For the month of,
|
May
|
2012
|
|
Commission File Number
|
001-31395
|
||
Sonde Resources Corp.
|
|||
(Translation of registrant’s name into English)
|
|||
Suite 3200, 500 - 4th Avenue SW, Calgary, Alberta, Canada T2P 2V6
|
|||
(Address of principal executive offices)
|
Form 20-F
|
Form 40-F
|
X
|
Document
|
Description
|
|
1.
|
Interim Financial Statements for the three months ended March 31, 2012.
|
|
2.
|
Management's Discussion and Analysis for the three months ended March 31, 2012.
|
|
3.
|
Canadian Form 52-109F2 Certification of Interim Filings – CEO.
|
|
4.
|
Canadian Form 52-109F2 Certification of Interim Filings – CFO.
|
March 31
2012
|
December 31
2011
|
|||
(CDN$ thousands)
|
||||
Assets
|
||||
Current
|
||||
Cash and cash equivalents (note 4)
|
48,062
|
3,743
|
||
Accounts receivable (note 8)
|
5,152
|
7,436
|
||
Prepaid expenses and deposits
|
1,759
|
1,528
|
||
54,973
|
12,707
|
|||
Long term portion of prepaid expenses and deposits
|
382
|
420
|
||
Exploration and evaluation assets (note 3)
|
71,564
|
69,015
|
||
Property, plant and equipment (note 3)
|
93,073
|
104,745
|
||
219,992
|
186,887
|
|||
Liabilities
|
||||
Current
|
||||
Accounts payable and accrued liabilities
|
8,975
|
17,655
|
||
Share based compensation liability (note 13)
|
2,442
|
2,448
|
||
Provisions (note 9)
|
12
|
12,730
|
||
Derivative financial liabilities (note 4)
|
630
|
781
|
||
12,059
|
33,614
|
|||
Decommissioning provision
|
26,196
|
26,344
|
||
38,255
|
59,958
|
|||
Contingencies and commitments (note 12)
Related party transactions (note 7)
|
||||
Shareholders’ Equity
|
||||
Share capital
|
369,892
|
369,892
|
||
Contributed surplus
|
33,770
|
33,528
|
||
Foreign currency translation reserve
|
(340)
|
550
|
||
Deficit
|
(221,585)
|
(277,041)
|
||
181,737
|
126,929
|
|||
219,992
|
186,887
|
(Signed) “Jack W. Schanck”
|
(Signed) “W. Gordon Lancaster”
|
|
Jack W. Schanck
|
W. Gordon Lancaster
|
|
Director and Chief Executive Officer
|
Chair of the Audit Committee and Director
|
Q1 2012 FS
|
Page 1
|
For the three months ended March 31
|
2012
|
2011
|
||
(CDN$ thousands, except per share amounts)
|
||||
Revenue
|
||||
Revenue, net of royalties (note 10)
|
7,249
|
8,932
|
||
Gain (loss) on commodity derivatives (notes 4, 8)
|
84
|
(1,664)
|
||
7,333
|
7,268
|
|||
Expenses
|
||||
Operating (note 11)
|
4,313
|
3,705
|
||
Transportation
|
196
|
259
|
||
Exploration and evaluation (note 3)
|
886
|
164
|
||
General and administrative
|
2,836
|
2,243
|
||
Depletion and depreciation
|
3,095
|
3,282
|
||
Share based compensation (note 13)
|
322
|
1,245
|
||
Property, plant and equipment impairment (note 3)
|
12,880
|
--
|
||
Loss on settlement of decommissioning liabilities
|
--
|
775
|
||
24,528
|
11,673
|
|||
Operating loss
|
(17,195)
|
(4,405)
|
||
Other
|
||||
Financing costs (note 5)
|
(258)
|
(651)
|
||
Gain (loss) on foreign exchange
|
(447)
|
472
|
||
Gain on financial derivatives
|
--
|
378
|
||
Other income
|
30
|
56
|
||
Gain on disposition of exploration and evaluation assets (note 3)
|
73,361
|
--
|
||
72,686
|
255
|
|||
Income (loss) from continuing operations before income taxes
|
55,491
|
(4,150)
|
||
Current income taxes
|
35
|
--
|
||
Income (loss) from continuing operations
|
55,456
|
(4,150)
|
||
Loss from discontinued operations, net of tax (note 15)
|
--
|
