”). When used herein, the term “Corporation” includes PetroFrontier (Australia) on a consolidated basis.
The Corporation operates from its offices located at 700, 903 – 8 Avenue SW, Calgary, Alberta, T2P 0P7.
The common shares of the Corporation trade on the TSX Venture Exchange under the trading symbol “PFC”.
Overview of Consolidated Financial Results
The following selected financial data is derived from the audited consolidated financial statements of the Corporation and reference should be made to such financial statements for the nine months ended and as at September 30
| Three Months ended September 30, | Nine Months ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Loss and comprehensive loss | $ (918,151) | $ (588,154) | $ (2,250,249) | $ (1,719,852) |
| Per common share (basic and diluted) | (0.00) | (0.00) | (0.01) | (0.01) |
| Working capital deficiency | (12,740,043) | (3,830,731) | (12,740,043) | (3,830,731) |
| Total assets | 21,066,668 | 27,871,455 | 21,066,668 | 27,871,455 |
| Total long-term liabilities | 6,621,534 | 11,103,998 | 6,621,534 | 11,103,998 |
| Shareholders' deficiency | $ (3,073,911) | $ 10,841,944 | $ (3,073,911) | $ 10,841,944 |
The Corporation’s net loss is discussed further in the section “Discussion of Operations” and the working capital deficiency is discussed under “Liquidity and Capital Resources”.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Outlook and Current Environment
Since announcing the agreement between PetroFrontier and DeerGarden Resources Inc., to form a limited partnership pertaining to the development of all the Corporation's interests at Cold Lake, both companies, along with our Cold Lake First Nations joint venture partner, have been preparing for the anticipated transition. All definitive agreements have been executed as have creditor consents and First Nation partner approval of the limited partnership arrangement along with all necessary continuations and extensions of mineral interests for the Limited Partnership to carry out its $14 million capital program. Closing only remains subject to final regulatory approvals including that of the TSX Venture Exchange.
With a view to moving forward, the companies are, in continuing consultation with our partner and have been working on plans to enhance the economically, culturally and environmentally responsible development of the Cold Lake First Nations' heavy oil resource for the benefit of all stakeholders. While the process of transitioning to the limited partnership arrangement will take time, both parties are confident that, with the $14 million capital commitment going directly into development along with the enhanced operational and technical capacity provided through the new partnership with DeerGarden, we will see a significant increase in production and reduction in operating costs at Cold Lake over the next 12 months and beyond. We look forward to providing an update in this regard in the first quarter of 2025.
With respect to our previously announced efforts at Wabasca, we continue to work closely with the Korean Institute of Geoscience and Mineral Resources ("KIGAM") to advance a technically and environmentally leading thermal project. Such a project requires a combined, multi-faceted effort. Significant and meaningful partner consultation and contribution regarding planning and execution of this endeavor is paramount and we continue to work hard toward commencement of initial field development of this project, including continued research and testing. We hope to commence field development with a stratigraphic well followed by an initial pilot well pair as soon as all requisite approvals are obtained.
As the old saying goes, "good things take time". However, management believes it now has the right partners with the necessary capital as well as operational and technical capacity to optimize the interests of PetroFrontier in a manner that will result in significant returns to our stakeholders. All these efforts would not be possible without the support of our joint venture partners and stakeholders as well as our major capital and credit providers who we thank for their continuing patience and support.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Core Properties and Joint Ventures
Cold Lake, Alberta
The Corporation has interests in approximately 7.8 gross (7 net) sections arising under several joint operations with the wholly-owned energy companies of the Cold Lake First Nations ("CLFN"). By the end of 2022, fourteen (14) wells had been drilled under the joint ventures establishing multi-zone productivity and substantial reserves.
Wabasca, Alberta
PetroFrontier also has a joint venture agreement with the wholly-owned energy company of the Bigstone Cree Nation ("BCN"), covering 1,024 gross (922 net) hectares in the Wabasca area of north-central Alberta of which half has been earned as a leasehold interest to date. Those interests are located between CNRL's prolific Brintnell enhanced oil recovery project producing approximately 50,000 bop/d of heavy oil and Cenovus' proposed 10,000 bop/d thermal heavy oil project.
Production Sharing Agreement
In 2023, the Corporation completed a funding arrangement with a group of investors to provide funding to drill two multi-lateral horizontal wells from an existing pad site at Cold Lake. The investors funded drilling, completion and equipping of the wells in return for two-thirds of PetroFrontier's net production from the wells until payout after which the parties will share the production equally. The wells spud in June of 2023 and were completed and equipped subsequent to September 30, 2023.
During the drilling operations of the two multi-lateral wells, the Corporation experienced severe mud losses into the production zone. PetroFrontier is continuing its efforts to establish and optimize production via an enhanced downhole configuration with a view to achieving rates more in line with Management's expectations.
In conjunction with this funding arrangement the investors acquired a 25% working interest in the existing horizontal well on the pad site for $500,000 in cash. The net book value of the 25% interest was disposed of resulting in a gain on disposal of $287,010.
Drilling Commitments
The Corporation obtained an extension from CLFN to drill five earning wells at Cold Lake under an existing lease (the "English Bay Lease") to November 30, 2025. This drilling program is now budgeted to cost approximately $4 million. To meet its earning and continuance terms under the English Bay Lease, the Corporation has entered into a limited partnership arrangement with DeerGarden Resources that remains subject to requisite approvals including that of the TSX Venture Exchange, but that provides for a total of $14 million in development including drilling of the five earning wells.
As set out under the Bigstone Development Agreement discussed below, the Corporation was required to spud five (5) test wells and complete, cap, plug or abandon the drilled wells. These wells were drilled by the expiry dates.
PetroFrontier Corp.
