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TAG Oil Ltd — Management Reports 2021
Jul 29, 2021
43964_rns_2021-07-29_afbacb7a-f13e-4e2b-837e-ee7a3de1a9fd.pdf
Management Reports
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MANAGEMENT’S DISCUSSION AND ANALYSIS
The following Management’s Discussion and Analysis (“MD&A”) is dated July 29, 2021, for the year ended March 31, 2021 and should be read in conjunction with the audited consolidated financial statements for the years ended March 31, 2021 and 2020.
The audited consolidated financial statements for the year ended March 31, 2021, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, and its interpretations. Results for the year ended March 31, 2021, are not necessarily indicative of future results. All figures are expressed in thousands of Canadian dollars unless otherwise stated.
ABOUT TAG OIL LTD.
TAG Oil Ltd. (“TAG” or the “Company”) is an international oil and gas exploration, development and production company.
During the year ended March 31, 2020, the Company, and certain of its subsidiaries, completed the definitive share and asset purchase agreement with Tamarind Resources Pte. Ltd. (“Tamarind”), and certain of its subsidiaries (collectively, the “NZ Transaction”).
On April 14, 2020 (payment date) a return of capital in the amount of $0.30 per common share (approximately $25.6 million in cash) was paid to all shareholders who were shareholders of record of the common shares of the Corporation on March 27, 2020 (record date).
Following the return of capital, the Company retained approximately $15 million in cash along with the 2.5% gross overriding royalty on all future production from the New Zealand assets sold and up to US$5 million in future event specific payments payable on Tamarind achieving certain milestones.
On June 15, 2020, TAG confirmed that its common shares would be voluntarily delisted from the Toronto Stock Exchange immediately following the close of trading on June 26, 2020 and would begin trading on the TSX Venture Exchange (the “TSXV”) at market open on June 29, 2020. TAG’s trading symbol continued to be “TAO” on the TSX-V. TAG continues to maintain its listing on the premier tier of the OTC market in the United States, the OTCQX International (the “OTCQX”), under the trading symbol “TAOIF”.
On September 1, 2020, the Company announced the following corporate updates:
-
Mr. Abdel (Abby) Badwi joined the Company as Executive Chairman of TAG’s board of directors (the “Board”), along with Mr. Suneel Gupta who has been appointed as VP and COO of the Company. Messrs. Shawn Reynolds and Thomas Hickey were also appointed to the Board as non-executive directors. To facilitate these new appointments to the Board, Messrs. Ken Vidalin, David Bennett, and Brad Holland resigned from their positions as non-executive directors.
-
The Company completed a non-brokered private placement of 6.25 million units (“Units”) at a price of C$0.16 per Unit for aggregate gross proceeds of $1.0 million. Each Unit consists of one common share and one common share purchase warrant, with each warrant entitling the holder thereof to acquire one common share in the capital of the Company at a price of $0.16 per Common Share for a period of three years from the date of closing.
-
The grant of 4.85 million stock options exercisable for a period of five years at a price of $0.25 per share to the newly appointed officers, directors, and consultant. The stock options will be subject to deferred vesting over three years.
On September 25, 2020, the Company announced the following corporate updates:
-
Mr. Peter Loretto resigned from his position as a non-executive director of the Company.
-
The grant of 775,000 stock options on September 11, 2020, to various officers, directors, and staff members. These stock options vested immediately and are exercisable until September 11, 2025, at a price of $0.25 per share.
On October 30, 2020, the Company completed a share and asset purchase agreement with Luco Energy Pty. Ltd. (“Luco”), a company owned by Ilwella Pty. Ltd. and AJ Lucas Services, to divest its Australian assets and operations as part of a strategic realignment of the Company’s oil and gas exploration and development activities. This was an arm’s length transaction that involved the sale of the shares of its Australian subsidiary, Cypress Petroleum Pty Ltd. (“Cypress Petroleum”), which holds 100% working interests in PL 17, ATP 2037, and ATP 2038 (collectively, the “Permits”) located in the Surat Basin of Queensland, Australia to Luco for a cash payment of A$2,500,000 (CAD$2,318,736) at closing and a 3.0% gross overriding royalty on future production from all liquids produced from the Permits.
On June 1, 2021, the Company issued 100,000 shares for stock options exercised at $0.25 per share.
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On June 28, 2021, the Company granted 700,000 stock options to various consultants. These stock options are exercisable until June 28, 2026, at a price of $0.45 per share and are subject to deferred vesting over two years.On having completed the NZ Transaction and the sale of the Autralian assets and operations, the Company will be pursuing consolidation opportunities through the acquisition of assets and/or companies in the initial focus area of Middle East and North Africa.