(1,226)
|
||
Net income (loss)
|
55,456
|
(5,376)
|
||
Other comprehensive loss
|
||||
Foreign currency translation adjustment
|
(890)
|
(917)
|
||
Foreign currency translation adjustment relating to assets and liabilities of discontinued operations (note 15)
|
--
|
(1,678)
|
||
Other comprehensive loss
|
(890)
|
(2,595)
|
||
Total comprehensive income (loss)
|
54,566
|
(7,971)
|
||
Net income (loss) per common share
|
||||
Basic and diluted income (loss) per common share from continuing operations (note 6)
|
$0.89
|
($0.07)
|
||
Basic and diluted loss per common share from discontinued operations (note 6)
|
--
|
($0.02)
|
||
$0.89
|
($0.09)
|
Q1 2012 FS
|
Page 2
|
For the three months ended March 31
|
2012
|
2011
|
||
(CDN$ thousands)
|
||||
Cash provided by (used in):
|
||||
Operating activities
|
||||
Net income (loss)
|
55,456
|
(5,376)
|
||
Items not involving cash:
|
||||
Depletion and depreciation
|
3,095
|
3,282
|
||
Share based compensation
|
322
|
1,245
|
||
Exploration and evaluation
|
886
|
164
|
||
Property, plant and equipment impairment
|
12,880
|
--
|
||
Unrealized (gain) loss on commodity derivatives
|
(151)
|
1,740
|
||
Unrealized (gain) loss on financial derivatives
|
--
|
(378)
|
||
Unrealized (gain) loss on foreign exchange
|
45
|
(3)
|
||
Financing costs
|
258
|
843
|
||
Loss on settlement of decommissioning liabilities
|
--
|
775
|
||
Gain on disposition of exploration and evaluation assets
|
(73,361)
|
--
|
||
Interest paid
|
(97)
|
(647)
|
||
Decommissioning expenditures
|
--
|
(846)
|
||
(667)
|
799
|
|||
Changes in non-cash working capital (note 14)
|
1,094
|
(565)
|
||
427
|
234
|
|||
Financing activities
|
||||
Exercise of restricted share units
|
(85)
|
--
|
||
Revolving credit facility repayments
|
(23,400)
|
(19,436)
|
||
Revolving credit facility advances
|
23,400
|
13,550
|
||
(85)
|
(5,886)
|
|||
Investing activities
|
||||
Property, plant and equipment additions
|
(4,613)
|
(3,245)
|
||
Exploration and evaluation additions
|
(6,188)
|
(9,220)
|
||
Debenture advances (note 15)
|
--
|
19,599
|
||
Proceeds on exploration and evaluation disposition
|
74,979
|
--
|
||
Change in non-cash working capital (note 14)
|
(20,156)
|
(2,524)
|
||
44,022
|
4,610
|
|||
Increase (decrease) in cash and cash equivalents
|
44,364
|
(1,042)
|
||
Effect of foreign exchange on cash and cash equivalents
|
(45)
|
(28)
|
||
Cash and cash equivalents, beginning of period
|
3,743
|
2,649
|
||
Cash and cash equivalents, end of period
|
48,062
|
1,579
|
Q1 2012 FS
|
Page 3
|
(CDN$ thousands)
|
Share capital
|
Contributed surplus
|
Foreign currency translation
|
Deficit
|
Total
|
|||||
At December 31, 2010
|
369,892
|
30,718
|
(5,789)
|
(236,470)
|
158,351
|
|||||
Total comprehensive loss
|
--
|
--
|
(2,595)
|
(5,376)
|
(7,971)
|
|||||
Stock option expense
|
--
|
803
|
--
|
--
|
803
|
|||||
At March 31, 2011
|
369,892
|
31,521
|
(8,384)
|
(241,846)
|
151,183
|
(CDN$ thousands)
|
Share capital
|
Contributed surplus
|
Foreign currency translation
|
Deficit
|
Total
|
|||||
At December 31, 2011
|
369,892
|
33,528
|
550
|
(277,041)
|
126,929
|
|||||
Total comprehensive income
|
--
|
--
|
(890)
|
55,456
|
54,566
|
|||||
Stock option expense
|
--
|
242
|
--
|
--
|
242
|
|||||
At March 31, 2012
|
369,892
|
33,770
|
(340)
|
(221,585)
|
181,737
|
Q1 2012 FS
|
Page 4
|
1.