MANAGEMENT'S DISCUSSION & ANALYSIS
September 30, 2024
Discussion of Operations
Revenue
| 2024 | Q3 | Q2 | Q1 |
|---|---|---|---|
| Revenue | 484,557 | $457,258 | $633,259 |
| # bbls | 6,478 | 5,917 | 10,099 |
| Bbls/d | 70 | 64 | 111 |
| Realized revenue per bbl | $74.80 | $77.28 | $62.71 |
| Differential to WCS | 10.8% | 16.7% | 22.2% |
| 2023 | Q4 | Q3 | Q2 |
| --- | --- | --- | --- |
| Revenue | $858,353 | $2,131,207 | $1,115,241 |
| # bbls | 13,335 | 10,227 | 16,694 |
| Bbls/d | 145 | 111 | 183 |
| Realized revenue per bbl | $64.37 | $83.55 | $66.80 |
| Differential to WCS | 14.5% | 11.0% | 17.6% |
Details of quarterly pricing in 2024 and 2023 is as follows:
| 2024 | Q3 | Q2 | Q1 |
|---|---|---|---|
| WTI – US$/bbl | $75.12 | $86.56 | $76.96 |
| WCS – CAD$/bbl | $83.84 | $92.77 | $80.58 |
| WCS Dollar Differential to WTI – US$/bbl | $13.63 | $12.76 | $17.22 |
| WCS % Differential | $18.1 | 15.8% | 22.4% |
| 2023 | Q4 | Q3 | Q2 |
| --- | --- | --- | --- |
| WTI – US$/bbl | $78.18 | $82.36 | $73.79 |
| WCS - $CAD$/bbl | $75.30 | $89.03 | $81.09 |
| WCS Dollar Differential to WTI – US$/bbl | $22.88 | $15.97 | $13.41 |
| WCS % Differential | 29.3% | 19.4% | 18.2% |
The realized sales price is lower than the WCS benchmark price as the Corporation's oil is of lower API gravity than that used in setting the WCS benchmark price. Diluent (condensate) is added to the Corporation's oil to meet WCS quality and it is also subject to differential pricing. The diluent price is directly linked to WTI, therefore high WTI to WCS differentials leads to high condensate prices relative to WCS.
Petroleum revenue for the three months ended September 30, 2024 decreased by $397,197 or 46.5%, with production averaging 70 bbls/d (2023 - 111 bbls/d). The Corporation realized an average price of $74.80 per bbl for Q3 2024 (2023 - $83.55 per bbl) while the WCS benchmark price for heavy oil averaged CAD$83.84 2023 - CAD$89.03/bbl). The decrease in revenue from Q3 2023 to Q3 2024 is a result of 4,310 fewer barrels of oil sold from fewer producing wells, in addition to lower realized prices in 2024.
The decrease in production for the quarter results from the delay in completing drilling and production maintenance and enhancement operations at Cold Lake that is now part of the $14 million work program associated with the new limited partnership.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Operating Netback
The following table details the Corporation's operating netback which is defined in a preceding section "Non-IFRS Measures":
Nine Month Results:
| Nine Months ended | September 30, 2024 | September 30, 2023 | ||
|---|---|---|---|---|
| Per boe | Per boe | |||
| Production (boe) | 22,494 | 46,442 | ||
| Average daily production (boe/d) | 82 | 170 | ||
| Petroleum and natural gas revenue | $ 1,575,074 | $ 70.02 | $ 2,910,514 | $ 62.67 |
| Royalty expense | $ 171,350 | $ 7.62 | $ 265,882 | $ 5.73 |
| Production operating costs (1) | $ 1,514,159 | $ 67.31 | $ 2,390,704 | $ 51.48 |
| Operational netback (1) | $ (110,436) | $ (4.91) | $ 253,928 | $ 5.47 |
1) excludes lease rentals related for non-producing lands
The Corporation's netback was $364,364 lower for the nine months ended September 30, 2024 as compared to 2023. The decreased netback is attributed to an increase in production costs of $15.84 per boe over 2023 and the decrease in production volumes which were down by 23,948 boe in 2024, despite the slight increase in realized price of $7.35/boe.
In 2024, several factors despite slightly higher oil prices over the nine months, higher associated field costs and workover requirements that were not undertaken due to capital restraints, caused a reduction in both total production and revenue in the ensuing periods. Further details are discussed above in Outlook and Current Environment, Production Sharing Agreement and Discussion of Operations.
Royalties
Royalty expense was $171,350 for 2024 (2023 - $265,882), being 10.9% and 9.1%, respectively of petroleum revenue for both years. Royalties are paid to Indian Oil and Gas Canada on behalf of the respective First Nation. The decrease in royalties is directly tied to the decrease in production in 2024.
Depletion and depreciation
Assets were depleted by $243,673 for the nine months ended September 30, 2024 (2023 - $218,360). Depletion relates to the resource assets and is based on the unit-of-production method based on proven and probable reserves. The depletion expense per bbl in 2024 was $10.83 as compared to $4.70 in 2023.
Accretion on decommissioning liabilities
Accretion expense was $69,569 for the nine months ended September 30, 2024 (2023 - $64,761) and reflects the increase in the liability due to the passage of time. The accretion expense has decreased due to revisions to estimates of the liabilities.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Three Month Results:
| Three Months ended | September 30, 2024 | September 30, 2023 | ||
|---|---|---|---|---|
| Per boe | Per boe | |||
| Production (boe) | 6,478 | 10,227 | ||
| Average daily production (boe/d) | 70 | 111 | ||
| Petroleum and natural gas revenue | $ 484,557 | $ 74.80 | $ 854,455 | $ 83.55 |
| Royalty expense | $ 62,946 | $ 9.72 | $ 81,603 | $ 7.98 |
| Production operating costs | $ 531,618 | $ 63.56 | $ 537,727 | $ 52.58 |
| Operational netback | $ (110,007) | $ 5.77 | $ 235,125 | $ 22.99 |
The Corporation's netback was $345,132 lower for the three months ended September 30, 2024 as compared to 2023. The decreased netback is attributed to an increase in production costs of $29,49 per boe over 2023, the decrease in production volume which was down by 3,749 boe in Q3 2024 compared to Q3 2023, as well as the slight decrease in realized price per boe of $8.75.
Royalties
Royalty expense was $62,946 for the three months of 2024 (2023 - $81,603), being 13% and 9.6%, respectively of petroleum revenue for both periods. Royalties are paid to Indian Oil and Gas Canada on behalf of the respective First Nation. The decrease in royalties is directly tied to the decrease in production in 2024.
Depletion and depreciation
Assets were depleted by $79,098 for the three months ended September 30, 2024 (2023 - $48.643). Depletion relates to the resource assets and is based on the unit-of-production method based on proven and probable reserves. The depletion expense per bbl in 2024 was $11.75 as compared to $4.70 in 2023.
Accretion on decommissioning liabilities
Accretion expense was $23,613 for the three months ended September 30, 2024 (2023 - $23,120) and reflects the increase in the liability due to the passage of time. The accretion expense has decreased due to revisions to estimates of the liabilities.
