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Tuktu Resources Ltd. — Management Reports 2025
Apr 24, 2025
44385_rns_2025-04-23_bf4e9469-e589-4d91-89c4-59d2108f9e35.pdf
Management Reports
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Tuktu Resources Ltd.
Management's Discussion and Analysis
As at December 31, 2024 and for the three months and year ended December 31, 2024
The following Management's Discussion and Analysis (the "MD&A") of financial results has been prepared by the management of Tuktu Resources Ltd. ("Tuktu" or the "Company") as at December 31, 2024 and for the three months and years ended December 31, 2024 and 2023 should be read in conjunction with the audited financial statements for the years ended December 31, 2024 and 2023 (the "Financial Statements") and related notes thereto. The date of this MD&A is April 23, 2025.
The financial data presented has been prepared by management in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and in accordance with the requirements of National Instrument 51-102 – Continuous Disclosure Requirements. The reporting currency in the Financial Statements and in this MD&A is Canadian dollars, unless otherwise stated. Additional information relating to the Company is available on the Company's website at www.tukturesources.com and on the Company's SEDAR+ profile at www.sedarplus.ca.
Description of the Company
Tuktu is a publicly traded company incorporated on November 28, 1994, in the Province of Alberta. The common shares in the capital of Tuktu (the "Common Shares") are listed on the TSX Venture Exchange (the "TSXV") under the symbol "TUK". The Company is in the business of oil and natural gas exploration, development and production. The Company's head office is located at 1750, 444 – 5th Avenue S.W., Calgary, Alberta T2P 2T8, and its registered office is located at 4200 Bankers Hall West, 888 – 3rd Street S.W., Calgary, Alberta T2P 5C5.
Financial and Operational Highlights
| ($, except share #’s) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Financial Highlights | ||||||
| Petroleum and natural gas sales | 2,438,647 | 536,548 | 355% | 6,104,874 | 1,590,787 | 284% |
| Cash flow used in operating activities | (361,910) | (84,444) | 329% | (1,750,212) | (1,015,544) | 72% |
| Per share - basic | (0.00) | (0.00) | 0% | (0.01) | (0.01) | 0% |
| Per share - diluted | (0.00) | (0.00) | 0% | (0.01) | (0.01) | 0% |
| Adjusted funds flow from (used in) operations (1) | 281,500 | (59,477) | 573% | (1,021,772) | (978,089) | 4% |
| Per share - basic | 0.00 | (0.00) | 0% | (0.01) | (0.01) | 0% |
| Per share - diluted | 0.00 | (0.00) | 0% | (0.01) | (0.01) | 0% |
| Net income (loss) | 396,709 | 925,119 | (57)% | (2,659,562) | 1,193,531 | (323)% |
| Per share - basic | 0.00 | 0.01 | (100)% | (0.02) | 0.01 | (300)% |
| Per share - diluted | 0.00 | 0.01 | (100)% | (0.02) | 0.01 | (300)% |
| Total capital expenditures (1) | 343,640 | 4,415 | 7,683% | 2,204,568 | 2,072,988 | 6% |
| Adjusted working capital (1) | 8,831,092 | 887,469 | 895% | 8,831,092 | 887,469 | 895% |
| Number of common shares outstanding | ||||||
| Common shares outstanding, end of period | 259,813,919 | 114,944,858 | 126% | 259,813,919 | 114,944,858 | 126% |
| Weighted average outstanding - basic | 196,738,030 | 84,395,181 | 133% | 145,162,939 | 81,301,773 | 79% |
| Weighted average outstanding - diluted | 259,181,423 | 84,395,181 | 207% | 145,162,939 | 81,301,773 | 79% |
(1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
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| Three months ended, December 31, | Year ended, December 31, | |||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Operating Highlights | ||||||
| Average production volumes | ||||||
| Crude oil (bbls/d) | 271 | 2 | 13,450% | 156 | 1 | 15,500% |
| Natural gas (mcf/d) | 2,236 | 2,381 | (6)% | 2,102 | 1,686 | 25% |
| Total (boe/d) | 644 | 399 | 61% | 506 | 282 | 80% |
| % natural gas | 58% | 99% | (42)% | 69% | 99% | (30)% |
| Average realized prices | ||||||
| Crude oil ($/bbl) | 85.14 | 75.34 | 13% | 85.85 | 85.37 | 1% |
| Natural gas ($/mcf) | 1.54 | 2.39 | (36)% | 1.56 | 2.51 | (38)% |
| Petroleum and natural gas sales ($/boe) | 41.18 | 14.62 | 182% | 32.94 | 15.43 | 113% |
| Operating netback ($/boe) | ||||||
| Petroleum and natural gas sales | 41.18 | 14.62 | 182% | 32.94 | 15.43 | 113% |
| Royalties | (9.40) | (1.32) | 612% | (7.92) | (2.34) | 238% |
| Operating expenses | (16.93) | (5.61) | 202% | (15.10) | (7.38) | 105% |
| Transportation expenses | (1.83) | (1.25) | 46% | (1.23) | (1.23) | - |
| Operating netback (1) | 13.02 | 6.44 | 102% | 8.69 | 4.48 | 94% |
(1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
Acquisitions
On May 27, 2024, the Company closed an acquisition of southern Alberta oil assets. As consideration for the assets, the Company paid $1,463,405 cash before final customary adjustments. The Company incurred transaction costs of $49,072 on the acquisition which were capitalized to property, plant and equipment.
On March 17, 2023, the Company closed an acquisition of southern Alberta light oil assets. The assets include a contiguous block (and some proximal lands), comprising 19 gross (approximately 13.5 net) sections. These lands are on the eastern edge of the Alberta thrust belt, and contain Palezoic and Mesozic, clastic and carbonate reservoirs, some of which are light oil prone. The assets also include one oil well which has intermittent production. As consideration for the assets, the Company issued 10,000,000 units of Tuktu (each unit comprising of one Common Share and one Common Share purchase warrant) and paid $100,000 of cash consideration, before customary adjustments. The Company incurred transaction costs of $28,566 on the acquisition which were capitalized to property, plant and equipment.
On April 14, 2023, the Company closed an acquisition of southern Alberta natural gas assets. The assets are mostly late-life, Foothills Cretaceous age natural gas assets with production of approximately 2.44 MMcf/d (406 boe/d). The assets also include approximately 8,331 gross (8,261 net) land and a sweet gas plant. As consideration for the assets, the Company paid $2,267,062 cash. The Company incurred transaction costs of $20,643 on the acquisition which were capitalized to property, plant and equipment.
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Investments
On October 13, 2023, the Company closed the sale of 90% interest of its mining claims in the Isintok property to Cascade Copper Corp. The consideration was satisfied through the issuance of 2,150,538 units of Cascade at a deemed price of $0.093 per unit. Each unit is comprised of one Common Share and one-half of one Common Share purchase warrant, each whole warrant being exercisable for one Common Share at an exercise price of $0.15 for a period of three years. These units vested on September 28, 2024. On December 31, 2024, the investment was revalued to its fair value of $107,374, resulting in a $93,212 unrealized loss being recognized in the statement of income (loss). The fair value of the warrants was estimated using the Black-Scholes pricing model with the following assumptions:
| December 31, 2024 | December 31, 2023 | |
|---|---|---|
| Share price | $ 0.035 | $ 0.065 |
| Risk-free interest rate | 3.01% | 3.26% |
| Expected life (years) | 1.78 | 2.78 |
| Expected volatility | 265% | 203% |
| Fair value | $ 0.030 | $ 0.057 |
Production
| (6:1 boe conversion) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Daily production: | ||||||
| Crude oil (bbls/d) | 271 | 2 | 13,450% | 156 | 1 | 15,500% |
| Natural gas (mcf/d) | 2,236 | 2,381 | (6)% | 2,102 | 1,686 | 25% |
| Total (boe/d) | 644 | 399 | 61% | 506 | 282 | 80% |
| % Natural gas | 58% | 99% | (42)% | 69% | 99% | (30)% |
Fourth quarter 2024 production averaged 644 boe/d (58% natural gas, 42% crude oil), up 61% from 399 boe/d (99% natural gas, 1% crude oil) in the fourth quarter of 2023. Natural gas production in the fourth quarter of 2024 decreased to 2,236 mcf/d from 2,381 mcf/d in the fourth quarter of the prior year due to natural production declines. Oil production in the fourth quarter of 2024 increased to 271 bbls/d from 2 bbls/d in the fourth quarter of 2023 due to the acquisition of the southern Alberta oil assets which closed on May 27, 2024 contributing 122 bbls/d for the fourth quarter and the production from the light oil discovery well in the southern Alberta Deep Basin contributing 148 bbls/d for the fourth quarter while only being on production for 39 days due to regulatory constraints.