FINANCIAL SNAPSHOT
| _Canadian $000s, except per share or boe._For the years ended March 31, |
2021 | 2020 | 2019 |
|---|---|---|---|
| Proven & Probable “2P” Reserves(Mboe) | 0 | 0 | 3,988 |
| Oilproduction(bbl/d) | 0 | 527 | 930 |
| Gasproduction(MMcf/d) | 0 | 885 | 1,430 |
| Combined boe/d | 0 | 675 | 1,168 |
| Oil &gas revenueper boe | $0.00 | $79.76 | $84.15 |
| Production and transportation and storage costsper boe | ($0.00) | ($33.34) | ($35.30) |
| Royaltiesper boe | ($0.00) | ($7.15) | ($7.95) |
| Operatingnetbackper boe(1) | $0.00 | $39.27 | $40.90 |
| Revenue | **$0 ** | $16 | $33,237 |
| Cashflow from operatingactivities | ($3,918) | $3,764 | $12,067 |
| Net(loss)income before tax | ($11,951) | $7,933 | ($60,922) |
| Income tax | **$0 ** | $1 | $639 |
| Net(loss)income for theyear | ($11,951) | $7,934 | ($60,282) |
| (Loss)earningsper share – basic | ($0.13) | $0.09 | ($0.71) |
| (Loss)earningsper share – diluted | ($0.13) | $0.09 | ($0.71) |
| Total assets | $20,501 | $57,255 | $82,166 |
| Asset retirement obligation | **$0 ** | $132 | $140 |
| Deferred tax liability | **$0 ** | $0 | $0 |
| Shareholders equity | $19,996 | $56,306 | $61,120 |
- (1) Operating netback is a non-GAAP measure. Operating netback is the operating margin the company receives from each boe sold. See non-GAAP measures for further explanation.
ANNUAL FINANCIAL AND OPERATING HIGHLIGHTS
-
At March 31, 2021, the Company had $15.9 million (March 31, 2020: $41.5 million) in cash and cash equivalents and $17.0 million (March 31, 2020: $43.7 million) in working capital.
-
No production for the year ended March 31, 2021.
-
Capital expenditures totaled $0.2 million for the year ended March 31, 2021. The majority of the capital expenditure relates to the disposal of Cypress Petroleum during the year end 2021.
FOURTH QUARTER FINANCIAL AND OPERATING HIGHLIGHTS
-
At March 31, 2021, the Company had $15.9 million in cash and cash equivalents and $17.0 million in working capital.
-
No production for the quarter ended March 31, 2021.
-
Capital expenditures totaled $nil for the quarter ended March 31, 2021.
BUSINESS ENVIRONMENT AND THE IMPACT OF COVID-19
In March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. Global commodity prices declined significantly as countries around the world enacted emergency measures to combat the spread of the virus. The decrease in oil demand has been unprecedented. Since April 2020, global demand has improved while Organization of the Petroleum Exporting Countries (“OPEC”) and North American producers have cut production. Global inventories have begun to moderate with economies reopening and leading to a partial recovery and stabilization in oil prices.
OPEC’s January 2021 report on the oil market, said vaccinations provide some “upside optimism,” and that its 2021 forecasts “assume a healthy recovery in economic activities.”
OUTLOOK AND RESPONSE TO COVID-19
The Company has implemented procedures that comply with British Columbia and Alberta Health Guidelines in Canada. We currently do not have any personnel in New Zealand and Australia. TAG has transitioned its office staff in Vancouver and Calgary back to the office on a rotating basis.
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The Company has not experienced any COVID-19 cases in any location and the Company has sufficient liquidity supplemented by the recent private placement of $1 million to operate beyond the next twelve months. The Company continues to receive royalty and event specific payments from the NZ Transaction, however at a lower level due to the decline in global oil prices due to the effects of COVID-19 and lower production levels.
RESULTS FROM OPERATIONS
Operations
During the year ended March 31, 2021, the Company completed a share and asset purchase agreement with Luco Energy Pty. Ltd. (“Luco”), a company owned by Ilwella Pty. Ltd. and AJ Lucas Services, to divest its Australian assets and operations as part of a strategic realignment of the Company’s oil and gas exploration and development activities. This was an arm’s length transaction that involved the sale of the shares of its Australian subsidiary, Cypress Petroleum, which holds the Company’s 100% working interests in the Permits located in the Surat Basin of Queensland, Australia to Luco for a cash payment of A$2,500,000 (CAD$2,318,736) at closing and a 3.0% gross overriding royalty on future production from all liquids produced from the Permits
During the year ended March 31, 2020, the Company and Tamarind completed the NZ Transaction. The NZ Transaction included the sale of TAG’s 100% working interests in PMP 38156 (Cheal and Cardiff), PMP 53803 (Sidewinder), PMP 60454 (Supplejack), PEP 51153 (Puka), PEP 57065 (Waitoriki) and TAG’s 70% interest in PMP 60291 (Cheal East) and PEP 54877 (Cheal East).