General and administrative expense
The main components of the Corporation's general and administrative expenditures are as follows:
| Three months ended September 30, | Nine months ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Salaries and benefits | $ 219,135 | $ 199,483 | $ 611,157 | $ 580,422 |
| Professional fees | 29,547 | 76,666 | 112,019 | 265,723 |
| Office costs | 26,991 | 79,421 | 104,924 | 195,322 |
| Corporate and regulatory | 36,063 | 6,091 | 48,669 | 14,676 |
| $ 311,737 | $ 361,661 | $ 876,769 | $ 1,056,144 |
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Overall, general and administrative expenses decreased by $179,374 from $1,056,144 in 2023 to $876,769 in 2024.
In 2024, salaries and wages increased slightly by $30,735 over 2023. At the end of 2023, certain salaries were returned to almost pre-COVID levels, after a series of substantial salary rollbacks in previous years. Additionally, certain salaries have been partially deferred and amounts accrued to capture the shortfall between the late 2023 increase and the original stated contractual salaries.
Overall, office costs decreased to $104,924 in 2024 from $195,322 in 2023. This $90,398 decrease from last year is largely due to the reclassification of rent from expense included in office cost to lease depreciation and interest expense of the lease liability.
Professional fees decreased by $153,704 in 2024 over fees in 2023. This decrease is attributable primarily to a portion of certain professional fees previously related to establishing an enhanced oil recovery strategy, now capitalized to the KIGAM Project.
Finance income and expense
| 2024 | 2023 | |
|---|---|---|
| Interest on debentures (note 9) | $ - | $ 30,000 |
| Interest on convertible note payable (note 10) | - | 22,060 |
| Interest on loans (note 11) | 320,893 | 317,740 |
| Interest on Updated Credit Facilities (note 12) | 356,499 | 237,666 |
| Accretion on Updated Credit Facilities (note 12) | 218,117 | 75,553 |
| Interest – right of use asset (note 5) | 19,540 | 6,706 |
| Right of use asset depreciation (note 5) | 47,579 | 28,146 |
| $ 962,628 | $ 717,871 |
Finance expense was $962,628 for the nine months ended September 30, 2024 as compared to $717,871 to 2023, an increase of $244,757. The increase in the expense in 2024 was a result of the accretion of the debt plus the addition of two new loans described below in the Debt section.
Financial Position Results
Net income (loss)
The Corporation recorded a net loss of $2,250,249 as compared to a net loss of $1,719,852 in 2023. The loss reflects a significant decrease in revenue, decreased overall production operating costs, lower G&A expense as described above, a drop in share-based compensation as stock options have mostly vested and a gain on the disposal of assets.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Cash
As at September 30, 2024, the Corporation had a cash balance of $2,058,086 as compared to cash of $2,143,446 as at December 31, 2023. The decrease is a result of expenditures related to the KIGAM partnership, which funds are segregated from general funds for use only on the KIGAM project and discussed in Unearned Revenue, as well as a result of the decrease in revenue.
Trade and other receivables
At September 30, 2024, $1.9 million of Corporation’s trade account and joint venture receivables were over 90 days. Of this amount, $1.2 million relates to cash calls, capital workovers and joint venture billings from the 2 Rex wells drilled in 2023 under a production sharing agreement (“PSA”). The debtors’ revenue entitlements from the PSA will be off set against amounts owed to the Corporation until the debts are cleared and as such the Corporation has not impaired these receivables. This off set will be dependent on the success of the 2 PSA wells as further discussed in the Corporation’s Management and Discussion and Analysis for the nine months ended September 30, 2024 and for the year ended December 31, 2023, therefore this offset arrangement and the status of the related receivables will be reviewed each quarter.
The remaining balance is comprised of other joint venture receivables offset against the associated joint venture payables, amounts the Corporation has made arrangements to collect or has been collected subsequent to the period. A balance of receivables between 30 and 90 days is considered collectable as they are within industry standard aging or can be offset against payables.
At September 30, 2024, a credit risk assessment of trade receivables was completed and no impairment was recorded. This assessment will be reviewed each quarter.
Prepaid Expenses and Deposits
Prepaid expenses and deposits at September 30, 2024 were 233,198 (December 31, 2023 - $204,964) and is primarily comprised of prepaid industry fees, insurance and rent. The Corporation has interest bearing security deposits with the AER totaling $110,875.
Property and equipment
During the period the Corporation disposed of equipment having a net book value of $403,039 for proceeds of $565,806 resulting in a gain of $162,767.
There were no indicators of impairment at September 30, 2024.
Trade and other payables
Trade and other payables at September 30, 2024 were $4,696,839 as compared to $3,408,406 at December 31, 2023. The increase is a result of a slower repayment schedule due to lack of capital and the increase in payables related to the drilling of the Rex wells described above in Production Sharing Agreement. The Corporation intends to address these payables with the proceeds of a future financing, should the Corporation be successful in securing equity or debt financing, as well as from production revenue. See Loan#4 and Subsequent Events below.
PetroFrontier Corp.
MANAGEMENT'S DISCUSSION & ANALYSIS
September 30, 2024
DEBT
Debenture Payable
| September 30, 2024 | December 31, 2023 | |
|---|---|---|
| Balance, beginning of year | $ - | $ 2,375,681 |
| Accrued interest payable | - | 30,000 |
| Extended and amended to credit facility #1 (note 12) | - | (2,405,681) |
| Balance, end of year | $ - | $ - |
The debenture term expired on August 31, 2022. From expiry to the date of refinancing, the debenture continued as a demand loan by written agreement and interest was accrued at a rate of 8% per annum. During the period ended December 31, 2023, the debenture became part of a re-financing that is discussed in detail in Credit Facilities.