For the year ended December 31, 2024, production increased 80% to 506 boe/d (69% natural gas, 31% crude oil) from 282 boe/d (99% natural gas, 1% crude oil) in the comparative period of 2023 due to the impact and timing of acquisitions and production from the discovery well noted above.
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Petroleum and Natural Gas Sales
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Crude oil | 2,122,677 | 13,437 | 15,697% | 4,901,814 | 44,768 | 10,849% |
| Natural gas | 315,970 | 523,111 | (40)% | 1,203,060 | 1,546,019 | (22)% |
| Total petroleum and natural gas sales | 2,438,647 | 536,548 | 355% | 6,104,874 | 1,590,787 | 284% |
Total petroleum and natural gas sales for the three months and year ended December 31, 2024, were $2,438,647 and $6,104,874, respectively, as compared to $536,548 and $1,590,787 in the comparable periods of 2023 due to higher oil production volumes and realized oil prices partially offset by lower natural gas production and lower realized natural gas prices.
Benchmark and Realized Prices
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Averaged realized prices: | ||||||
| Crude oil ($/bbl) | 85.14 | 75.34 | 13% | 85.85 | 85.37 | 1% |
| Natural gas ($/mcf) | 1.54 | 2.39 | (36)% | 1.56 | 2.51 | (38)% |
| Barrels of oil equivalent ($/boe)(1) | 41.18 | 14.62 | 182% | 32.94 | 15.43 | 113% |
| Benchmark prices: | ||||||
| WTI ($US/bbl) | 70.27 | 78.32 | (10)% | 76.27 | 77.62 | (2)% |
| Edmonton Light ($/bbl) | 94.91 | 99.71 | (5)% | 97.88 | 100.52 | (3)% |
| AECO natural gas ($/Mcf) | 1.48 | 2.30 | (36)% | 1.42 | 2.64 | (46)% |
| Exchange rate (US$/C$) | 1.40 | 1.36 | 3% | 1.37 | 1.35 | 1% |
(1) Disclosure of production on a per boe basis in this MD&A consists of the constituent product types and their respective quantities. Refer to the "BOE Presentation" section of this MD&A
The Company takes most of its working interest production "in kind" which is marketed and sold through various credit-worthy purchasers. The price realized by the Company for natural gas production is determined by the AECO benchmark and based on Canadian fundamentals. The price received by the Company for its oil production is primarily driven by the price of West Texas Intermediate ("WTI"), which is adjusted for quality and a differential.
The AECO natural gas benchmark declined 36% and 46% during the three months and year ended December 31, 2024 as compared to the comparable periods of 2023. The Company's realized natural gas prices followed a similar trend declining 36% and 38% during the three months and year ended December 31, 2024 as compared to the comparable periods of 2023.
The Company's realized oil prices increased 13% and 1% during the three months and year ended December 31, 2024 as compared to the comparable periods of 2023. This is due to the 2024 production from the southern Alberta oil assets which attract a higher oil price.
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Royalty Expenses
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Royalty expenses | 557,193 | 48,487 | 1,049% | 1,467,349 | 240,964 | 509% |
| Royalty rate | 23% | 9% | 153% | 24% | 15% | 59% |
| Per boe ($) | 9.40 | 1.32 | 612% | 7.92 | 2.34 | 238% |
Royalty expenses consist of crown royalties payable to the Alberta provincial government, freehold mineral rights owners and royalty contract owners. Royalties are calculated based on revenue less allowed costs of transportation and processing and are generally expressed as a percentage of revenue. Royalty rates can vary due to several factors including commodity prices, mix of production subject to each type of royalty, commodity produced, production rate, royalty contract terms, and royalty incentive schemes.
Total royalties for the three months ended December 31, 2024 were $557,193 or 23% royalty rate as compared to $48,487 or 9% royalty rate in the comparable period in 2023. For the year ended December 31, 2024, royalties were $1,467,349 or 24% royalty rate compared to $240,964 or 15% royalty rate for the same period of 2023. On a royalty rate basis, royalties increased due to the production from the southern Alberta Deep Basin oil discovery well which attracted a high crown royalty rate due to the high production rates.
Operating Expenses
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Operating expenses | 1,002,940 | 205,968 | 387% | 2,799,227 | 761,388 | 268% |
| Per boe ($) | 16.93 | 5.61 | 202% | 15.10 | 7.38 | 105% |
For the three months ended December 31, 2024, operating expenses increased to $1,002,940 from $205,968 in the comparable period of 2023. The increase was due to an increase in higher cost oil production. On a per boe basis, operating expenses for the three months ended December 31, 2024, were $16.93/boe compared to $5.61/boe in the comparable period of 2023.
For the year ended December 31, 2024, operating expenses increased to $2,799,227 from $761,388 in the comparable period of 2023. The increase was due to $338,587 spent on well workovers and an increase in higher cost oil production. On a per boe basis, operating expenses for the year ended December 31, 2024, were $15.10/boe compared to $7.38/boe in the comparable period of 2023.
Transportation Expenses
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Transportation expenses | 108,713 | 46,035 | 136% | 228,248 | 126,602 | 80% |
| Per boe ($) | 1.83 | 1.25 | 46% | 1.23 | 1.23 | - |
Transportation expenses include clean oil trucking and natural gas transportation from the field to the sales point. Transportation costs for the three months ended December 31, 2024 increased to $108,713 from
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$46,035 in the comparable period of 2023. The increase is due to clean oil trucking costs incurred in the fourth quarter of 2024 due to increased production.
Transportation expenses for the year ended December 31, 2024 were $228,248 compared to $126,602 in the year ended December 31, 2023. The 80% increase in the year ended December 31, 2024 compared to the year ended December 31, 2023 is due to there being no production during the first quarter of 2023 and increased clean oil trucking costs incurred in the fourth quarter of 2024 due to increased production.
Operating Netback
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Total petroleum and natural gas sales | 2,438,647 | 536,548 | 355% | 6,104,874 | 1,590,787 | 284% |
| Royalties | (557,193) | (48,487) | 1,049% | (1,467,349) | (240,964) | 509% |
| Operating expenses | (1,002,940) | (205,968) | 387% | (2,799,227) | (761,388) | 268% |
| Transportation expenses | (108,713) | (46,035) | 136% | (228,248) | (126,602) | 80% |
| Operating netback(1) | 769,801 | 236,058 | 226% | 1,610,050 | 461,833 | 249% |
| ($/boe) | Three months ended, December 31, | Year ended, December 31, | ||||
| --- | --- | --- | --- | --- | --- | --- |
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Total petroleum and natural gas sales | 41.18 | 14.62 | 182% | 32.94 | 15.43 | 113% |
| Royalties | (9.40) | (1.32) | 612% | (7.92) | (2.34) | 238% |
| Operating expenses | (16.93) | (5.61) | 202% | (15.10) | (7.38) | 105% |
| Transportation expenses | (1.83) | (1.25) | 46% | (1.23) | (1.23) | - |
| Operating netback(1) | 13.02 | 6.44 | 102% | 8.69 | 4.48 | 94% |
(1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
For the three months ended December 31, 2024, operating netback was 226% higher than the comparable period of 2023 due to increased production and higher realized prices, partially offset by higher royalties, operating expenses and transportation expenses. On a boe basis, operating netback was 102% higher primarily due to higher realized pricing, partially offset by higher royalties, operating expenses and transportation expenses as compared to the same period of 2023.