|
Reporting entity
|
|
Sonde Resources Corp. (“Sonde” or the “Company”) is a Canadian based energy company with its registered office located at Suite 3200, 500 – 4th Avenue S.W., Calgary, Alberta. The Company is engaged in the exploration for and production of oil and natural gas. The Company’s operations are located in Western Canada and offshore North Africa. All of the Company’s revenues are generated from its operations in Western Canada. On February 22, 2011, the Company completed the sale of its wholly owned subsidiary Liberty Natural Gas LLC (the “LNG Project”). On June 22, 2011, the Company completed the sale of its offshore operations in the Republic of Trinidad and Tobago (“Trinidad and Tobago”). These dispositions are discussed in more detail in Note 15. The consolidated financial statements (the “Financial Statements”) comprise the Company and its subsidiaries, Seeker Petroleum Ltd., Sonde Resources Trinidad and Tobago Ltd. and Challenger Energy Corp. all of which are wholly owned. On January 1, 2012, these subsidiaries were amalgamated into Sonde Resources Corp. The Company’s shares are widely held and publicly traded on both the Toronto Stock Exchange and the New York Stock Exchange MKT.
|
||
2.
|
Basis of preparation
|
|
(a)
|
Statement of compliance
|
|
The Financial Statements are prepared in accordance with International Accounting Standards 34 (“IAS 34”) Interim Financial Reporting and present the Company’s results of operations and financial position under International Financial Reporting Standards (“IFRS”) as at March 31, 2012 and December 31, 2011 and for the three month periods ended March 31, 2012 and 2011.
|
||
The Financial Statements were approved and authorized for issue by the Board on May 14, 2012.
|
||
(b)
|
Basis of measurement
|
|
The Financial Statements have been prepared on the historical cost basis except as detailed in the Company’s accounting policies disclosed in the consolidated financial statements for the year ended December 31, 2011. The accounting policies have been applied consistently to all periods presented in the Financial Statements. The Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto as at and for the year ended December 31, 2011.
|
||
The Financial Statements have been prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
|
||
(c)
|
Functional and presentation currencies
|
|
The Financial Statements are presented in Canadian dollars, which is the Company’s functional currency.
|
||
(d)
|
Use of estimates and judgment
|
|
The timely preparation of financial statements requires that management make estimates and assumptions and use judgment regarding assets, liabilities, revenues and expenses. Such estimates primarily relate to unsettled transactions and events as at the date of the Financial Statements. Accordingly, actual results may differ from estimated amounts as future confirming events occur.
|
Q1 2012 FS
|
Page 5
|
3.
|
Exploration and evaluation assets & property, plant and equipment
|
Three months ended
March 31, 2012
|
Year ended
December 31, 2011
|
|||||||||||
Cost
|
Accum. DD&A
|
Carrying value
|
Cost
|
Accum. DD&A
|
Carrying value
|
|||||||
Exploration and evaluation assets
|
||||||||||||
Beginning of period
|
69,015
|
--
|
69,015
|
49,361
|
--
|
49,361
|
||||||
Additions
|
6,188
|
--
|
6,188
|
19,405
|
--
|
19,405
|
||||||
Dispositions
|
(1,618)
|
--
|
(1,618)
|
--
|
--
|
--
|
||||||
Transfers to PP&E
|
--
|
--
|
--
|
(43)
|
--
|
(43)
|
||||||
Impairments, to exploration expense
|
(886)
|
--
|
(886)
|
(1,270)
|
--
|
(1,270)
|
||||||
Change in decommissioning obligations
|
--
|
--
|
--
|
41
|
--
|
41
|
||||||
Foreign exchange
|
(1,135)
|
--
|
(1,135)
|
1,521
|
--
|
1,521
|
||||||
End of period
|
71,564
|
--
|
71,564
|
69,015
|
--
|
69,015
|
||||||
Property, plant and equipment
|
||||||||||||
Beginning of period
|
212,453
|
(107,708)
|
104,745
|
161,165
|
(58,562)
|
102,603
|
||||||
Additions
|
4,613
|
--
|
4,613
|
37,509
|
--
|
37,509
|
||||||
Acquisitions
|
--
|
--
|
--
|
11,827
|
--
|
11,827
|
||||||
Dispositions
|
--
|
--
|
--
|
(151)
|
30
|
(121)
|
||||||
Transfers from E&E assets
|
--
|
--
|
--
|
43
|
--
|
43
|
||||||
Change in decommissioning obligations
|
(310)
|
--
|
(310)
|
2,060
|
--
|
2,060
|
||||||
Depreciation and depletion
|
--
|
(3,095)
|
(3,095)
|
--
|
(14,906)
|
(14,906)
|
||||||
Impairments
|
--
|
(12,880)
|
(12,880)
|
--
|
(34,270)
|
(34,270)
|
||||||
End of period
|
216,756
|
(123,683)
|
93,073
|
212,453
|
(107,708)
|
104,745
|
During the three months ended March 31, 2012, the Company capitalized $0.9 million (March 31, 2011 – $1.1 million) of general and administrative expenses related to exploration and development activities.