Net Oil and Natural Gas Production, Pricing and Revenue
| 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|
|---|---|---|---|---|
| Daily production volumes(1) | Q4(4) | Q4 | 2021(3) | 2020 |
| Oil(bbl/d) | 0 | 2 | 0 | 527 |
| Naturalgas(boe/d) | 0 | 0 | 0 | 148 |
| Combined(boe/d) | 0 | 2 | 0 | 675 |
| % of oilproduction | 0% | 100% | 0% | 78% |
| Dailysales volumes(1) | ||||
| Oil(bbl/d) | 0 | 3 | 0 | 486 |
| Naturalgas(boe/d) | 0 | 0 | 0 | 78 |
| Combined(boe/d) | 0 | 3 | 0 | 564 |
| Naturalgas(MMcf/d) | 0 | 0 | 0 | 468 |
| Productpricing | ||||
| Oil($/bbl) | 0.00 | 48.70 | 0.00 | 87.76 |
| Naturalgas($Mcf) | 0.00 | 0.00 | 0.00 | 4.93 |
| Oil and naturalgas revenues -gross ($000s) | - | (77) | - | 16,449 |
| Oil and naturalgas royalties(2) | - | 121 | - | (1,474) |
| Oil and naturalgas revenues - net_($000s)_ | - | 44 | - | 14,975 |
(1) Natural gas production converted at 6 Mcf:1 boe (for boe figures).
(2) Relates to government royalties and includes an ORR of 7.5% royalty related to the acquisition of a 69.5% interest in the Cheal field.
(3) The productions had been shut-in the prior quarter due to the requirement for repairs but have not been restarted due to the concern over COVID-19 and bringing in outside technical personal into the area during the process.
(4) During Q3 2021, the Company sold its shares of Cypress Petroleum and therefore has no production revenue.
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SUMMARY OF QUARTERLY INFORMATION
| Canadian $000s, except per share or boe |
Canadian $000s, except per share or boe |
2021 | 2021 | 2020 | 2020 | |||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q3(2) | Q2(1) | Q1(1) | Q4 | Q3 | Q2 | Q1 | |
| Net production volumes (boe/d) | 0) | 0) | 0) | 0) | 2) | 4) | 1,280) | 1,413) |
| Total revenue | -) | -) | -) | -) | (77) | 25) | 6,726) | 9,774) |
| Operating costs | -) | (11) | (55) | (32) | 188) | (57)) | (3,827) | (4,654) |
| Depletion, depreciation and accretion | (35) | (33) | (35) | (34) | 165) | (231) | (137) | (142) |
| Finance Costs | -) | -) | -) | -) | -) | 1) | (72) | (15) |
| Foreign exchange | 502 | (671) | (235) | (969) | 1,918) | (1,177) | 349) | (87) |
| Interest and other income | (65) | 26) | 158) | 19) | 133) | 128) | 153) | 194) |
| Stock-based compensation | (62) | (65) | (139) | (6) | (34) | (4) | 7) | (17) |
| General and administative | (848) | (894) | (909) | (596) | (858) | (2,020) | (912) | (2,398) |
| Exploration and other income | (42) | (19) | -) | -) | 57) | 34) | (7) | (30) |
| Recovery (write-down) to AHFS | -) | -) | -) | -) | -) | -) | 3,498) | (3,498) |
| (Loss) gain on sale of PP&E | -) | (2) | -) | -) | -) | (102) | 319) | -) |
| (Loss) gain on sale of disposal group | -) | (3,885) | -) | -) | 2,235) | 651) | 1,370) | -) |
Gain (loss) on royalty valuation and other interests |
(2,769) | (65) |
(42) | (87) | 155) | 249) | -) | -) |
| Interest and penalties recovered | 89) | -) | -) | -) | -) | -) | -) | -) |
| Impairment of oil and gas property | (97) | -) | (50) | -) | -) | -) | (41) | -) |
| Net (loss) income before tax | (3,327) | (5,619) | (1,307) | (1,705) | 3,882) | (2,503) | 7,426) | (873) |
| Income tax | -) | -) | -) | -) | 2) | -) | -) | -) |
| Net (loss) income | (3,327) | (5,619) | (1,307) | (1,705) | 3,884) | (2,503) | 7,426) | (873) |
| (Loss) earnings per share– basic | (0.04) | (0.06) | (0.02) | (0.02) | 0.05) | (0.03) | 0.09) | (0.01) |
| (Loss) earnings per share– diluted | (0.04) | (0.06) | (0.02) | (0.02) | 0.05) | (0.03) | 0.09) | (0.01) |
| Adjusted net (loss) income(3) | (550) | (1,667) | (1,215) | (1,618) | 1,492) | (3,301) | 2,280) | 2,625) |
| Capital expenditures | -) | (78) | (48) | (98) | (17) | 2,629) | 34) | 992) |
Cash flow (used in) provided by Operating activities (1) |
(939) | (550) | (1,156) | (1,133) | 1,056) | (2,785) | 2,417) | 2,815) |
(1) The productions had been shut-in in the prior quarters due to the requirement for repairs but have not been restarted due to the concern over COVID-19 and bringing in outside technical personal into the area during the process.
(2) During Q3 2021, the Company sold its shares of Cypress Petroleum and had no production revenue up to the date of sale.