For the year ended December 31, 2024, operating netback was 249% higher than the comparable period of 2023 due to increased production and higher realized prices, partially offset by higher royalties, operating expenses and transportation expenses. On a boe basis, operating netback was 94% higher primarily due to higher realized pricing, partially offset by higher royalties and operating expenses as compared to the same period of 2023.
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General and Administrative ("G&A") Expenses
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| G&A expenses | 579,802 | 289,460 | 100% | 1,766,634 | 1,429,671 | 24% |
| Capitalized salaries and overhead recoveries | (127,096) | - | 100% | (249,226) | - | 100% |
| Net G&A expenses | 452,706 | 289,460 | 56% | 1,517,408 | 1,429,671 | 6% |
| Per boe ($) | 7.64 | 7.89 | (3)% | 8.19 | 13.87 | (41)% |
For the three months and year ended December 31, 2024, net G&A expenses were $452,706 and $1,517,408, respectively, compared to $289,460 and $1,429,671 in the comparable periods of 2023. Increases in net G&A expenses were a result of increased salaries and professional fees partially offset by capitalized G&A related to Tuktu's higher capital expenditure program as compared to the same periods of 2023.
Net G&A expenses per boe for the three months and year ended December 31, 2024 were $7.64/boe and $8.19/boe, respectively compared to $7.89/boe and $13.87/boe in the comparable periods of 2023 due to the increase in production partially offset by increases in salaries and professional fees.
Share-based Compensation
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Stock options | 51,517 | 50,133 | 3% | 127,019 | 198,897 | (36)% |
| Capitalized share-based compensation | (17,399) | - | 100% | (28,961) | - | 100% |
| Share based compensation | 34,118 | 50,133 | (32)% | 98,058 | 198,897 | (51)% |
| Per boe ($) | 0.58 | 1.37 | (58)% | 0.53 | 1.93 | (73)% |
The Company has a stock option plan under which stock options ("Options") to purchase Common Shares of the Company may be granted to directors, officers, employees and consultants. During the three months and year ended December 31, 2024, the Company recorded gross share-based compensation expense of $51,517 and $127,019, respectively compared to $50,133 and $198,897 in the comparable periods of 2023. The Company capitalizes share-based compensation expense related to petroleum and natural gas exploration and development activities. For the three months and year ended December 31, 2024, the Company recorded capitalized share-based compensation expense of $17,399 and $28,961, respectively compared to $nil in the comparable periods of 2023 as a result of the increased capital program.
The following table summarizes the outstanding Options outstanding and exercisable as at December 31, 2024. The Options that are not exercisable vest as to one-third on each of the first, second and third anniversaries of their grant date, respectively.
| Issued | Number outstanding | Expiry | Exercise price ($) | Exercisable |
|---|---|---|---|---|
| 23-Mar-22 | 1,000,000 | 23-Mar-27 | 0.08 | 1,000,000 |
| 25-Jul-22 | 4,650,000 | 25-Jul-27 | 0.15 | 4,650,000 |
| 13-Dec-22 | 950,000 | 13-Dec-27 | 0.15 | 950,000 |
| 17-Jul-24 | 6,000,000 | 17-Jul-29 | 0.05 | - |
| 03-Dec-24 | 7,200,000 | 03-Dec-29 | 0.09 | - |
| 12-Dec-24 | 440,000 | 12-Dec-29 | 0.09 | - |
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Depletion and Depreciation
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Depletion and depreciation | 616,257 | 227,646 | 171% | 2,390,360 | 647,710 | 269% |
| Per boe ($) | 10.40 | 6.20 | 68% | 12.89 | 6.28 | 105% |
Depletion of oil and gas assets is calculated using the unit-of-production method which is based on production volumes in relation to the proved plus probable reserves base and the associated future development costs. Depletion and depreciation expenses for the three months and year ended December 31, 2024 were $616,257 and $2,390,360 respectively, compared to $227,646 and $647,710 for the comparable periods of 2023. The increases in 2024 were due to the impact of the acquisition of the southern Alberta oil assets and the successful southern Alberta Deep Basin oil well discovery which added additional oil volumes and future development costs. The above noted also increased reserves.
On a per boe basis, the depletion and depreciation expense for the three months and year ended December 31, 2024 increased to $10.40 and $12.89, respectively, compared to $6.20 and $6.28 in the comparable periods of 2023 due to the higher depletion rate on the oil production.
Finance Income and Expense
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Finance income | ||||||
| Interest on short term investments | 32,664 | 48 | 67,950% | 36,705 | 45,196 | (19)% |
| Finance expense | ||||||
| Part XII.6 interest on flow through expenditures under the look-back rule | (4,634) | (4,230) | 10% | (18,768) | (15,819) | 19% |
| Accretion | (28,921) | (68,408) | (58)% | (108,595) | (94,650) | 15% |
| Promissory note | (75,422) | - | 100% | 211,077 | - | 100% |
| Other finance expense | (1,014) | (63) | 1,510% | (3,431) | (271) | 1,166% |
| Net finance income (expense) | (77,327) | (72,653) | 6% | 116,988 | (65,544) | 278% |
| Per boe ($) | (1.30) | (1.98) | (34)% | 0.63 | (0.64) | 198% |
Finance income includes cash interest received from the Company's short-term investments and mineral property security deposits. Finance expenses include accrued interest on Part XII.6 on flow through expenditures under the look-back rule, accretion on the Company's decommissioning liabilities, accretion on the promissory note and other finance expenses. Net finance expense increased to $77,327 in the three months ended December 31, 2024 compared to $72,653 in the comparable period of 2023 due to the changes to the book value of the promissory note partially offset by the increase in interest income.
Net finance income (expenses) increased to $116,988 income in the year ended December 31, 2024 compared to ($65,544) expense for the year ended December 31, 2024 due to the changes in the book value of the promissory note.
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Taxes
The following table outlines the Company's estimated tax pools as at December 31, 2024:
| ($) | Year ended, December 31, | |
|---|---|---|
| 2024 | 2023 | |
| Canadian oil and gas property expense | 3,314,305 | 2,492,021 |
| Canadian development expenses | 1,189,716 | 570,255 |
| Canadian exploration expenses | 2,008,802 | 2,008,802 |
| Undepreciated capital cost | 567,868 | 499,288 |
| Non-capital losses (1) | 8,173,447 | 7,036,034 |
| Share issue costs | 1,547,218 | 423,716 |
| Income tax credits (2) | 19,592 | 19,592 |
| Estimated tax pools | 16,820,948 | 13,049,708 |
(1) The non-capital losses will expire between 2026 and 2044
(2) The income tax credits will expire between 2028 and 2029
Cash Flow used in Operating Activities, Adjusted Funds Flow From (Used) in Operations and Net Income (Loss)
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Cash flow used in operating activities | (361,910) | (84,444) | 329% | (1,750,212) | (1,015,544) | 72% |
| Adjusted funds flow from (used in) operations(1) | 281,500 | (59,477) | 573% | (1,021,772) | (978,089) | 4% |
| Net income (loss) | 396,709 | 925,119 | (57)% | (2,659,562) | 1,193,531 | (323)% |
| Per share - basic | - | 0.01 | (100)% | (0.02) | 0.01 | (300)% |
| Per share - diluted | - | 0.01 | (100)% | (0.02) | 0.01 | (300)% |
(1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
Cash flow used in operating activities increased 329% for the three months ended December 31, 2024 as compared to the comparable period of 2023 primarily due to the increase in accounts receivable at December 31, 2024 related to December 2024 revenue. Adjusted funds flow from (used in) operations for the three months ended December 31, 2024 flipped from adjusted funds flow used in operations in 2023 to adjusted funds flow from operations in 2024 primarily due to the increase in the operating netback. Net income decreased 57% for the three months ended December 31, 2024 as compared to the comparable period of 2023 due primarily to the remeasurement gain on warrant liability in the fourth quarter of 2023.