|
|
Exploration and evaluation assets consist of the Company’s exploration projects which are pending the determination of proved or probable reserves. Additions represent the Company’s share of costs incurred on exploration and evaluation assets during the year. All property, plant and equipment is held in Canada. Exploration and evaluation assets are divided geographically as follows:
|
March 31
2012
|
December 31
2011
|
|||
Canada
|
7,157
|
8,907
|
||
North Africa
|
64,407
|
60,108
|
||
71,564
|
69,015
|
Land expiries and impairment on exploratory wells charged to exploration and evaluation expense during the three months ended March 31, 2012, totaled $0.9 million (March 31, 2011 – $0.2 million). As at March 31, 2012, no indicators of impairment were identified that would imply a further decline in exploration and evaluation asset carrying values.
|
|
On February 8, 2012, the Company completed the sale of 24,383 net acres of undeveloped land in the Kaybob Duvernay play in Central Alberta for cash proceeds of $75.0 million. This land was classified as evaluation and exploration assets at December 31, 2011, and had a carrying value of $1.6 million resulting in a gain of $73.4 million. The Company’s tax pools offset the taxes associated with the gain.
|
Q1 2012 FS
|
Page 6
|
3.
|
Exploration and evaluation assets & property, plant and equipment (continued)
|
An impairment test was carried out at March 31, 2012, using the following forward commodity price projections:
|
Year
|
AECO Gas (Cdn/mmbtu) (1)
|
Edmonton Light Sweet Crude Oil (Cdn/bbl) (1)
|
|||
2012 (Q2 – Q4)
|
$ 2.63
|
$ 94.17
|
|||
2013
|
3.67
|
98.98
|
|||
2014
|
4.13
|
101.02
|
|||
2015
|
4.59
|
101.02
|
|||
2016
|
5.05
|
101.02
|
|||
2017
|
5.51
|
101.02
|
|||
2018
|
5.94
|
102.40
|
|||
2019
|
6.06
|
104.47
|
|||
2020
|
6.19
|
106.58
|
|||
2021
|
6.31
|
108.73
|
|||
Remainder(2)
|
2.0%
|
2.0%
|
|||
(1) Source: Independent qualified reserves evaluator’s price forecast, effective April 1, 2012.
|
|||||
(2) Percentage change represents the change in each year after 2021 to the end of the reserve life.
|
An impairment test is performed on capitalized property and equipment costs at a Cash-Generating Unit (“CGU”) level on an annual basis and quarterly when indicators of impairment exist. During the three months ended March 31, 2012, the Company recognized an impairment of $12.9 million to property, plant and equipment (three months ended December 31, 2011 – $34.3 million) to reflect the low natural gas price environment for future production. The Company recorded net impairments of $9.7 million in the Southern Alberta CGU, $2.4 million in the Central Alberta CGU, and $0.8 million in the Northern Alberta CGU (December 31, 2011 – $20.1 million South, $13.5 million Central, $0.5 million North, $0.2 million British Columbia). Impairments recognized during the three months ended March 31, 2012 and December 31, 2011, were calculated using a 12% discount rate. Using a discount rate of 10% would reduce the 2012 impairment by $8.5 million. Using a discount rate of 15% would increase 2012 impairment by $10.4 million.
|
|
4.
|
Financial instruments
|
At March 31, 2012, cash and cash equivalents were comprised of $30.0 million in short term investment instruments and $18.1 million of cash held at financial institutions (December 31, 2011 – $3.7 million cash held at financial institutions).