(3) Adjusted net (loss) income is a non-GAAP measure. It represents earnings before impairment expense and write-offs. See non-GAAP measures for further explanation.
Operating costs decreased for the quarter ended March 31, 2021, to $nil from $0.01 million for the quarter ended December 31, 2020. Operating costs decreased for the quarter ended March 31, 2021, to $nil from ($0.19) million when compared to the quarter ended March 31, 2020. Operating costs decreased due to the completion of the sale of shares of Cypress Petroleum and the Company currently having no production at this time.
General and administrative costs decreased to $0.85 million for the quarter ended March 31, 2021 from $0.89 million for the quarter ended December 31, 2020. The slight decrease is mainly due to the sale of the shares of Cypress Petroleum in Q3 2021. General and administrative costs decreased from $0.85 million for the quarter ended March 31, 2021 from $0.86 million for the quarter ended March 31, 2020. The decrease is due to the completion of the NZ Transaction on September 25, 2019 and the sale of the shares of Cypress Petroleum on October 30, 2020.
Net loss before tax for the quarter ended March 31, 2021, was $3.33 million compared to net loss before tax of $5.62 million for the quarter ended December 31, 2020. The adjusted not loss is $0.55 million for the quarter ended March 31, 2021, compared with of $1.67 million for the quarter ended December 31, 2020. The net loss compared to the prior quarter is primarily due to a decrease in foreign exchange to $0.01 million from $0.67 million. Net loss before tax for the quarter ended March 31, 2021 was $3.33 million compared to net income $3.88 million for the quarter ended March 31, 2020. The adjusted net loss is $0.55 million for the quarter ended March 31, 2021, compared to an adjusted net income of $1.49 million for the quarter ended March 31, 2020. The decrease is due to the completion of the NZ Transaction on September 25, 2019 and the sale of the shares of Cypress Petroleum on October 30, 2020.
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Net Production by Area (boe/d)
| Area | 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|---|---|---|---|---|
| Q4 | Q4 | 2021 | 2020 | |
| PMP 38156(Cheal) (1) | 0 | 0 | 0 | 440 |
| PMP 60291(Cheal East) (1) | 0 | 0 | 0 | 135 |
| PMP 53803(Sidewinder) (1) | 0 | 0 | 0 | 95 |
| PL 17(Cypress) (2) | 0 | 2 | 0 | 5 |
| Total boe/d | 0 | 2 | 0 | 675 |
| (1) All production assets in New Zealand have been sold as of September 2019. (2) All production assets in Australia have been sold as of October 2020. Oil and Gas Operating Netback ($/boe) |
||||
| 2021 | 2020 | Twelve months ended March 31, |
||
| Q4(1)(2) | Q4 | 2021(1)(2) | 2020 | |
| Oil and naturalgas revenue | 0.00 | (247.74) | 0.00 | 79.76 |
| Production costs | 0.00 | 127.07 | 0.00 | (23.84) |
| Royalties | 0.00 | 390.87 | 0.00 | (7.15) |
| Transportation and storage costs | 0.00 | 89.10 | 0.00 | (9.50) |
| Operating Netbackper boe($) | N/A | 359.30 | N/A | 39.27 |
(1) There is no calculation in the period as there was no production.
(2) All production assets in Australia have been sold as of October 2020.
Operating netback per boe is the operating netback divided by barrels of oil equivalent sold in the applicable period. See nonGAAP measures for further explanation. These measures may not be comparable to similar measures presented by other issuers and should not be considered in isolation with measures that are prepared in accordance with IFRS.
General and Administrative Expenses (“G&A”)
| 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|
|---|---|---|---|---|
| Q4 | Q4 | 2021 | 2020 | |
| Consultingand director fees | 66 | 142 | 460 | 877 |
| Filing,listingand transfer agent | 15 | 38 | 123 | 109 |
| Insurance | 17 | 54 | 65 | 112 |
| Office and administration | 28 | 17 | 161 | 401 |
| Overhead recoveries | - | - | - | (91) |
| Professional fees | 124 | 183 | 360 | 509 |
| Rent | 17 | 59 | 75 | 222 |
| Reports | - | 30 | (5) | 25 |
| Shareholder relations and communications | 189 | 50 | 759 | 1,025 |
| Travel | 37 | 33 | 82 | 169 |
| Wages and salaries | 355 | 252 | 1,168 | 2,830 |
| Oil and Gas G&A expenses($000s) | 848 | 858 | 3,248 | 6,188 |
| Per boe($) (1) (2) | N/A | 4,492.15 | N/A | 25.06 |
(1) Per boe ($) is the G&A expenses divided by barrels of oil equivalent production volume for the applicable period.
(2) All production assets in Australia have been sold as of October 2020.
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Stock-based Compensation
| 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|
|---|---|---|---|---|
| Q4 | Q4 | 2021 | 2020 | |
| Stock-based compensation ($000s) | 62 | 34 | 272 | 48 |
| Per boe ($)(1) (2) | N/A | 176.46 | N/A | 0.19 |
(1) Per boe ($) is the stock-based compensation divided by barrels of oil equivalent production volume for the applicable period. (2) All production assets in Australia have been sold as of October 2020.