Cash flow used in operating activities increased 72% for the year ended December 31, 2024 as compared to the comparable period of 2023 primarily due to the Company posting a $1,234,834 security deposit with the Alberta Energy Regulator. Net loss increased 323% for the year ended December 31, 2024 as compared to the comparable period of 2023 due primarily to the $393 thousand remeasurement loss on warrant liability recognized in the year ended December 31, 2024 compared to a $2.9 million remeasurement gain in same period of 2023. The purchase of the southern Alberta oil assets in the second quarter of 2024 and the production from the subsequent southern Alberta Deep Basin oil well discovery has increased petroleum and natural gas sales and the corresponding operating expenses, transportation expenses and depletion. Overall, the impact has been positive to operating netbacks and net income.
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Capital Expenditures
| ($) | Three months ended, December 31, | Year ended, December 31, | ||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | change | 2024 | 2023 | change | |
| Land and geological and geophysical | 46,547 | 2,154 | 2,061% | 76,382 | 9,552 | 700% |
| Drilling and completions | 103,722 | - | 100% | 565,751 | - | 100% |
| Other | 133,319 | - | 100% | 249,030 | 9,092 | 2,639% |
| 283,588 | 2,154 | 13,066% | 891,163 | 18,644 | 4,680% | |
| Property acquisitions | 60,052 | 2,261 | 2,556% | 1,313,405 | 2,416,271 | (46)% |
| Property dispositions | - | - | - | - | (361,927) | (100)% |
| Total capital expenditures (1) | 343,640 | 4,415 | 7,683% | 2,204,568 | 2,072,988 | 6% |
(1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
During the three months ended December 31, 2024, the Company invested a total of $343,640 on capital expenditures including $46,547 on land and geophysical, $103,722 on completions and $60,052 on property acquisitions.
During the year ended December 31, 2024, the Company invested a total of $2,204,568 on capital expenditures including $76,382 on land and geophysical, $565,751 on completions and $1,313,405 on property acquisitions.
Warrant Liability
As part of the July 15, 2022 unit offering, the Company issued 51,941,773 Common Share purchase warrants (the "2022 Warrants"). Each 2022 Warrant entitles its holder to acquire one Common Share at an exercise price of $0.11 prior to July 15, 2026. The 2022 Warrants vest and become exercisable as to one-third upon the 20-day volume weighted average trading price of the Common Shares equaling or exceeding $0.13, $0.155 and $0.18, respectively. The warrants issued were classified as a financial liability as a result of a cashless exercise provision. As at December 31, 2024, there were 51,941,773 warrants outstanding of which two-thirds have vested and are exercisable.
Subsequent to December 31, 2024, there were 1,938,086 2022 Warrants exercised for 1,667,228 Common Shares. Total cash proceeds from the exercises totaled $172,048. 374,012 2022 Warrants were exercised on a cashless basis. At the date of this MD&A there were 50,003,687 2022 Warrants outstanding.
The 2022 Warrants are revalued every reporting period using the Black Scholes option pricing model. For the year ended December 31, 2024, the Company recognized a remeasurement loss of $393,476 (year ended December 31, 2023: $2,903,465 gain). The inputs into the Black Scholes model are shown below:
| December 31, 2024 | December 31, 2023 | |
|---|---|---|
| Share price | $ 0.09 | $ 0.05 |
| Risk-free interest rate | 3.01% | 3.26% |
| Expected life (years) | 1.54 | 2.54 |
| Expected volatility (1) | 50% | 63% |
| Fair value | $ 0.017 | $ 0.009 |
(1) Expected volatility is based on historical peer group volatility.
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Share Capital
On March 17, 2023, the Company closed an acquisition of assets for a purchase price of $1.3 million, which was satisfied through the issuance of 10,000,000 units of Tuktu, each unit being comprised of one Common Share and one Common Share purchase warrant (each, an "Acquisition Warrant"). The Acquisition Warrants are exercisable at $0.30 per Common Share for a period of three years. The units were recognized at an ascribed value of $317,200 to the Acquisition Warrants and $882,800 to the Common Shares.
On December 28, 2023, the Company completed a brokered private placement of 31,938,299 units of the Company at a price of $0.05 per unit for aggregate gross proceeds of $1,596,915, each unit being comprised of one Common Share and one Common Share purchase warrant (each, a "2023 Warrant"). Each 2023 Warrant entitles holders to acquire one Common Share at an exercise price of $0.075 prior to December 28, 2026. The units were recognized at an ascribed value of $449,558 to the 2023 Warrants and $1,147,357 to the Common Shares. In connection with the brokered private placement, the Company recorded $392,750 in share issue costs comprised of $240,991 in cash commissions and fees, $116,915 related to the issuance of 2,338,300 units to the agent, and the calculated fair value of the $34,844 associated with 1,398,400 broker warrants issued to the agent and certain selling group members.
On May 28, 2024, the Company completed a brokered private placement of 26,950,000 units at a price of $0.05 per unit for aggregate proceeds of $1,347,500 and issued 1,000,000 units to the agent in lieu of cash commissions. Each unit issued was comprised of one Common Share and one Common Share purchase warrant (each, a "May 2024 Warrant"). Each May 2024 Warrant entitles holders to acquire one Common Share at an exercise price of $0.075 prior May 28, 2027. The units were recognized at an ascribed value of $368,670 to the May 2024 and $1,028,830 to the Common Shares. In connection with the brokered private placement, the Company recorded $349,060 in share issue costs comprised of $255,381 in cash commissions and fees, $50,000 related to the issuance of 1,000,000 units to the agent as noted above, and the calculated fair value of the $43,679 associated with 1,854,000 broker warrants issued to the agent and certain selling group members.
On November 21, 2024, the Company completed a prospectus offering of 111,664,805 units at a price of $0.09 per unit for aggregate gross proceeds of $10,049,832. Each unit issued was comprised of one Common Share and one-half of one Common Share purchase warrant (each whole warrant, a "November 2024 Warrant"). Each whole November 2024 Warrant entitles holders to acquire one Common Share at an exercise price of $0.13 prior to November 21, 2026. The units were recognized at an ascribed value of $854,320 to the warrants and $9,195,513 to the Common Shares. In connection with the marketed offering of units, the Company recorded $1,199,136 in share issue costs comprised of $1,031,523 in cash commissions and fees and the calculated fair value of $167,613 associated with 6,033,221 broker warrants issued to the agent and certain selling group members.
During the year ended December 31, 2024, there were 5,254,256 Common Shares issued upon the exercise of 3,962,000 warrants and 1,292,256 broker warrants.
Subsequent to December 31, 2024 there have been an additional 5,749,628 Common Shares issued upon the exercise of 5,950,086 warrants and 70,400 broker warrants. As at the date of this MD&A, December 31, 2024 and December 31, 2023, the following Common Shares are outstanding and/or remain issuable upon the exercise of the underlying securities.