|
|
The following tables provide fair value measurement information for financial assets and liabilities as of March 31, 2012 and December 31, 2011. The carrying value of cash and cash equivalents, accounts receivables, provisions, accounts payable and accrued liabilities included in the consolidated statement of financial position approximate fair value due to the short term nature of those instruments. These assets and liabilities are not included in the table.
|
Fair value measurements using:
|
|||||||||||
Carrying value
|
Fair value
|
Level 1
|
Level 2
|
Level 3
|
|||||||
Financial liabilities
|
|||||||||||
Commodity contracts – as at March 31, 2012
|
630
|
630
|
--
|
630
|
--
|
||||||
Commodity contracts – as at December 31, 2011
|
781
|
781
|
--
|
781
|
--
|
The Company uses a fair value hierarchy to categorize the inputs used to measure the fair value of its financial instruments. Commodity contracts are measured using level 2.
|
Q1 2012 FS
|
Page 7
|
5.
|
Short term debt and financing costs
|
As at March 31, 2012, the Company had issued three letters of credit for $0.2 million (December 31, 2011 – two letters of credit for $0.1 million) against the $30.0 million (December 31, 2011 - $40.0 million) demand revolving credit facility (“Credit Facility A”) at a variable interest rate of prime plus 0.75% as at March 31, 2012 and December 31, 2011. Credit Facility A is secured by a $100.0 million debenture with a floating charge on the assets of the Company and a general security agreement covering all the assets of the Company. Credit Facility A has covenants, as defined in the Company’s credit agreement, that require the Company to maintain an adjusted working capital ratio at 1:1 or greater and to ensure that non-domestic general and administrative expenditures in excess of $7.0 million per year and all foreign capital expenditures are not funded from Credit Facility A nor domestic cash flow while Credit Facility A is outstanding. The Company can use Credit Facility A at its discretion and continues to pay standby fees on the undrawn facility. As at March 31, 2012, the Company was in compliance with all of its debt covenants.
|
|
The Company is subject to the next semi-annual review of its credit facilities on or before September 30, 2012.
|
|
During the year ended December 31, 2011, there were 150,000 Cumulative Redeemable Convertible Preferred Shares, Series B Shares (the “Series B Shares”) outstanding. The Series B Shares had a conversion price of US$3.00 for conversion into 5,000,000 common shares. The terms of the dividend payment under the Series B Shares allowed the Company to elect to pay the quarterly dividend by way of issuance of common shares at market, based on a 5.75% annualized dividend rate in lieu of a 5.0% annualized cash dividend rate. The dividend rate was increased by 1/30 of 1% per day restricted to the 150 day period after December 31, 2010, and thereafter reverted to 5.0%. During the year ended December 31, 2011, the Company elected to pay cash as opposed to common shares to satisfy its quarterly preferred shares dividend requirements. On December 27, 2011, all conversion features associated with the Series B Shares expired without being exercised. On December 30, 2011, the Company redeemed the 150,000 outstanding Series B Shares for $15.3 million.
|
|
Upon issuance of the Series B Shares, the Company granted 500,000 common share purchase warrants exercisable at a price of US$3.25 for each common share. The warrants expired on December 31, 2011.
|
|
Financing costs for the Company are as follows:
|
For the three months ended March 31
|
2012
|
2011
|
|||
Accretion of decommissioning provision(1)
|
161
|
156
|
|||
Interest on credit facilities(1)
|
97
|
249
|
|||
Interest on preferred shares
|
--
|
246
|
|||
258
|
651
|
||||
(1) Amounts disclosed do not include Trinidad and Tobago operations, which are classified as discontinued operations.
|
6.
|
Weighted average common shares outstanding
|
For the three months ended March 31, 2012 and 2011, the basic and diluted weighted average common shares outstanding were 62,301,446. For the calculation of diluted earnings per share the Company excluded 1,789,799 exercisable stock options that are anti-dilutive (March 31, 2011 – 1,398,718).
|
|
7.
|
Related party transactions
|
In the course of normal business activities the Company purchased $0.1 million of processing services in the three months ended March 31, 2012, (March 31, 2011 – nil) from a company with a common director. These services were purchased under normal industry terms and have been measured and disclosed at their settlement value. As of March 31, 2012 and December 31, 2011, there were no amounts outstanding in accounts payable to this service provider.
|
Q1 2012 FS
|
Page 8
|
8.