Stock-based compensation costs are non-cash charges, which reflect the theoretical estimated value of stock options granted. The Company applies the Black-Scholes option pricing model using the closing market prices on the grant dates and to date the Company has calculated option benefits using a volatility ratio and a risk-free interest rate. The theoretical fair value of the option benefit is amortized on a diminishing basis over the vesting period of the options, generally being a minimum of two years.
In the quarter ended March 31, 2021, the Company granted no options (December 31, 2020: nil) and no options were exercised (December 31, 2020: nil).
Stock-based compensation increased to $0.062 million in the quarter ended March 31, 2021, compared $0.034 million for the quarter ended March 31, 2020. The increase in total stock-based compensation costs is due to options granted in Q2 2021.
Depletion, Depreciation and Accretion (DD&A)
| 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|
|---|---|---|---|---|
| Q4 | Q4 | 2021 | 2020 | |
| Depletion, depreciation and accretion($000s) | 35 | (165) | 137 | 345 |
| Per boe($) (1) (2) | N/A | (863.55) | N/A | 1.4 |
(1) Per boe ($) is the depletion, depreciation and accretion divided by barrels of oil equivalent production volume for the applicable period. (2) All production assets in Australia have been sold as of October 2020.
DD&A expenses increased for the quarter ended March 31, 2021 to $0.035 million compared with ($0.165) million for the quarter ended March 31, 2020. The increase is due to the completion of the NZ Transaction on September 25, 2019 for the sale of the New Zealand producing assets.
Foreign Exchange (Gain) Loss
| 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|
|---|---|---|---|---|
| Q4 | Q4 | 2021 | 2020 | |
| Foreign exchange (gain) loss($000s) | (502) | (1,918) | 1,373 | (1,004) |
The foreign exchange loss for the quarter ended March 31, 2021 was a result of movement of the USD against the NZD and CDN.
Net (Loss) Income Before Tax, Income Tax and Net (Loss) Income After Tax
| 2021 | 2020 | Twelve months ended | Twelve months ended | |
|---|---|---|---|---|
| March 31, | ||||
| ($000s) | Q4 | Q4 | 2021 | 2020 |
| **Net (loss) income before tax ** | (3,327) | 3,882 | (11,958) | 7,932 |
| Income tax | - | 2 | - | 2 |
| Net(loss) income after tax | (3,327) | 3,884 | (11,958) | 7,934 |
| (Loss) incomeper share –basic($) | (0.04) | 0.05 | (0.13) | 0.09 |
| (Loss) incomeper share –diluted($) | (0.04) | 0.05 | (0.13) | 0.09 |
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Cash Flow
| 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|
|---|---|---|---|---|
| ($000s) | Q4 | Q4 | 2021 | 2020 |
| Operating cash flow(1) | (940) | 1,056 | (3,778) | 3,504 |
| Cashprovided by operating activities | (958) | 1,846 | (3,918) | 3,764 |
| Operating cash flowper share, basic($) | (0.01) | 0.02 | (0.04) | 0.04 |
| Operating cash flowper share, diluted($) | (0.01) | 0.02 | (0.04) | 0.04 |
(1) Operating cash flow is a non-GAAP measure. It represents cash flow from operating activities before changes in working capital. See non-GAAP measures for further explanation.
Operating cash flow decreased to ($3.8) million for the year ended March 31, 2021 compared to $3.5 million for the year ended March 31, 2020. The decrease due to the completion of the sale of Australia assets and completion of the NZ Transaction on September 25, 2019.
CAPITAL EXPENDITURES
Capital expenditures were $nil for the quarter ended March 31, 2021 and $0.1 million for the quarter ended March 31, 2020.
The expenditures are as follows:
| Taranaki Basin($000s) | 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|---|---|---|---|---|
| Q4 | Q4 | 2021 | 2020 | |
| Mining permits | - | - | - | 503 |
| Explorationpermits | - | - | - | 138 |
| Total Taranaki Basin | - | - | - | 641 |
| Australia Surat Basin($000s) | 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|---|---|---|---|---|
| Q4 | Q4 | 2021 | 2020 | |
| Explorationpermits | - | 114 | 156 | 344 |
| Total Surat Basin | - | 114 | 156 | 344 |
FUTURE CAPITAL EXPENDITURES
The Company had the following commitments for capital expenditure as at March 31, 2021:
| Contractual Obligations($000s) | Total | Less than One Year |
Two to Five Years |
More than Five Years |
|---|---|---|---|---|
| Operating leases(1) | 107 | 91 | 16 | - |
| Other long-term obligations | - | - | - | - |
| Total contractual obligations | 107 | 91 | 16 | - |
(1) The Company has commitments related to corporate office lease signed in Vancouver and Calgary, Canada.
The Company expects to manage its working capital on hand to meet its commitments that allow selective development and exploration. Commitments and work programs are subject to change as dictated by cashflow.