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| Number of securities | April 23, 2025 | December 31, 2024 | December 31, 2023 |
|---|---|---|---|
| Common shares outstanding | 265,563,547 | 259,813,919 | 114,944,858 |
| Warrants (1) | 169,042,644 | 174,992,730 | 41,938,299 |
| Broker warrants | 7,922,965 | 7,993,365 | 1,398,400 |
| Stock options | 20,240,000 | 20,240,000 | 6,800,000 |
| Total securities outstanding | 462,769,156 | 463,040,014 | 165,081,557 |
(1) Includes warrants classified as a warrant liability as discussed above. 51,941,773 as at December 31, 2024 and 2023 and 50,003,687 as at April 23, 2025.
Warrants
The following table outlines the outstanding warrants as at December 31, 2024:
| Issued | Number outstanding | Expiry | Exercise price ($) | |
|---|---|---|---|---|
| 2022 Warrants | 15-Jul-22 (1) | 51,941,773 | 15-Jul-26 | 0.110 |
| Acquisition Warrants | 17-Mar-23 | 10,000,000 | 17-Mar-26 | 0.300 |
| 2023 Warrants | 28-Dec-23 | 31,368,555 | 28-Dec-26 | 0.075 |
| May 2024 Warrants | 28-May-24 | 25,850,000 | 28-May-27 | 0.075 |
| November 2024 Warrants | 21-Nov-24 | 55,832,402 | 21-Nov-26 | 0.130 |
(1) Includes warrants classified as a warrant liability as discussed above.
During the year ended December 31, 2024 there were 1,292,256 warrants issued upon the exercise of broker warrants and 3,962,000 warrants were exercised for Common Shares for total cash proceeds of $297,150.
Subsequent to December 31, 2024, there were 70,400 warrants issued upon the exercise of broker warrants and 4,012,000 warrants were exercised for Common Shares for total cash proceeds of $300,900.
Broker Warrants
The following table outlines the outstanding broker warrants as at December 31, 2024:
| Issued | Number outstanding | Expiry | Exercise price ($) |
|---|---|---|---|
| 28-Dec-23 | 118,144 | 28-Dec-26 | 0.05 |
| 28-May-24 | 1,842,000 | 28-May-27 | 0.05 |
| 21-Nov-24 | 6,033,221 | 21-Nov-26 | 0.09 |
Each broker warrant is exercisable for one common share and one common share purchase warrant. During the year ended December 31, 2024 there were 1,292,256 broker warrants exercised for 1,292,256 warrants and 1,292,256 Common Shares for total cash proceeds of $64,613.
Subsequent to December 31, 2024, there were 70,400 broker warrants exercised for 70,400 warrants and 70,400 Common Shares for total cash proceeds of $3,520.
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Liquidity and Capital Resources
Promissory note
On May 13, 2024, Tuktu agreed to a $1,234,834 promissory note from an arm's length third party. The proceeds from the promissory note were used to fund deposits with the Alberta Energy Regulator required as a condition of licence transfers for certain asset acquisitions.
The promissory note is interest free, senior secured over the Company's assets, matures on or before June 1, 2027, and requires monthly payments beginning on July 25, 2024. The monthly payments are calculated by multiplying the Company's production times a percentage ranging from 10% to 20% depending on WTI price times the realized commodity price. The Company repaid $230,911 of the principal balance during the year ended December 31, 2024.
The promissory note was initially measured at fair value and then subsequently measured at amortized cost using an effective interest rate of 20%.
Liquidity
The Company relies on equity issuances to fund its capital requirements and provide liquidity. Future liquidity depends on adjusted funds flow from operations and the ability to access debt and equity markets. Estimated payments on the promissory note that are due within twelve months are presented as current liabilities on the statement of financial position with the remainder classified as non-current. The Company believes that the capital structure of the company combined with anticipated adjusted funds flow from operations will satisfy Tuktu's successful continuing operations.
Subsequent Events
As discussed above, subsequent to December 31, 2024, the Company has issued 5,749,628 common shares and 70,400 warrants upon the exercise of 5,950,086 warrants and 70,400 broker warrants. Total cash proceeds from the exercise of warrants and broker warrants totaled $476,468. There were 374,012 warrants exercised on a cashless basis.
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Summary of Quarterly and Annual Results
The following table summarizes the Company's key quarterly financial and operating results for the past eight quarters.
| Q4/24 | Q3/24 | Q2/24 | Q1/24 | Q4/23 | Q3/23 | Q2/23 | Q1/23 | |
|---|---|---|---|---|---|---|---|---|
| Financial ($) | ||||||||
| Petroleum and natural gas sales | 2,438,647 | 2,513,981 | 623,872 | 528,374 | 536,548 | 560,696 | 493,543 | - |
| Cash flow from (used in) operating activities | (361,910) | 652,976 | (1,943,319) | (97,959) | (84,445) | (209,654) | (296,690) | (424,756) |
| Net income (loss) | 396,709 | (1,886,337) | (992,419) | (177,515) | 925,119 | (423,150) | 161,376 | 530,186 |
| Per share - basic | - | (0.01) | (0.01) | 0.00 | 0.01 | (0.01) | - | 0.01 |
| Per share - diluted | - | (0.01) | (0.01) | 0.00 | 0.01 | (0.01) | - | 0.01 |
| Total capital expenditures (1) | 343,640 | 596,880 | 1,264,048 | - | 4,415 | 1,396 | 2,016,806 | 50,373 |
| Weighted average shares outstanding (thousands) | ||||||||
| Basic | 196,738 | 143,038 | 125,388 | 114,945 | 84,395 | 83,007 | 83,007 | 74,673 |
| Diluted | 259,181 | 143,038 | 125,388 | 114,945 | 84,395 | 83,007 | 83,007 | 74,673 |
| Shares outstanding, end of period (thousands) | ||||||||
| Basic | 259,814 | 144,707 | 142,895 | 114,945 | 114,945 | 83,007 | 83,007 | 83,007 |
| Diluted | 325,575 | 144,707 | 142,895 | 114,945 | 114,945 | 83,007 | 83,007 | 83,007 |
| Operational | ||||||||
| Average daily production: | ||||||||
| Crude oil (bbls/d) | 271 | 305 | 43 | 2 | 2 | 2 | 2 | - |
| Natural gas (mcl/d) | 2,236 | 1,819 | 2,156 | 2,198 | 2,381 | 2,226 | 2,105 | - |
| Total (boe/d) | 644 | 608 | 402 | 368 | 399 | 373 | 353 | - |
(1) See Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
The Company purchased oil and gas assets in both the first and second quarters of 2023. Production from these acquisitions commenced in April 2023. The Company also completed an acquisition of oil assets in the second quarter of 2024 with production to the account of the Company commencing on May 27, 2024. Finally, the Company completed a successful recompletion on an oil well in the third quarter of 2024 which increased petroleum and natural gas sales for the period.
Cash flow from (used in) operating activities increased in the second quarter of 2024 due to the Company positing a $1,234,434 security deposit with the Alberta Energy Regulator.
Net income fluctuations have been primarily due to the quarterly remeasurement gains and losses on the warrant liability which is caused by stock price and interest rate variability.