|
Risk Management
|
Commodity price risk
|
|
The Company enters into commodity sales agreements and certain derivative financial instruments to reduce its exposure to commodity price volatility. These financial instruments are entered into solely for risk mitigation purposes and are not used for trading or other speculative purposes. In 2011, the Company entered into a commodity swap contract from March to December on a portion of the Company’s natural gas production. In return for this fixed price the Company sold a call option on a portion of the Company’s oil production from March 2011 through December 2012.
|
Three months ended
|
March 31, 2012
|
March 31, 2011
|
|||||||||||||
Term
|
Contract
|
Volume (GJ/d)
|
Fixed Price ($/GJ)
|
Realized gain
|
Unrealized gain
|
Realized gain
|
Unrealized gain
|
||||||||
March 1, 2011 – December 31, 2011
|
Swap
|
5,000
|
$4.11
|
--
|
--
|
$97
|
$507
|
||||||||
Three months ended
|
March 31, 2012
|
March 31, 2011
|
|||||||||||||
Term
|
Contract
|
Volume (Bbls/d)
|
Fixed Price ($US/bbl)
|
Realized loss
|
Unrealized gain
|
Realized loss
|
Unrealized loss
|
||||||||
March 1, 2011 – December 31, 2012
|
Call option
|
250
|
$100.00
|
($67)
|
$151
|
($21)
|
($2,247)
|
Interest rate risk
|
|
The Company is exposed to interest rate risk as the credit facilities bear interest at floating market interest rates. The Company had no interest rate swaps or hedges to mitigate interest rate risk at March 31, 2012 or December 31, 2011. The Company’s exposure to fluctuations in interest expense on its net loss and comprehensive income, assuming reasonably possible changes in the variable interest rate of +/- 1%, is insignificant. This analysis assumes all other variables remain constant.
|
|
Foreign exchange risk
|
|
The Company is exposed to foreign currency fluctuations as oil and gas prices received are referenced to U.S. dollar denominated prices. The Company’s foreign exchange risk denominated in U.S. dollars is as follows:
|
March 31
|
December 31
|
|||
2012
|
2011
|
|||
(US$ thousands)
Cash and cash equivalents
|
7,950
|
1,020
|
||
North Africa receivables
|
--
|
111
|
||
Foreign denominated financial assets
|
7,950
|
1,131
|
||
North Africa payables
|
1,537
|
1,720
|
||
Mariner swap provision
|
--
|
12,500
|
||
Foreign denominated financial liabilities
|
1,537
|
14,220
|
These balances are exposed to fluctuations in the U.S. dollar. At this time, the Company has chosen not to enter into any risk management agreements to mitigate foreign exchange risk. The Company’s exposure to foreign currency exchange risk on its comprehensive income, assuming reasonably possible changes in the U.S. dollar to Canadian dollar foreign currency exchange rate of +/- one cent, is $0.7 million. This analysis assumes all other variables remain constant.
|
Q1 2012 FS
|
Page 9
|
8.
|
Risk Management (continued)
|
Credit risk
|
|
The Company’s credit risk exposure is as follows:
|
March 31
|
December 31
|
|||
2012
|
2011
|
|||
(CDN$ thousands)
Western Canada joint interest billings
|
2,333
|
2,830
|
||
Goods and Services Tax receivable
|
146
|
740
|
||
North Africa recoverable expenses
|
--
|
113
|
||
Revenue accruals and other receivables
|
2,673
|
3,753
|
||
Accounts receivable
|
5,152
|
7,436
|
||
Cash and cash equivalents
|
48,062
|
3,743
|
||
Credit exposure
|
53,214
|
11,179
|
The Company’s allowance for doubtful accounts is currently $1.9 million (December 31, 2011 – $2.0 million). This amount offsets $1.7 million in value added tax receivable from the Government of the Republic of Trinidad and Tobago (December 31, 2011 – $1.8 million) and $0.2 million of Western Canada joint interest and miscellaneous receivables (December 31, 2011 – $0.2 million). The Company considers all amounts greater than 90 days to be past due. As at March 31, 2012, $0.4 million of accounts receivable are past due, all of which are considered to be collectible.
|
|
9.
|
Provisions
|
March 31
2012
|
December 31
2011
|
|||
Mariner swap (note 12)
|
--
|
12,713
|
||
Onerous contracts
|
12
|
17
|
||
Provisions
|
12
|
12,730
|
10.