Convertible Note Payable
| September 30, 2024 | December 31, 2023 | |
|---|---|---|
| Balance, beginning of year | $ - | $ 1,480,931 |
| Interest | - | 22,060 |
| Extended and amended to credit facility #1 (note 12) | - | (1,502,991) |
| Balance, end of year | $ - | $ - |
The convertible note expired on August 31, 2022. From expiry to the date of refinancing, the note continued as a demand loan by written agreement and interest was accrued at a rate of 8% per annum. During the year ended December 31, 2023, the note became part of a re-financing that is discussed in detail in Credit Facilities.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Loans
| (Canadian $) | Loan #1 | Loan #2 | Loan #3 | Loan #4 | Total |
|---|---|---|---|---|---|
| Balance, December31, 2022 | 3,888,713 | 2,000,814 | - | - | 5,889,527 |
| Interest | 239,178 | 32,154 | - | - | 271,332 |
| Refinanced (note 12) | (2,294,345) | (2,032,968) | - | - | (4,327,313) |
| Balance, December31, 2023 | 1,833,546 | - | - | - | 1,833,546 |
| Loan advance | - | - | 500,000 | 316,591 | 816,591 |
| Interest | 135,123 | - | 33,151 | 14,832 | 205,365 |
| Balance, September 30, 2024 | 1,968,669 | - | 533,151 | 331,423 | 2,833,243 |
Loan #1
During the year ended December 31, 2021, the Corporation was advanced $1,150,000. During the three months ended March 31, 2022 an additional $2,350,000 was advanced and combined as one loan, under a one year term bearing an interest rate of 12%.
The loan tranches expired between October 31, 2022 and March 31, 2023. From the expiries to December 31, 2023, the note continued as a demand loan and interest accrued at a rate of 12% per annum. During the year ended December 31, 2023, $2,000,000 of this loan became part of a re-financing that is discussed in detail in note 12. The remaining $1,500,000 plus interest continued as a demand loan, bearing interest at 12% per annum.
Loan #2
The loan expired on April 30, 2022. From expiry to the date of refinancing, the note continued as a demand loan by written agreement and interest was accrued at a rate of 8% per annum. During the year ended December 31, 2023, the loan became part of a re-financing that is discussed in detail in Credit Facilities.
Loan #3
During the period ended September 30, 2024, the Corporation completed a non-equity financing in the amount $500,000 with an arm's-length corporation. The loan matures on December 31, 2024 and bears interest at a rate equivalent to 10% per annum, to be paid in the form of a discount on bitumen sold to the funder, commencing subsequent to pay out of the bitumen delivery agreement (note 14).
Interest expense relating to Loan #3 recorded during the nine months ended September 30, 2024 was $33,151, ending with a balance owing of $533,151.
Loan #4
During the period ended September 30, 2024, the Corporation completed a non-equity financing in the amount $316,590 with an arm's-length corporation. The loan matures on December 31, 2024 and bears interest at a rate equivalent to 10% per annum, to be paid in the form of a discount on bitumen sold to the funder, commencing subsequent to pay out of the bitumen delivery agreement (note 14).
Interest expense relating to Loan #4 recorded during the nine months ended September 30, 2024 was $14,832 ending with a balance owing of $331,422.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Credit Facilities
| Credit Facility #1 | Credit Facility #2 | Total | |
|---|---|---|---|
| Balance, December 31, 2022 | $ - | $ - | $ - |
| Face value of the Credit Facilities (note 9,10 and 11) | 5,941,640 | 2,294,345 | 8,235,985 |
| Interest | 353,332 | 138,289 | 491,621 |
| Accretion | (255,262) | (98,568) | (353,830) |
| Balance, December 31, 2023 | $ 6,039,710 | $ 2,334,066 | $ 8,373,776 |
| Interest | 356,498 | 137,786 | 494,285 |
| Accretion | 159,980 | 58,137 | 218,117 |
| Balance, September 30, 2024 | $ 6,556,189 | $ 2,529,989 | $ 9,086,178 |
- During the year ended December 31, 2023, the Corporation finalized an updated credit facility with a corporation (the "Lender") which provides for the amalgamation of the existing debenture (note 9), convertible note (note 10) and loan #2 (note 11) all which had expired at different dates throughout 2022 (the "Expired Debts"). The balances of the Expired Debts as at March 31, 2023, including interest, were amalgamated into one credit facility (the "Credit Facility #1"), a new maturity date of March 31, 2025, bearing interest at 8% per annum payable at maturity and is secured by a General Security Agreement.
The Lender has the option to convert the balance under Credit Facility #1 into common shares of the Corporation ("Common Shares"). The conversion price per Common Share is: (i) $0.07 for the first year of the term (ending March 31, 2024); and (ii) $0.10 for the second year of the term (ending March 31, 2025).
For accounting purposes, Credit Facility #1 has been separated into its liability and equity components using an effective interest rate of 12.0%, based on the estimated rate for a credit facility without a conversion feature. The fair value of the liability is $5,539,973, while the equity portion of the conversion feature, valued at $401,667, is recorded as a reduction of Credit Facility #1 and credited to contributed surplus, and will be accreted over the term of Credit Facility #1.
Accretion expense relating to Credit Facility #1 recorded during the nine months ended September 30, 2024 was $159,980.
- During the year ended December 31, 2023, the Corporation finalized an additional updated credit facility ("Credit Facility #2") with an arm's length corporation (the "Lender") which provides for the extension of a $2,000,000 loan, including interest (the "Expired Loan"), which was part of Loan #1 (note 11). The balance of the Expired Loan as at March 31, 2023, including interest, was extended until March 31, 2025, bears interest at 8% per annum payable at maturity and is secured by a General Security Agreement.
At the time the loan was extended, the coupon interest rate of 8% was less than the estimated market interest rate of 12% for corporations with similar credit profiles. As a result, a gain on modification of $155,102 was recorded on the income statement within finance expenses and will be accreted over the term of the note.
Accretion expense relating to Credit Facility #2 recorded during the nine months ended September 30, 2024 was $58,137.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Decommissioning Liabilities
The Corporation’s total decommissioning liability is estimated based on the Corporation’s net ownership in wells and facilities and management’s estimate of costs to abandon and reclaim those wells and facilities, as well as an estimate of the future timing of the costs to be incurred.
By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements could be significant. The total undiscounted amount of the estimated cash flows required to settle its decommissioning liabilities are approximately $2,682,798 (December 31, 2023 - $2,658,377) which will be settled over the operating lives of the underlying assets, estimated to occur primarily over the next ten years. Risk-free interest rates of 2.74% and 4.27% (2023 – 2.86%-4.87%) and an inflation rate of 2% (2023 – 2%) were used to calculate the decommissioning liability. Revisions to the decommissioning liabilities of $238,348 resulted from changes in estimates with an offsetting increase to property and equipment. Settlement of the liability will be funded from general corporate funds at the time of retirement or removal.