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Selected Annual Information
The following table summarizes key annual financial and operating information over the three most recently completed financial years.
| 2024 | 2023 | 2022 | |
|---|---|---|---|
| Financial ($) | |||
| Petroleum and natural gas sales | 6,104,874 | 1,590,787 | - |
| Cash flow used in operating activities | (1,750,212) | (1,015,545) | (1,149,886) |
| Net income (loss) | (2,659,562) | 1,193,531 | (2,146,738) |
| Per share - basic and diluted | (0.02) | 0.01 | (0.05) |
| Total capital expenditures | 2,204,568 | 2,072,990 | 18,292 |
| Total assets | 22,637,972 | 9,387,265 | 3,766,470 |
| Total liabilities | 10,954,941 | 5,643,883 | 3,854,525 |
| Shareholders' equity (deficiency) | 11,683,031 | 3,743,382 | (88,055) |
| Weighted average shares outstanding (thousands) | |||
| Basic and diluted | 145,163 | 81,302 | 43,832 |
| Shares outstanding, end of period (thousands) | |||
| Basic and diluted | 259,814 | 114,945 | 73,007 |
| Operational | |||
| Average daily production: | |||
| Crude oil (bbls/d) | 156 | 1 | - |
| Natural gas (mcf/d) | 2,102 | 1,686 | - |
| Total (boe/d) | 506 | 282 | - |
In 2023 and 2024, Tuktu was successful in completing acquisitions and capital projects to grow production and sales. The total capital expenditures have been funded by the issuance of securities through private placements in 2022, 2023 and 2024 as well as a marketed prospectus offering in 2024. Net income fluctuations have been primarily due to the remeasurement gains and losses on the warrant liability which is caused by stock price and interest rate variability.
Off-Balance Sheet Arrangements
Tuktu has not entered into any material off-balance sheet arrangements.
Non-IFRS Measures, Non-IFRS Financial Ratios and Capital Management Measures
This MD&A contains certain financial measures and ratios, as described below, which do not have standardized meanings prescribed by IFRS Accounting Standards. As these non-IFRS and other financial measures are commonly used in the oil and gas industry, the Company believes that their inclusion is useful to investors. The reader is cautioned that these amounts may not be directly comparable to measures for other companies where similar terminology is used.
The non-IFRS and other financial measures used in this MD&A are used by the Company as key measures of financial performance and are not intended to represent operating profits, nor should they be viewed as an alternative to cash provided by operating activities, net income or other measures of financial performance calculated in accordance with IFRS Accounting Standards. Management believes that the
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presentation of these non-IFRS, capital management and other financial measures provides useful information to shareholders and investors in understanding and evaluating the Company's ongoing operating performance.
Adjusted Funds Flow from (used in) Operations
Adjusted Funds flow from (used in) operations is calculated by taking cash flow used in operating activities and adding back changes in non-cash working capital, decommissioning costs incurred and transaction costs. Management considers adjusted funds flow used in operations to be a key measure to assess the performance of the Company's oil and gas properties and the Company's ability to fund future capital investment. Adjusted funds flow used in operations is an indicator of operating performance as it varies in response to production levels and management of costs. Changes in non-cash working capital, decommissioning costs incurred and transaction costs vary from period to period and management believes that excluding the impact of these provides a useful measure of the Company's ability to generate the funds necessary to manage the capital needs of the Company.
The Company reconciles adjusted funds flow from (used in) operations to cash flow from (used in) operating activities, which is the most directly comparable measure calculated in accordance with IFRS as follows:
| ($) | Three months ended, December 31, | Year ended, December 31, | ||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Cash flow used in operating activities | (361,910) | (84,444) | (1,750,212) | (1,015,544) |
| Changes in non-cash working capital | 643,410 | (202,433) | 728,440 | (189,945) |
| Transaction costs | - | 227,400 | - | 227,400 |
| Adjusted funds flow from (used in) operations | 281,500 | (59,477) | (1,021,772) | (978,089) |
Operating netbacks
Operating netback is total petroleum and natural gas revenues less royalties, operating expenses and transportation expenses. These metrics can also be calculated on a per boe basis, which results in them being considered a non-IFRS ratio. Management considers operating netback as an important measure to evaluate the Company's operational performance, as it demonstrates field level profitability relative to current commodity prices.
Adjusted working capital
Adjusted working capital is calculated by taking working capital (current assets less current liabilities) and adding back the warrant liability and current portion of decommissioning obligations. Management believes that adjusted working capital assists management and investors in assessing Tuktu's short-term liquidity. The following table provides a reconciliation of working capital as determined with IFRS to adjusted working capital:
| ($) | December 31, 2024 | December 31, 2023 |
|---|---|---|
| Working capital | 7,810,819 | 399,546 |
| Warrant liability | 881,399 | 487,923 |
| Current portion of decommissioning obligations | 138,874 | - |
| Adjusted working capital | 8,831,092 | 887,469 |
Capital expenditures
Management uses the term "capital expenditures" as a measure of capital investment in exploration and production activity, as well as property acquisitions and dispositions. The most directly comparable IFRS measure for total capital expenditures is cash flow used in investing activities. Capital expenditures represent capital expenditures – exploration and evaluation, capital expenditures – property, plant and equipment, property acquisition and proceeds on property disposition in the Company's Annual Financial
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Statements. The following table provides a reconciliation of cash flow used in investing activities to capital expenditures.
| ($) | Three months ended, December 31, | Year ended, December 31, | ||
|---|---|---|---|---|
| 2024 | 2023 | 2024 | 2023 | |
| Cash flow used in investing activities | 189,622 | 1,441,165 | 720,600 | 3,602,352 |
| Deposits | - | (199,072) | - | (199,072) |
| Interest earned on mineral property security deposits | (73) | (49) | (257) | (158) |
| Changes in non-cash working capital | 154,091 | (1,237,629) | 1,484,225 | (1,330,134) |
| Total capital expenditures | 343,640 | 4,415 | 2,204,568 | 2,072,988 |
Supplementary Financial Measures
Per boe disclosure for petroleum and natural gas sales, royalties, operating expenses, transportation expenses, G&A expenses, share-based compensation, finance income and expenses, and depletion and depreciation are supplementary measures that are calculated by dividing each of these respective IFRS measures by the Company's total production volumes for the period.
Average realized prices for crude oil and natural gas are supplementary financial measures calculated by dividing each of these components of petroleum and natural gas sales by their respective production volumes for the period.
Royalties as a percentage of petroleum and natural gas revenues is a supplementary financial measure calculated by dividing royalties by petroleum and natural gas sales.
Advisories
BOE Presentation
This MD&A contains various references to the abbreviation "boe", which refers to barrel of oil equivalent, and "boe/d", which refers to barrels of oil equivalent per day. Disclosure provided herein in respect of a boe may be misleading, particularly if used in isolation. A boe conversion rate of six thousand cubic feet of natural gas to one barrel of oil equivalent has been used in the calculation of boe amounts in this MD&A. The boe conversion rate is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. As the value ratio between natural gas and crude oil based on the current prices of natural gas and crude oil is significantly different from the energy equivalent of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
NI 51-101 References
Throughout this MD&A, "crude oil" or "oil" refers to light and medium crude oil product types as defined by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). References to "gas" relates to natural gas.
Abbreviations
The Company uses the below industry terms, abbreviations and acronyms in the MD&A:
AECO - Alberta Energy Company "C" Meter Station of the NOVA Pipeline System, the Canadian benchmark price for natural gas
bbl - barrels
bbls/d - barrels per day
boe - barrels of oil equivalent
boe/d - barrels of oil equivalent per day
mcf - thousand cubic feet
mcf/d - thousand cubic feet per day
mmcf/d - one million cubic feet per day
GJ - gigajoules
WTI - West Texas Intermediate
Critical Accounting Estimates and Judgements
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates are more difficult to determine, and the range of potential outcomes can be wider, in periods of higher volatility and uncertainty. The impacts of geopolitical events such as the tariffs between Canada and the United States, regional conflicts, especially in oil producing areas, can materially impact energy markets, interest and inflation rates and supply chains resulting in higher levels of volatility and uncertainty. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis and are based on managements' experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected.