LIQUIDITY AND CAPITAL RESOURCES
| For theyears ended March 31, ($000s) | 2021 | 2020 |
|---|---|---|
| Cash and cash equivalents | 15,911 | 41,540 |
| Working capital | 17,025 | 43,662 |
Contractual obligations, next twelve months |
91 | 3,669 |
| Revenue | - | 16,448 |
| Cashflow from operating activities | (3,918) | 3,764 |
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As of the date of this report, the Company is monitoring its funding requirements and may adjust its current operations to ensure anticipated cash flow from the NZ Transaction royalty and event specific payments allows the Company to meet its commitments for the next twelve months. TAG’s management continues to adjust to changes in the price of oil as necessary to provide more certainty and liquidity for the Company as needed. The Company has cash available, and it continues to monitor commodity prices and cash flow. TAG will react to up or down movements in commodity prices and cash flow, which may result in taking on additional projects and obligations to improve productions and reserves.
The Company may require a source of financing in the event of adding material commitments, continued low oil prices, or any acquisitions.
NON-GAAP MEASURES
The Company uses certain terms for measurement within this MD&A that do not have standardized meanings prescribed by generally accepted accounting principles (“GAAP”), including IFRS, and these measurements may differ from other companies and accordingly may not be comparable to measures used by other companies. The term ’adjusted net (loss) income” is not a recognized measure under the applicable IFRS. Management of the Company believes that this term is useful to provide shareholders and potential investors with additional information, in addition to net income activities as defined by IFRS, for evaluating the Company’s recurring operating performance, excluding the impact of non-cash impairment charges.
| Operating Margin ($000s) | 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|---|---|---|---|---|
| Q4 | Q4 | 2021(1) (2) | 2020 | |
| Total revenue | 0 | (77) | 0 | 16,449 |
| Lessproduction costs | 0 | 39 | (98) | (4,917) |
| Less royalties | 0 | 121 | 0 | (1,474) |
| **Less transportation and storage ** | 0 | 28 | 0 | (1,959) |
| Operating margin | 0 | 111 | (98) | 8,099 |
(1) The productions had been shut-in in the prior quarters due to the requirement for repairs and have not been restarted due to precautions concerning COVID-19 and bringing in outside technical personnel into the area during the process.
(2) All production assets in Australia have been sold as of October 2020.
| Adjusted net (loss) income ($000s) | 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|---|---|---|---|---|
| Q4 | Q4 | 2021 | 2020 | |
| Adjusted net(loss) income | (550) | 1,492 | (5,051) | 3,097 |
| (Loss) gain on sale of PP&E | - | 1 | (2) | 217 |
| (Loss) gain on sale of disposalgroup | - | 2,235 | (3,885) | 4,256 |
| (Loss) gain on royalty valuation | (2,769) | 156 | (2,962) | 404 |
| Interest andpenalty recovered | 89 | - | 89 | - |
| Impairment of oil andgasproperty | (97) | - | (147) | (41) |
| Net(loss) income before tax | (3,327) | 3,884 | (11,958) | 7,933 |
OFF-BALANCE SHEET ARRANGEMENTS AND PROPOSED TRANSACTIONS
The Company has no off-balance sheet arrangements or proposed transactions.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The financial instruments on the Company’s balance sheet include cash, accounts receivable and accounts payable. The carrying value of these instruments approximates their fair value due to the short term nature of the instruments. The Company manages its risk through its policies and procedures, but other than as described above has not generally used derivative financial instruments to manage risks.
RELATED PARTY TRANSACTIONS
As required under IAS 24, related party transactions include compensation paid to the Company’s CEO, COO, Chairman and CFO as well as to the remaining board members as part of the ordinary course of the Company’s business. The Company reports that no related party transactions have occurred during the reporting period other than ongoing compensation as disclosed in the table below.
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The Company is of the view that the amounts incurred for services provided by related parties approximates what the Company would incur to arms-length parties for the same services. Compensation paid to key management is as follows:
| 2021 | 2020 | Twelve months ended March 31, |
Twelve months ended March 31, |
|
|---|---|---|---|---|
| ($000s) | Q4 | Q4 | 2021 | 2020 |
| Stock-based compensation | 60 | 8 | 219 | 32 |
| Management wages and director fees | 252 | 147 | 805 | 1,106 |
| Total Management Compensation | 312 | 155 | 1,024 | 1,138 |
SHARE CAPITAL
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a. At March 31, 2021, there were 91,666,252 common shares, 7,275,000 stock options outstanding and 6,250,000 warrants outstanding.
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b. At July 29, 2021, there were 91,766,252 common shares, 7,525,000 stock options outstanding and 6,250,000 warrants outstanding.
The Company has one class of common shares. No class A or class B preference shares have been issued.
SUBSEQUENT EVENTS
On June 1, 2021, the Company issued 100,000 shares for stock options exercised at $0.25 per share.