Changes to the liabilities were as follows:
| Decommissioning Liabilities | Nine Months ended September 30, 2024 | Year ended December 31, 2023 |
|---|---|---|
| Balance, beginning of year | $ 2,521,983 | $ 2,367,060 |
| Revisions to previously recorded liabilities | 238,348 | (15,003) |
| Disposal | - | (20,415) |
| Additions | 26,963 | 99,874 |
| Accretion | 23,852 | 90,467 |
| 2,827,301 | 2,521,983 | |
| Current portion | (750,000) | (750,000) |
| Balance, end of period | $ 2,077,302 | $ 1,771,983 |
Unearned Revenue
- During the year ended December 31, 2023, the Corporation entered into a bitumen delivery agreement. The Corporation agreed to deliver 2,000 m³ of clean oil over a four (4) month period in exchange for a pre-payment of $994,990 (US$725,000), calculated at US$362.29/m³. For purposes of calculating and tracking fulfilment of the contract, the average daily closing price of WCS crude oil during the applicable delivery month, less US$6/bbl established differential and less 10% pre-payment discount is applied.
The pre-payment was recorded in unearned revenue and recognized as revenue on the consolidated statements of income (loss) and comprehensive income (loss) as the contract is fulfilled.
The bitumen delivery contract was fulfilled during the period ended September 30, 2024, leaving an ending balance of unearned revenue of $nil.
PetroFrontier Corp.
MANAGEMENT'S DISCUSSION & ANALYSIS
September 30, 2024
- During the year ended December 31, 2023, the Corporation closed a 5 to 6 year cooperative research and development agreement (the "Partnership") with the Korea Institute of Geoscience and Mineral Resources ("KIGAM"). The Partnership contemplates the development of a 300 bbl/d pilot plant ("Pilot Plant") for Thermal Oil Recovery and developing a front-end engineering design ("FEED") (together the "Project") for a 20,000 barrels per day commercial project, subject to our First Nations Partners and regulatory approvals.
During the year ended December 31, 2023, KIGAM delivered the first tranche in the amount of $2,266,044, and during the nine months ended September 30, 2024 KIGAM delivered the second tranche of 2,168,196, both which are recorded in unearned revenue on the Statements of Financial Position. These funds are segregated for the sole use of the KIGAM project.
Unearned revenue will be recognized as revenue on the consolidated statements of income (loss) and comprehensive income (loss) as the Pilot Plant and FEED become operational. Any production resulting from the Project shall be the property of the Corporation to be monetized at its sole discretion.
$Nil earned revenue from the KIGAM Partnership was recognized during the period.
Liquidity and capital resources
As at September 30, 2024, the Corporation had cash of $2,058,086 (December 31, 2023 –$2,143,446). The balance reflects the residual amount of the second tranche received from the KIGAM agreement in the quarter, which is segregated from general funds for use only on the KIGAM project, and also from proceeds of Loan #3 and #4 described in the Debt section.
The undertakings discussed herein will not be sufficient in and of themselves to enable the Corporation to fund all aspects of future operations, and accordingly, management must pursue other financing alternatives to fund the Corporation so that it may continue as a going concern. The necessary financing may require the issuance of equity and/or debt instruments or farmout arrangements. There is no assurance that such initiatives may be successful.
The Corporation expects to generate funds from future operations in order to assist in funding general operations, however, the Corporation will require additional funds in order to fund the working capital deficiency and to meet the expenditures further described below under Material Contracts, Commitments and Contingencies.
The Corporation is not in default on its financial liabilities as at November 28, 2024.
15
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Subsequent events
- On November 7, 2024, the Corporation announced that it had signed the formal agreements for the previously announced funding arrangement with DeerGarden Resources Ltd. (the "Funder"), an arm's-length private energy company, whereunder the Funder will provide capital through a limited partnership, to optimize development of PetroFrontier's current and future interests in the Cold Lake area of Alberta (the "Funding Arrangement").
Pursuant to the Funding Arrangement, PetroFrontier will assign all its petroleum and natural gas interests in the Cold Lake area (the "Cold Lake Interests") to an Alberta registered limited partnership (the "Limited Partnership") in exchange for 99% of the units of the Limited Partnership (the "LP Units"). The general partner for the Limited Partnership (the "General Partner") will hold 1% of the LP Units and will operate the Cold Lake Interests subject to obtaining all applicable licenses associated with the Cold Lake Interests and manage the business of the Limited Partnership. Pursuant to the Funding Arrangement, the General Partner will be jointly owned by PetroFrontier and the Funder who will contribute the principal sum of $14 million to the Limited Partnership in the form of ongoing development activities pertaining to the Cold Lake Interests over the next eighteen months. The initial development activities will include the drilling of two single-leg horizontal wells and 9 workovers of existing, wells all targeting production from the Mannville. Upon fulfillment of the $14 million contribution, LP Units will be comprised of General Partner 1%, PetroFrontier 49.5% and Funder 49.5%.
The Funding Arrangement is expected to close within the next 30 days subject to certain conditions and regulatory approvals, including the approval of the TSX Venture Exchange.
In the event that the expected development activities (funding) are not completely fulfilled, the LP units will be distributed to the Funder on a pro-rata basis.
Material Contracts, Commitments and Contingencies
Decommissioning obligations
Pursuant to the Alberta Energy Regulator's (the "AER") Inventory Reduction Program, each licensee is obligated to meet an annual mandatory spend quota ("Spend Quota") for abandonment and reclamation of wells in which the Corporation has a working interest. The Corporation had anticipated that abandonment and reclamation work completed with the Site Rehabilitation Program financial assistance would qualify under the Spend Quota, which was not the case. The 2022 and 2023 Spend Quota of approximately $750,000 is included in the current portion of decommissioning liabilities on the consolidated statements of financial position at September 30, 2024. At September 30, 2024, the Corporation is not in compliance with the Spend Quota. The Corporation is in discussions with the AER to formulate a plan to rectify the compliance status.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Litigation
During the year ended December 31, 2014, Macquarie Capital Markets Canada Ltd. filed a Statement of Defense and Counterclaim against the Corporation in response to a Statement of Claim filed by the Corporation against Macquarie in the Court of Queen's Bench of Alberta on July 7, 2014. The Corporation has not recorded a contingent liability associated with the Counterclaim as the Corporation is of the opinion the Counterclaim is without merit. The Corporation is actively pursuing the lawsuit against Macquarie and its defense of the Counterclaim.