|
Revenue
|
The following summarizes the Company’s revenue:
|
For the three months ended March 31
|
2012
|
2011
|
||
Petroleum and natural gas sales
|
8,429
|
9,377
|
||
Royalties
|
(1,180)
|
(445)
|
||
7,249
|
8,932
|
11.
|
Operating expense
|
Operating costs for the Company are as follows:
|
For the three months ended March 31
|
2012
|
2011
|
||
Operating
|
3,836
|
3,117
|
||
Well workovers
|
477
|
588
|
||
4,313
|
3,705
|
Q1 2012 FS
|
Page 10
|
12.
|
Contingencies and commitments
|
|
(a)
|
North Africa
|
|
On August 27, 2008, the Company entered into the EPSA with a Tunisian company, Joint Oil. Joint Oil is owned equally by the governments of Tunisia and Libya. The EPSA contract area straddles the offshore border between Tunisia and Libya. Under terms of the EPSA, the Company is the operator. Under the EPSA, the minimum work program for the first phase (four years) of the seven year exploration period includes the Zarat North-1 appraisal well, three exploration wells and 500 square kilometres of 3D seismic. The EPSA provides for penalties for non-fulfillment of the minimum work program of US$15.0 million per exploration well, and the Company has provided a corporate guarantee to a maximum of US$45.0 million to secure its minimum work program obligations. The potential cost of drilling the three wells could exceed US$100 million. In January 2011, the Company announced the successful drilling and production testing of its 100% working interest in the Zarat North–1 well. The well has been temporarily abandoned in a manner allowing it to be utilized for future development purposes while the Company evaluates reservoir characteristics and development options. In December 2011, the Company commenced the acquisition of 512 square kilometres of 3D seismic in accordance with the requirements of the EPSA and completed the acquisition in January 2012. On January 12, 2012, the Company received notice from Joint Oil extending the first phase of the exploration period one year, until December 23, 2013. On January 30, 2012, the Company announced that it had commenced an initiative to identify and evaluate alternatives to finance the Company’s remaining North Africa obligations. As of May 14, 2012, this process was still ongoing.
|
||
(b)
|
Commitments and financial liabilities
|
|
At March 31, 2012, the Company has committed to future payments over the next five years, as follows:
|
2012
|
2013
|
2014
|
2015
|
2016
|
Thereafter
|
Total
|
|||||||||
Accounts payable and accrued liabilities
|
8,975
|
--
|
--
|
--
|
--
|
--
|
8,975
|
||||||||
Stock based compensation liability
|
2,442
|
--
|
--
|
--
|
--
|
--
|
2,442
|
||||||||
Derivative financial liabilities
|
630
|
--
|
--
|
--
|
--
|
--
|
630
|
||||||||
North Africa exploration commitments
|
--
|
44,888
|
--
|
--
|
--
|
--
|
44,888
|
||||||||
Office rent
|
1,066
|
1,212
|
1,212
|
1,217
|
1,233
|
7,159
|
13,099
|
||||||||
Equipment
|
5
|
--
|
--
|
--
|
--
|
--
|
5
|
||||||||
13,118
|
46,100
|
1,212
|
1,217
|
1,233
|
7,159
|
70,039
|
The Company generally relies on a combination of cash flow from operations, credit facility availability and equity financings to fund its capital requirements and to provide liquidity for domestic and international operations.
|
||
(c)
|
Swap agreement
|
|
At the time it entered into the North Africa EPSA, the Company also signed a "Swap Agreement" awarding an overriding royalty interest and optional participating interest to Joint Oil in the Company's "Mariner" Block, offshore Nova Scotia, Canada. No well was drilled on the Mariner Block and Joint Oil had the right to put back the overriding royalty to the Company for US$12.5 million. Joint Oil exercised its put rights and the Company made a payment of US$12.5 million on January 15, 2012. Prior to the payment, the Company confirmed that the EPSA remains in full force and effect.
|
||
(d)
|
Litigation and claims
|
|
The Company is involved in various claims and litigation arising in the ordinary course of business. In the opinion of the Company such claims and litigation are not expected to have a material effect on the Company’s financial position or its results of operations. The Company maintains insurance, which in the opinion of the Company, is in place to address any future claims as to matters insured.
|
Q1 2012 FS
|
Page 11
|
13.