On June 28, 2021, the Company granted 700,000 stock options to various consultants. These stock options are exercisable until June 28, 2026, at a price of $0.45 per share and are subject to deferred vesting over two years.
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingencies. Such estimates primarily relate to unsettled transactions and events as of the date of the condensed consolidated interim financial statements. These estimates are subject to measurement uncertainty. Actual results could differ from and affect the results reported in these condensed consolidated interim financial statements.
Areas of judgment that have the most significant effect on the amounts recognized in these consolidated financial statements are recoverability, impairment and fair value of oil and gas properties, deferred tax assets and liabilities and functional currency.
Key sources of estimation uncertainty that have the most significant effect on the amounts recognized in these consolidated financial statements are: recoverability, impairment and fair value of oil and gas properties, deferred tax assets and liabilities, determination of the fair values of stock-based compensation and assessment of contingencies.
The decision to transfer exploration and evaluation assets to property, plant and equipment is based on management’s determination of an area's technical feasibility and commercial viability based on proved and probable reserves. The calculation of decommissioning liabilities includes estimates of the future costs to settle the liability, the timing of the cash flows to settle the liability, the risk-free rate and the future inflation rates. The rates used to calculate decommissioning liabilities are an inflation rate of 1.62% and a risk-free discount rate ranging from 0.33% to 1.56%, which prevailed at the date of these financial statements. The impact of differences between actual and estimated costs, timing, and inflation on the consolidated financial statements of future periods may be material.
Income taxes
The calculation of income taxes requires judgment in applying tax laws and regulations, estimating the timing of the reversals of temporary differences, and estimating the reliability of deferred tax assets. These estimates impact current and deferred income tax assets and liabilities, and current and deferred income tax expense (recovery).
Stock-based compensation
The calculation of stock-based compensation requires estimates of volatility, forfeiture rates and market prices surrounding the issuance of share options. These estimates impact stock-based compensation expense and stock-based payment reserve.
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Functional currency
The determination of a subsidiary’s functional currency often requires significant judgment where the primary economic environment in which they operate may not be clear. This can have a significant impact on the consolidated results of the Company based on the foreign currency translation methods used. Contingencies
Contingencies are resolved only when one or more events transpire. As a result, the assessment of contingencies inherently involves estimating the outcome of future events.
FUTURE CHANGES IN ACCOUNTING POLICIES
None noted.
CHANGES IN ACCOUNTING POLICIES
None noted.
BUSINESS RISKS AND UNCERTAINTIES
The Company, like all companies in the international oil and gas sector, is exposed to a variety of risks which include title to oil and gas interests, the uncertainty of finding and acquiring reserves, funding and developing those reserves and finding storage and markets for them. In addition there are commodity price fluctuations, interest and exchange rate changes and changes in government regulations. The oil and gas industry is intensely competitive and the Company must compete against companies that have larger technical and financial resources. The Company works to mitigate these risks by evaluating opportunities for acceptable funding, considering farm-out opportunities that are available to the Company, operating in politically stable countries, aligning itself with joint venture partners with significant international experience and by employing highly skilled personnel. The Company also maintains a corporate insurance program consistent with industry practice to protect against losses due to accidental destruction of assets, well blowouts and other operating accidents and disruptions. The oil and gas industry is subject to extensive and varying environmental regulations imposed by governments relating to the protection of the environment and the Company is committed to operate safely and in an environmentally sensitive manner in all operations.
There have been no significant changes in these risks and uncertainties during the year ended March 31, 2021.
Please also refer to Forward Looking Statements.
Management’s Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
There have been no changes in the Company's internal control over financial reporting during the period ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
The following pertains to the Company’s MD&A for the period ended March 31, 2021, confirming that the Company is in compliance with disclosure controls and procedures and internal controls over the financial reporting period:
The Company’s management, with the participation of its CEO and CFO, have evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s CEO and CFO have concluded that, as of the end of the year covered by this report, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports it files is recorded, processed, summarized and reported, within the appropriate time periods. Required information is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
The Company's management, including the CEO and the CFO, are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the Company's CEO and CFO and effected by the board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of condensed consolidated interim financial statements for external purposes in accordance with IFRS. The Company's internal control over financial reporting includes those policies and procedures that:
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pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets and liabilities of the Company;
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provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the company; and
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provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the condensed consolidated interim financial statements.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2021. In making the assessment, it used the criteria set forth in the Internal Controls Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on their assessment, management has concluded that, as of March 31, 2021, the Company’s internal control over financial reporting was effective based on those criteria.
Additional information relating to the Company is available on Sedar at www.sedar.com.
FORWARD LOOKING STATEMENTS
The MD&A contains forward-looking statements within the meaning of securities laws, including the “safe harbour” provisions of Canadian securities legislation. Forward-looking statements and information concerning anticipated financial performance are based on management’s assumptions using information currently available. Material factors or assumptions used to develop forward-looking information include drilling programs and results, facility and pipeline construction operations and enhancements, potential business prospects, growth strategies, the ability to add production and reserves through development and exploration activities, the ability to reduce costs and extend commitments, projected capital costs, government legislation, well performance, the ability to market production, the commodity price environment and quality differentials and exchange rates. Management also assumes that the Company will continue to be able to maintain permit tenures in good standing, that the Company will be able to access equity capital when required and that the Company will maintain access to necessary oil and gas industry services and equipment to conduct its operations. Although management considers its assumptions to be reasonable based on these factors, they may prove to be incorrect.