PetroFrontier anticipated, subject to any additional appeals, completing its discoveries of Macquarie representatives by the end of Q3 2024. Additional appeals have pushed that expectation into the first half of 2025 and the anticipated discoveries of its representatives within that same timeframe. Following the completion of discoveries, the Corporation will move to secure the earliest available trial date to try the matters set out in the Statement of Claim and Counterclaim detailed above.
Development Agreements
On May 9, 2018, the Corporation entered into an agreement (the "Bigstone Development Agreement") with Bigstone Oil & Gas Ltd., the wholly owned energy Corporation of the Bigstone Cree Nation, for consideration of $250,000. The Bigstone Development Agreement provides for the development of an initial 3,040 acres of oil and gas rights from surface to the base of the Mannville in the Wabasca area of north-central Alberta under lease to Bigstone Oil & Gas Ltd. (the "Lease"). The Lease provides for an Alberta Provincial Crown equivalent royalty with a minimum rate of 10%. Under the terms of the Bigstone Development Agreement, the Corporation, as operator, has the right to earn a 90% before payout working interest and 50% after payout working interest in the five earning wells drilled in the first quarter of 2021 and a 50% working interest in the balance of the Lease.
The Corporation commenced developing the property by drilling one earning well in 2020, constructing a new 2.2 km road and multi-well drilling pad from which up to 8 wells can be drilled. Four (4) additional wells were drilled off the multi-well pad in the first quarter of 2021, satisfying its earning terms under the Bigstone Development Agreement.
With respect to the various development agreements with the Cold Lake First Nations, other than referred to under the "Drilling Commitments" section at page 5 of this MD&A, all earning wells have been drilled and future drilling will be based on maximizing production and continuing to prove the Corporation's current working interests (also set out herein) productive and, by doing so, secure future continuances of those interests.
Financial Instruments and Other Instruments
The Corporation's financial instruments consist of cash, trade and other receivables, trade and other payables, convertible notes payable and the debenture. It is management's opinion that the Corporation is not exposed to significant interest, currency or credit risks arising from these financial instruments and that the fair value of these financial instruments approximates their carrying values, as applicable.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Interest rate risk
At September 30, 2024 and December 31, 2023, the Corporation had no outstanding floating interest rate debt and is not exposed to interest rate risk at this time.
Liquidity risk
Liquidity risk relates to the risk the Corporation will encounter difficulty in meeting obligations associated with financial liabilities. The financial liabilities on its statement of financial position are limited to trade and other payables, convertible note payable and the debenture, all of which are current in nature.
With a working capital deficiency of $12,740,043 at September 30, 2024 (December 31, 2023 - $1,883,029), the Corporation will require increased production from its petroleum properties and/or the continued support of its debenture holder and additional financing in order to fund its existing financial liabilities and ongoing operating and general administrative expenses.
The pace of future capital investment and the related financial liabilities incurred from the capital investment program will be dependent upon the Corporation's capacity to secure additional equity/debt financing or farmout arrangements on favorable terms.
Market risk
Market risk is comprised of currency risk, interest rate risk and other price risks which consist primarily of fluctuations in petroleum and natural gas prices. There is no current direct exposure to fluctuations in interest rates. The Corporation is exposed to fluctuations in commodity prices which affects the Corporation's revenue and any adverse fluctuations in interest rates, and commodity prices may indirectly affect the Corporation's ability to obtain equity financing and future bank debt, if required, and on favorable terms. The Corporation does not have any derivatives in place to manage price risk.
Summary of Quarterly Results
| Fiscal Quarter Ended - $ | September 30, 2024 | June 30, 2024 | March 31, 2024 | |
|---|---|---|---|---|
| Revenue | 484,557 | 457,258 | 633,259 | |
| Net loss | (918,151) | (557,507) | (774,591) | |
| Net loss per share | (0.00) | (0.00) | (0.00) | |
| December 31, | September 30, | June 30, | March 31, | |
| Fiscal Quarter Ended - $ | 2023 | 2023 | 2023 | 2023 |
| Revenue | 858,353 | 854,455 | 1,115,241 | 940,818 |
| Net loss | (11,700,639) | (588,154) | (16,978) | (1,114,720) |
| Net income (loss) per share | (0.05) | (0.00) | (0.00) | (0.00) |
For the past several quarters, the Corporation's revenue has suffered from lower realized oil prices and decreased production. Certain operating workovers identified by Management for completion in 2023 and early 2024 were delayed due to capital constraints until further capital investment or a joint venture partner is secured.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Related parties
-
Until February 28, 2021, the Corporation was related to Kasten Energy Inc. ("Kasten") when a director of the Corporation was also a director of Kasten and remains related by virtue of Kasten's (42.4%) shareholdings in the Corporation. The related party transactions are as follows: (and as further described in Debt Section pgs 10-12)
-
Principal, interest, accretion and extension fees owing to Kasten on the debenture owing at March 31, 2023 totaled $2,405,681 when the debenture was refinanced as part of the Updated Credit Facilities #1. $30,000 of interest was expensed in 2023 and was included in the refinanced balance.
- Principal, interest, accretion and extension fees owing to Kasten on the convertible note payable #2 at March 31, 2023 totaled $1,502,991, when the Convertible note payable was refinanced as part of the Updated Credit Facilities #1. Interest expense of $22,060 was included in the refinanced balance.
- Principal and interest owing to Kasten on Loan #2 at March 31, 2023 totaled $2,032,968 when Loan #2 was refinanced as part of the Updated Credit Facilities #1. Interest expense of $32,154 was included in the refinanced balance.
-
Principal and interest owing on the Updated Credit Facilities #1 (note 12) at September 30, 2024 totaled $6,556,189. Interest expense of $356,498 was recorded in the consolidated statements of loss and comprehensive loss for nine months ended September 30, 2024.
-
A party related to the Corporation by virtue of (26.5%) shareholding of the Corporation, contributed 25% of Loan #2 as part of a syndicate of lenders. Loan #2 was refinanced as part of the Updated Credit Facilities #1 (Debt Section pg 10-12). $30,0274 in interest accrued during nine months ended September 30, 2024.
-
The Corporation recovered rent, moving and other office expenses from corporations related by a common director in the first 9 months of 2024 of $28,343 (2023 - $26,703).