In the process of applying the Company's accounting policies, management has made the following judgments, apart from those involving estimates, which may have the most significant effect on the amounts recognized in the financial statements.
(i) Business combinations:
Management's determination of whether a transaction constitutes a business combination or asset acquisition is determined based on the criteria in IFRS 3 Business Combinations ("IFRS 3"). Business combinations are accounted for using the acquisition method of accounting. The determination of fair value often requires management to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of property, plant and equipment ("PP&E") and exploration and evaluation ("E&E") assets acquired generally require the most judgement and include estimates of proved and probable oil and gas reserves acquired, forecast benchmark commodity prices, discount rates, future costs and the assessment of recent comparable transactions. Changes in any of these assumptions or estimates used in determining the fair values of acquired assets and liabilities could impact the amounts assigned to assets, liabilities and goodwill or bargain purchase price.
(ii) Cash generating units:
A cash generating unit ("CGU") is defined as the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups thereof. The Company allocates costs to a CGU based on geographic location, shared infrastructure, and common geological and geophysical characteristics.
(iii) Reserves estimates:
The Company uses estimated proved and probable oil and gas reserves to deplete its oil and gas assets included in property, plant and equipment, to assess for indicators of impairment on the Company's CGU and if any such indicators exist, to perform an impairment test to estimate the recoverable amount of the CGU. Estimates of proved and probable oil and gas reserves are based upon a number of significant assumptions, such as forecasted production volumes, forecasted oil and gas commodity prices, forecasted operating costs, forecasted royalty costs and forecasted future development costs. The Company engaged independent third-party reserve evaluators to evaluate the Company's estimates of proved and probable oil and gas reserves as at December 31, 2024. Reserve estimates are made annually based on actual volumes produced, the results from capital expenditure programs, revisions to previous estimates, new discoveries and acquisitions and dispositions made during the year.
Proved oil and gas reserves are those forecasted quantities of oil and gas determined to be economically recoverable under existing economic and operating conditions with a high degree of
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certainty, of at least 90 percent, that those quantities will be equalled or exceeded. Probable oil and gas reserves are those forecasted quantities of oil and gas determined to be economically recoverable under existing economic and operating conditions with a moderate degree of certainty, of at least 50 percent, that those quantities will be equalled or exceeded. The Company reports production and reserve quantities in accordance with Canadian practices and specifically in accordance with NI 51-101.
(iv) Impairment of oil and gas assets:
Judgements are required to assess when indicators of impairment or impairment reversal exist and impairment testing is required. In determining the estimated recoverable amount of assets or CGUs, in the absence of quoted market prices, impairment tests are based on the estimate of proved and probable oil and gas reserves using a number of significant assumptions, such as forecasted oil and gas commodity prices, forecasted production volumes, forecasted operating costs, forecasted royalty costs, forecasted future development costs and discount rates.
(v) Exploration and evaluation assets:
The application of the Company's accounting policy for exploration and evaluation assets requires management to make certain judgements about future events and circumstances as to whether economic quantities of proved and probable petroleum and natural gas reserves have been found in assessing economic and technical feasibility.
(vi) Decommissioning obligations:
The Company estimates future retirement and remediation of the Company's assets which in most cases, occurs many years into the future. This requires assumptions regarding abandonment date, future environmental and regulatory legislation, the extent of reclamation activities, the engineering methodology for estimating costs, future removal technologies in determining the removal cost and liability-specific discount rates to determine the present value of these cash flows.
(vii) Income taxes:
The Company recognizes deferred income tax assets to the extent that it is probable that taxable profit will be available to allow the benefit of that deferred income tax asset to be utilized. Assessing the recoverability of deferred income tax assets requires the Company to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the deferred income tax assets recorded at the reporting date could be impacted. Additionally, future changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company to obtain tax deductions in future periods.
(viii) Share-based compensation and warrant liabilities:
In determining the estimated fair value of stock options, the Company makes assumptions regarding share price volatility, risk free rate and forfeiture rate.
In determining the estimated fair value of the warrant liability at the end of each reporting period requires management judgement to determine significant assumptions to the valuation model, including expected life and volatility rate.
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Changes in Accounting Policy
Effective January 1, 2024, Tuktu adopted the amendments to IAS 1, Presentation of Financial Statements, whereby the classification of certain non-current liabilities may need to be reclassified to current. Under the previous IAS 1 requirements, companies classified a liability as current when they did not have an unconditional right to defer settlement for at least 12 months after the reporting date. The International Accounting Standards Board removed the requirement for a right to be unconditional and instead now requires that a right to defer settlement must exist at the reporting date and have substance. The amendment is retrospective and requires reclassification for the periods ended December 31, 2023 and January 1, 2023.
Due to the change in policy, there is a retrospective impact on the comparative statements of financial position at December 31, 2023 and January 1, 2023, as the warrant liability does not give the Company the right to defer settlement of the liability for at least 12 months. As such, the liability is impacted by the revised policy. Tuktu reclassified $487,923 and $3,391,388 from non-current liabilities to current liabilities for the periods ended December 31, 2023 and January 1, 2023, respectively. The warrant liability is now classified as current for the period ended December 31, 2024. See note 11 of the Financial Statements for further details.
Reporting Regulations
In June 2023, the International Sustainability Standards Board ("ISSB") issued IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures which are effective for annual reporting periods beginning on or after January 1, 2024. These standards provide for transition relief in IFRS S1 that allow a reporting entity to report on only climate-related risks and opportunities in the first year of reporting under the sustainability standards.
The Canadian Securities Administrators ("CSA") are responsible for determining the reporting requirements for public companies in Canada and are responsible for decisions related to the adoption of the sustainability disclosure standard, including the effective annual reporting dates. The CSA issued proposed National Instrument NI-51-107 – Disclosure of Climate-related Matters in October 2021. The CSA intends to consider the ISSB standards in addition to development in United States reporting requirements in its decision relating to development of climate-related disclosure requirements for Canadian reporting issuers. The CSA will involve the Canadian Sustainability Standards Board ("CSSB") for a combined review of the suitability of the adopting the ISSB standards in Canada. There is no requirement for public companies in Canada to adopt the ISSB standards until the CSA and CSSB have issued a decision on reporting requirements in Canada. While we are actively reviewing the ISSB standards we have not yet determined the impact on future financial statements nor have we quantified the costs to comply with such standards.
Risks and Uncertainties
The Company's business is inherently risky and there is no assurance that oil and gas reserves will be discovered and economically produced. Financial risks associated with the oil and gas industry include fluctuations in commodity prices, interest rates, currency exchange rates, the effects of inflation and the ability to access debt and/or equity financing. Land reclamation requirements on the Company's properties may be burdensome and the Company must allocate financial resources to reclamation activities that may otherwise be spent on exploration and development programs. The following information is a summary only of certain risk factors relating to the Company and should be read in conjunction with Tuktu's annual information form for the year ended December 31, 2024 (the "Annual Information Form"), which can be found on the Company's SEDAR+ profile at www.sedarplus.ca. The risks set out below are not an exhaustive list, nor should be taken as a complete summary or description of all of the risks associated with the Company's business and the oil and gas business generally.
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Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations that arise principally from the Company's accounts receivable from oil and natural gas marketers and joint operators in the oil and natural gas industry. Receivables from oil and natural gas marketers are normally collected on the 25th day of the month following production.
The Company mitigates credit risk by maintaining relationships with large, established, reputable and creditworthy purchasers. The Company attempts to mitigate risk from joint venture receivables by obtaining partner approval of significant capital and operating expenditures prior to expenditure. Joint venture receivables are from partners in the oil and natural gas industry that are subject to the risks and conditions of the industry. Significant changes in industry conditions and risks that negatively impact partners' ability to generate cash flow will increase the risk of not collecting receivables. The Company has the ability to withhold production from joint interest partners in the event of non-payment.