Forward-looking information is often, but not always, identified by the use of words such as “anticipate”, “assume”, “believe”, “estimate”, “expect”, “forecast”, “guidance”, “may”, “plan”, “predict”, “project”, “should”, “will”, or similar words suggesting future outcomes. Forward-looking statements in this MD&A include, but are not limited to, statements with respect to: oil and natural gas operations and acquisitions; statements regarding boe/d production capabilities; and other statements set out herein. Also included in this MD&A are forward-looking statements regarding the achievement of any of the event specific payments and the benefits to TAG of the gross overriding royalties. In making the forward-looking statements in this release, TAG has applied certain factors and assumptions that are based on information currently available to TAG as well as TAG’s current beliefs and assumptions made by TAG, including that the NZ Transaction will benefit TAG, that TAG’s New Zealand business will continue to be operated by Tamarind in a way that is beneficial to TAG and results in the achievement of the event specific payments and payment pursuant to the gross overriding royalty. The Agreement will benefit TAG as well, that TAG’s Australian business will continue to be operated by Luco in a way that is beneficial to TAG and results in the payment pursuant to the gross overriding royalty.
Because forward-looking information addresses future events and conditions, it involves risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking information. These risks and uncertainties include, but are not limited to: access to capital, commodity price volatility; well performance and marketability of production; transportation and refining availability and costs; exploration and development costs; infrastructure costs; the recoverability of reserves; reserves estimates and valuations; the Company’s ability to add reserves through development and exploration activities; accessibility of services and equipment; fluctuations in currency exchange rates; and changes in government legislation and regulations. Risks with respect to the Transaction include the risk that TAG’s New Zealand business will not be operated in a way that is beneficial to TAG or results in the achievement of the event specific payments pursuant to the gross overriding royalty. Risks with respect to the Agreement include the risk that TAG’s Australian business will not be operated in a way that is beneficial to TAG or results in the achievement of the pursuant to the gross overriding royalty.
The forward-looking statements contained herein are as of March 31, 2021 and are subject to change after this date. Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive and as such undue reliance should not be placed on forward-looking statements. Except as required by applicable securities laws, with the exception of events or circumstances that occurred during the period to which the MD&A relates that are reasonably likely to cause actual results to differ materially from material forward-looking information for a period that is not yet complete that was previously disclosed to the public, the Company disclaims any intention or obligation to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
Disclosure provided herein in respect of boe (barrels of oil equivalent) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
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CORPORATE INFORMATION
DIRECTORS AND OFFICERS
Abdel (Abby) Badwi, Executive Chairman and Director Alberta, Canada
BANKER
Bank of Montreal Vancouver, British Columbia
LEGAL COUNSEL
Toby Pierce, CEO and Director British Columbia, Canada
Keith Hill, Director Florida, USA
Blake, Cassels & Graydon LLP Vancouver, British Columbia Greenwood Roche Wellington, New Zealand
AUDITORS
Thomas Hickey, Director Maisons-Laffitte, France
Shawn Reynolds, Director New Jersey, USA
Gavin Wilson, Director Zurich, Switzerland
Suneel Gupta, VP and COO Alberta, Canada
Barry MacNeil, CFO British Columbia, Canada
Giuseppe (Pino) Perone, General Counsel and Corporate Secretary British Columbia, Canada
CORPORATE OFFICE
885 W. Georgia Street Suite 2040 Vancouver, British Columbia Canada V6C 3E8 Telephone: 1-604-682-6496 Facsimile: 1-604-682-1174
De Visser Gray LLP Chartered Professional Accountants Vancouver, British Columbia
REGISTRAR AND TRANSFER AGENT
Computershare Investor Services Inc. 100 University Avenue, 9[th] Floor Toronto, Ontario Canada M5J 2Y1 Telephone: 1-800-564-6253 Facsimile: 1-866-249-7775
The Annual General Meeting was held on November 17, 2020 at 11:00 am in Vancouver, B.C, Canada.
SHARE LISTING
TSX Venture Exchange (TSX-V) Trading Symbol: TAO OTCQX Trading Symbol: TAOIF
SHAREHOLDER RELATIONS Telephone: 604-682-6496 Email: [email protected]
SHARE CAPITAL
At July 29, 2021, there were 91,766,252 shares issued and outstanding. Fully diluted: 105,541,252 shares.
WEBSITE www.tagoil.com
SUBSIDIARIES (at March 31, 2021)
TAG Oil (NZ) Limited TAG Oil (Offshore) Limited Trans-Orient Petroleum Ltd.
Orient Petroleum (NZ) Limited CX Oil Limited
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