Off Balance Sheet Arrangements
The Corporation had no guarantees or off-balance sheet arrangements except for certain lease agreements that were entered into in the normal course of operations. All leases, except the office lease, are treated as operating leases whereby the lease payments are included in operating expenses or general and administrative expenses depending on the nature of the lease. A right of use asset and liability have been assigned to the office lease only on the balance sheet as at September 30, 2024.
New accounting pronouncements
In April 2024, the IASB issued IFRS Accounting Standard 18 - Presentation and Disclosure in Financial Statements ("IFRS 18"). This standard aims to improve the consistency and clarity of financial statement presentation and disclosures by providing updated guidance on the structure and content of financial statements. Key changes include enhanced requirements for the presentation of financial performance, financial position, and cash flows, as well as additional disclosures to improve transparency and comparability. IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027. The Corporation is currently assessing the impact that the adoption of IFRS 18 will have on its condensed consolidated financial statements.
PetroFrontier Corp.
MANAGEMENT'S DISCUSSION & ANALYSIS
September 30, 2024
The Corporation has determined that other Accounting Standards or amendments to existing accounting standards that have been issued, but have future effective dates, may either not be relevant to the Corporation after their effective date or are not expected to have a significant impact on the Corporation's consolidated financial statements.
Business Risks and Uncertainties
The Corporation's business is subject to risks inherent in oil and natural gas exploration and development operations. In addition, there are risks associated with the Corporation's current and future operations in the jurisdictions in which it operates. The Corporation has identified certain risks pertinent to its business including: exploration and reserve risks, drilling and operating risks, changes to regulatory requirements, costs and availability of materials and services, capital markets and the requirement for additional capital, loss of or changes to joint venture or related agreements, economic and sovereign risks, reliance on joint venture partners, market risk, volatility of future oil and natural gas prices and foreign currency risk. Management seeks to reduce such risks by employing professionals and utilizing consultants and contractors to conduct the business of the Corporation in strict compliance with corporate governance, operating, safety, health and environmental requirements and best practices.
Further, in this regard, management also places great emphasis on fostering and maintaining a strong working relationship with its First Nation joint venture partners, CLFN and BCN (along with their respective wholly-owned energy companies) with respect to the Corporation's on-going development efforts at Cold Lake and Wabasca.
Limited Operating and Earnings History
The Corporation has no earnings history. The Corporation's future business plans may require significant expenditure, particularly capital expenditure, in the establishment of Canadian oil and gas operations. Any future profitability from the Corporation's business will be dependent upon the successful acquisition of new lands, and there can be no assurance that the Corporation will achieve profitability in the future.
Investment Risks
The timing and extent of revenues is variable and uncertain and accordingly the Corporation is unable to predict when, if at all, profitability will be achieved. An investment in the Common Shares is highly speculative and should only be made by persons who can afford a significant or total loss of their investment.
History of Losses
Historically the Corporation has incurred losses from operations. As at September 30, 2024, the Corporation had a cumulative deficit of $147,045,423. There can be no assurance that the Corporation will achieve profitability in the future. In addition, should the Corporation be unable to continue as a going concern, realization of assets and settlement of liabilities other than in the normal course of business may be at amounts significantly different from those in the financial statements.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Cash Flow Used in Operations
In 2024 the Corporation generated cash from operations of $1,124,662 (2023 - $376,626 used from operations). The Corporation generally has a history of negative cash flow from operations that could have a material adverse impact on its business, operations and prospects in the future.
Competition
Oil and gas exploration is intensely competitive in all phases and involves a high degree of risk. The Corporation competes with numerous other participants in the search for, and the acquisition of, oil and natural gas properties. The Corporation's competitors include oil and natural gas companies that have substantially greater financial resources, staff and facilities than those of the Corporation. The Corporation's ability to add reserves in the future will depend not only on its ability to explore and develop properties, but also on its ability to select and acquire suitable producing properties or prospects for exploratory drilling. Competitive factors in the distribution and marketing of oil and natural gas include price and methods and reliability of delivery. Competition may also be presented by alternate fuel sources.
Operational Dependence
In the future, the Corporation may enter into operations in which it is not the operator or which may be dependent or effected by the activities or conduct of third parties. As such, the Corporation may have limited ability to exercise influence or control over the operation of such assets or their associated costs, which could adversely affect the Corporation's financial performance. Therefore, the Corporation's return on such operations will depend upon a number of factors that may be outside of the Corporation's control, including the timing and amount of capital expenditures, an operator's or other third party's expertise and financial resources, the approval of other participants, the selection of technology and risk management practices.
Reliance on Key Personnel
The Corporation's success will depend in large measure on the performance of the Board and other key personnel. The loss of services of such individuals could have a material adverse effect on the Corporation. The Corporation does not have key person insurance in effect for management. The contributions of these individuals to the immediate operations of the Corporation are likely to be of central importance. In addition, there can be no assurance that the Corporation will be able to continue to attract and retain all personnel necessary for the development and operation of its business. Investors must rely upon the ability, expertise, judgment, discretion, integrity and good faith of the management of the Corporation.
Assessments of Value of Acquisitions
Acquisitions of oil and natural gas issuers and oil and natural gas assets are typically based on engineering and economic assessments made by independent engineers and the Corporation's own assessments. These assessments will include a series of assumptions regarding such factors as recoverability and marketability of oil and gas, future prices of oil and gas and operating costs, future capital expenditures and royalties and other government levies which will be imposed over the producing life of the reserves.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Many of these factors are subject to change and are beyond the Corporation's control. In particular, the prices of, and markets for, oil and natural gas products may change from those anticipated at the time of making such assessment. In addition, all such assessments involve a measure of geological and engineering uncertainty which could result in lower than anticipated production and reserves. Initial assessments of acquisitions may be based on reports by a firm of independent engineers that are not the same as the firm that the Corporation may use for its year-end reserve evaluations. Because each of these firms may have different evaluation methods and approaches, these initial assessments may differ significantly from the assessments of the firm used by the Corporation. Any such instance may offset the return on and value of the Common Shares.
Estimate of Fair Market Value
There are numerous uncertainties inherent in an estimate of fair market value including many factors beyond the Corporation's control. The valuations herein represent estimates only. In general, estimates are based upon a number of variable factors and assumptions, such as engineering and geophysical information pertaining to hydrocarbon potential, current material contracts of the Corporation, production history of competitors on similar land positions, access to lands, availability, timing and amount of capital expenditures, marketability of oil and natural gas, royalty rates, the assumed effects of regulation by governmental agencies, and future operating costs, all of which may vary from actual results. All such estimates are to some degree speculative and are only attempts to define the degree of speculation involved.