The Company's total amount of cash and cash equivalents and accounts receivable at December 31, 2024 was $10,441,940 (December 31, 2023: $513,032), representing the Company's maximum credit exposure. The total amount of accounts receivable 90 days past due is nominal at December 31, 2024 (December 31, 2023: nominal).
Liquidity risk
Liquidity risk is the risk that the Company will incur difficulties meeting its financial obligations as they are due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company's reputation. The Company prepares annual expenditure budgets, which are regularly monitored and updated as considered necessary.
As at December 31, 2024, the Company's financial liabilities were comprised of accounts payable and accrued liabilities and promissory note which all have a maturity of less than one year and promissory note which has a maximum maturity of three years.
Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is exposed to interest rate risk primarily through its variable interest rate on its cash and cash equivalents as it has not entered into any interest rate hedging contracts. For the year ended December 31, 2024 and 2023, if interest rates had been 1% higher with all other variables held constant, the change in net income (loss) would have been insignificant.
Equity price risk
Equity price risk refers to the risk that the fair value of the investments will fluctuate due to changes in equity markets. Equity price risk arises from the realizable value of the investments that the Company holds which are subject to variable equity market prices which on disposition gives rise to a cash flow equity price risk. The Company will assume full risk in respect of equity price fluctuations.
Political Uncertainty
The Company's results can be adversely impacted by political, legal, or regulatory developments in Canada and elsewhere that affect local operations and local and international markets. Changes in government, government policy or regulations, changes in law or interpretation of settled law, third-party opposition to industrial activity generally or projects specifically and duration of regulatory reviews could impact Tuktu's existing operations and planned projects. This includes actions by regulators or other political factors to delay or deny necessary licenses and permits for the Company's activities or restrict the operation of third-party infrastructure that the Company relies on. Additionally, changes in environmental regulations,
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assessment processes or other laws, while increasing and expanding stakeholder consultation (including Indigenous stakeholders), may increase the cost of compliance or reduce or delay available business opportunities and adversely impact Tuktu's results.
The Company's operations have been, and in the future may be, affected by political developments and by national, federal, provincial, state and local laws and regulations such as restrictions on production, the imposition of tariffs, embargoes or export restrictions on the Company's products (including the tariffs on a variety of goods recently announced by the US government and Canadian countermeasures subsequently announced, both of which are anticipated to continue to evolve).
Forward Looking Statements
This MD&A contains statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "project", "budget", "forecast", "should", "will", "may" or similar words (including grammatical variations or negatives thereof) suggesting future outcomes or statements regarding an outlook. In addition, the statements contained herein relating to "reserves" and "resources" are by their nature forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves or resources described can be profitably produced in the future. The recovery, reserves and resources estimates provided herein are internal estimates only and there is no guarantee that the estimated reserves or resources will be recovered. Therefore, actual results may differ materially from those anticipated in the forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Assumptions
Forward-looking statements or information are based on a number of factors and assumptions which have been used in developing such statements and information, but which may prove to be incorrect. Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this MD&A, assumptions have been made regarding, among other things: the accuracy of geological and geophysical data and interpretation of that data; estimated decline rates; the impact of increasing competition; the general stability of the economic and political environment in which the Company operates; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability of the Company to operate in a safe, efficient and effective manner; the ability of the Company to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing of and costs of pipeline, storage and facility construction and expansion and the ability of the Company to secure adequate transportation for products; future oil and natural gas prices; foreign currency exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which the Company operates; the ability of the Company to successfully market its oil and natural gas products; and future and prevailing commodity prices, price volatility, price differentials and the actual prices received for the Company's products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used.
Risks and Uncertainties
Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements or information. These risks and uncertainties which may cause actual results to differ materially from the forward-looking statements or information include, among other things: the ability of management to execute its business plan; general economic and business conditions; risks associated with the oil and natural gas industry in general (e.g. operational risks in exploring for, developing and producing crude oil and natural gas; market demand; changes to supply and demand for oil and natural gas; uncertainty of reserves estimates; uncertainty of estimates and projections relating to production, costs and expenses, including increased
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operating and capital costs due to inflationary pressures); the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; risks and uncertainties involving geology of oil and natural gas deposits; the ability of the Company to add production and reserves through acquisition, development and exploration activities; the Company's ability to enter into or renew leases; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; fluctuations and uncertainty with respect to foreign currency exchange rates and interest rates; stock market and financial system volatility; determinations by the Organization of Petroleum Exporting Countries and other countries (collectively referred to as OPEC+) regarding production levels; changes in industry regulations and legislation (including, but not limited to, tax laws, royalties, and environmental regulations); the imposition or expansion of tariffs imposed by domestic and foreign governments or the imposition of other restrictive trade measures, retaliatory or countermeasures implemented by such governments, including the introduction of regulatory barriers to trade and the potential effect on the demand and/or market price for the Company's products and/or otherwise adversely affects the Company; risks inherent in the Company's marketing operations, including credit risk; uncertainty in amounts and timing of royalty payments; health, safety and environmental risks; adverse weather or breakup conditions; risks associated with existing and potential future law suits and regulatory actions against the Company; uncertainties as to the availability and cost of financing; financial risks affecting the value of the Company's investments; interest rates and commodity prices; changes in the political landscape both domestically and abroad, wars (including ongoing military actions in the Middle East and Russia's invasion of Ukraine), hostilities, civil insurrections, foreign exchange or interest rates, increased operating and capital costs due to inflationary pressures (actual and anticipated); the impact of Russia's military actions in Ukraine; the Israeli-Hamas conflict; and the impact of oil differentials on the Company's financial position. More recently, the U.S. Federal Government announced the imposition of a tariff on Canadian exports, including oil and gas exports. There remains uncertainty regarding whether products that qualify under the United States-Mexico-Canada Agreement (USMCA) will continue to be exempt from such tariffs. The Company is unable to predict with certainty what the impact of such tariffs will have on the business; however, there could be a significant negative impact to the price Tuktu receives for its oil sales. As Canada-U.S. trade relations continue to evolve, the potential for further tariff-related conflicts could introduce additional volatility and risks to the Corporation's operations. Readers are cautioned that the foregoing list is not exhaustive of all possible risks and uncertainties. The foregoing list is not exhaustive. Please refer to the Annual Information Form for discussion of additional risk factors relating to Tuktu, which can be accessed on the Company's SEDAR+ profile at www.sedarplus.ca or on the Company's website at www.tukturesources.com.
This disclosure contains certain forward-looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. These include, but are not limited to: the impact of general global economic conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; competition; the lack of availability of qualified personnel or management; the lack of availability of or access to services; fluctuations in foreign exchange rates, interest rates or commodity prices; the results of exploration and development drilling related activities; imprecision in reserve estimates; market volatility; changes to market valuations; and obtaining required approvals from regulatory authorities.
These known and unknown risks and uncertainties may cause actual financial and operating results, performance, levels of activity and achievements to differ materially from those expressed in, or implied by, such forward-looking statements. Accordingly, there is no assurance that the expectations conveyed by the forward-looking statements will prove to be correct. All subsequent forward-looking statements, whether written by or orally attributable to the Company or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements.
Corporate Information
As of the date of this report, the Company had the following directors and officers:
Tim de Freitas President, Chief Executive Officer and Director
Mark Smith Vice President, Finance and Chief Financial Officer
Kent Busby Vice President, Production
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Greg Feltham Vice President, Exploration
Sumir Saini Vice President, Land and Business Development
Sony Gill Corporate Secretary
Robert Dales Director
William Guinan Director
Natalie Sweet Director
Kathleen Dixon Director