Insurance
Oil and natural gas exploration, development and production operations are subject to all the risks and hazards typically associated with such operations, including hazards such as fire, explosion, blowouts, cratering, sour gas releases and spills, each of which could result in substantial damage to oil and natural gas wells, production facilities, other property and the environment or in personal injury. However, such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. In addition, such risks may not be insurable in all circumstances or, in certain circumstances, the Corporation may elect not to obtain insurance to deal with specific risks due to the high premiums associated with such insurance or other reasons. The payment of any such uninsured liabilities would reduce the funds available to the Corporation. The occurrence of a significant event that the Corporation is not fully insured against, or the insolvency of the insurer of such event, could have a material adverse effect on the Corporation's financial position, results of operations or prospects. The Corporation believes it is adequately insured for normal risks.
Corporate Matters
The Corporation does not anticipate the payment of any dividends on the Common Shares for the foreseeable future. Certain directors and officers of the Corporation are also directors and officers of other oil and natural gas companies involved in natural resource exploration and development, and conflicts of interest may arise between their duties as directors and officers of the Corporation and as directors and officers of such other companies. Such conflicts must be disclosed in accordance with and are subject to such other procedures and remedies as applicable under, the Alberta Business Corporations Act.
PetroFrontier Corp. MANAGEMENT'S DISCUSSION & ANALYSIS September 30, 2024
Title to Properties
Title to oil and natural gas interests is often not capable of conclusive determination without incurring substantial expense. Although title reviews will be done according to industry standards prior to the purchase of most oil and natural gas producing properties or the commencement of drilling wells, such reviews do not guarantee or certify that an unforeseen defect in the chain of title will not arise to defeat the claim of the Corporation. To the extent title defects do exist, it is possible the Corporation may lose all or a portion of its right, title, estate and interest in and to the properties to which the title relates.
Additional Funding Requirements
The Corporation will require additional financing from time to time in order to carry out oil and natural gas exploration and development activities. Failure to obtain such financing on a timely basis could cause the Corporation to have limited ability to expend the capital necessary to undertake or complete future exploration programs, forfeit its interest in certain properties, miss certain acquisition opportunities and reduce or terminate its operations. There can be no assurance that debt or equity financing or cash generated by operations will be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be on terms acceptable to the Corporation. Moreover, future activities may require the Corporation to alter its capitalization significantly.
Dilution
The Corporation may make future acquisitions or enter into financing or other transactions involving the issuance of securities of the Corporation, which may be dilutive to existing shareholders.
Environmental
All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of federal, provincial and local laws and regulations.
Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and natural gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material.
Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and the potential for increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require the Corporation to incur costs to remedy such discharge.
Statutory provisions require petroleum tenement lands to be protected and rehabilitated to ensure that environmental damage is avoidable or minimal where authorized. These provisions may require approvals and consents to be obtained before certain lands may be accessed and explored. In addition, each state and territory government may impose a wide range of obligations on tenement holders to ensure that petroleum operations comply with various environmental standards and requirements.
PetroFrontier Corp.
MANAGEMENT'S DISCUSSION & ANALYSIS
September 30, 2024
No assurance can be given that environmental laws will not result in a curtailment of future production (if any) or a material increase in the costs of production, development or exploration activities or otherwise adversely affect the Corporation's financial condition, results of operations or prospects.
Changes in Legislation
Legislation and regulations continue to be introduced by government and government agencies concerning the security of industrial facilities, including oil and natural gas facilities. The Corporation's operations may be subject to such laws and regulations. Presently, it is not possible to accurately estimate the costs the Corporation could incur to comply with any such laws or regulations, but such expenditures could be substantial.
Income Taxes
The Corporation will file all required income tax returns and believes that it will be in full compliance with the provisions of the Income Tax Act (Canada) and all other applicable tax legislation. However, such returns are subject to reassessment by applicable taxation authorities. In the event of a successful reassessment of the Corporation, whether by re-characterization of exploration and development expenditures or otherwise, such reassessment may have an impact on current and future taxes payable.
Integrity of Disclosure
The Corporation's management maintains appropriate information systems, procedures and controls to ensure that information used internally and disclosed externally is complete and reliable.
The Board is responsible for ensuring that management fulfills its responsibilities. The Audit Committee fulfills its role of ensuring the integrity of the reported information through its review of the consolidated financial statements. The Board approves the consolidated financial statements and MD&A on the recommendation of the Audit Committee.
The Corporation has approved a series of policy papers that include Code of Business Conduct and Ethics, Whistle Blower Policy and Procedures, Insider Trading and Reporting Guidelines, Disclosure Policy and Board Control System. Terms of References define Audit Committee and Compensation and Governance Committees. The Corporation has a defined Board Mandate.
Additional Information
Additional information on the Corporation can be accessed at www.sedarplus.ca or from the Corporation's website at www.petrofrontier.com or by contacting the Corporation at PetroFrontier Corp., Suite 700, 903 - 8th Avenue S.W. Calgary, Alberta, Canada T2P 0P7.
PetroFrontier Corp.
MANAGEMENT'S DISCUSSION & ANALYSIS
September 30, 2024
| Directors | Officers | Corporate Head Office |
|---|---|---|
| Michael Hibberd | ||
| Chairman of the Board of Directors | ||
| Calgary, Alberta | Kelly Kimbley | |
| CEO and President | 700, 903 – 8 Avenue S.W. | |
| Calgary, Alberta T2R 0P7 | ||
| Kenneth L. DeWyn | ||
| Businessman | ||
| Calgary, Alberta | Jana Lillies | |
| Chief Financial Officer | Trustee and Transfer Agent | |
| Kelly Kimbley | ||
| President | ||
| Calgary, Alberta | Mehran Joozdani | |
| Chief Operating Officer | Computershare Trust Company | |
| Ulrich Wirth | ||
| Vice-President | ||
| Exploration | Solicitors | |
| Omar El-Hajjar | ||
| Vice-President | ||
| Operations | DS Lawyers Canada, LLP | |
| David Orr | ||
| First Nation | ||
| Partnerships and Stakeholder Relations | Auditors | |
| MNP LLP |
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