|
Share based compensation
|
|
(a)
|
Stock option plan
|
|
The Company has a stock option plan for its directors, officers and employees. The exercise price for stock options granted is the quoted market price on the grant date. Options issued prior to May 2011 vest over three years with a maximum term of ten years. Options issued after May 2011 vest over four years with a maximum term of five years.
|
Three months ended March 31, 2012
|
Twelve months ended December 31, 2011
|
|||||||||
Number
of options
|
Weighted average exercise price
|
Number
of options
|
Weighted average exercise price
|
|||||||
($ thousands, except per share price)
|
||||||||||
Balance, beginning of period
|
2,974
|
3.43
|
1,910
|
$5.78
|
||||||
Granted
|
665
|
2.41
|
1,984
|
3.49
|
||||||
Exercised
|
--
|
--
|
--
|
--
|
||||||
Forfeited
|
(63)
|
3.20
|
(920)
|
8.43
|
||||||
Balance, end of period
|
3,576
|
3.25
|
2,974
|
3.43
|
The following table summarizes stock options outstanding under the plan at March 31, 2012:
|
Options outstanding
|
Options exercisable
|
|||||||||
Exercise price ($)
|
Number of options (thousands)
|
Average remaining contractual life (years)
|
Weighted average exercise price ($)
|
Number of options (thousands)
|
Weighted average exercise price ($)
|
|||||
2.27 – 3.00
|
1,549
|
4.54
|
2.64
|
100
|
2.86
|
|||||
3.01 – 4.00
|
1,084
|
8.34
|
3.10
|
974
|
3.09
|
|||||
4.01 – 5.00
|
916
|
8.79
|
4.29
|
689
|
4.30
|
|||||
5.01 – 11.80
|
27
|
2.30
|
8.48
|
27
|
8.48
|
|||||
2.27 – 11.80
|
3,576
|
6.76
|
3.25
|
1,790
|
3.62
|
The fair value of options granted during the year was estimated based on the date of grant using a Black-Scholes option pricing model with weighted average assumptions and resulting values for grants as follows:
|
Three months ended
March 31, 2012
|
Twelve months ended
December 31,2011
|
|||
Share price ($)
|
2.41
|
3.49
|
||
Exercise price ($)
|
2.41
|
3.49
|
||
Risk free rate (%)
|
1.5
|
2.0
|
||
Expected life (years)
|
3.7
|
3.7
|
||
Expected dividend yield (%)
|
--
|
--
|
||
Expected volatility (%)
|
78.3
|
87.6
|
||
Weighted average fair value of options granted ($)
|
1.35
|
2.13
|
Q1 2012 FS
|
Page 12
|
13.
|
Share based compensation (continued)
|
|
A forfeiture rate of 25.4% (December 31, 2011 – 27.6%) was used when recording stock based compensation. This estimate is based on the historical forfeiture rate and adjusted to the actual forfeiture rate. Stock option expense of $0.2 million incurred for the three months ended March 31, 2012 (March 31, 2011 - $0.8 million) was expensed. No stock based compensation expense was capitalized during 2012 or 2011.
|
||
In the course of preparing the Financial Statements management identified an error in the comparative numbers for the three months ended March 31, 2011. The Company had previously recognized stock option expense of $1.7 million. This error was corrected in the audited consolidated financial statements and notes thereto as at and for the year ended December 31, 2011.
|
||
(b)
|
Employee stock savings plan
|
|
The Company has an employee stock savings plan (“ESSP”) in which employees are provided with the opportunity to receive a portion of their salary in common shares, which is then matched on a share for share basis by the Company. The Company purchased approximately 51,890 shares on the open market under the ESSP during the three months ended March 31, 2012 (March 31, 2011 – 26,792 shares). The costs related to this plan are expensed as incurred.
|
||
(c)
|
Stock unit awards
|
|
As at March 31, 2012, the Company had issued 1.5 million (December 31, 2011 – 1.5 million) stock unit awards to the Company’s executive officers and members of the Board. A stock unit is the right to receive a cash amount equal to the fair market value of one common share of the Company on the applicable vesting date. The stock units have time and/or share based performance vesting terms which vary depending on whether the holder is an executive officer or director. If subsequent to the grant date, the shareholders of the Company approve an equity compensation plan under which the stock units may be paid with common shares of the Company, then the Board may determine that the stock units may be paid in cash or common shares. As of March 31, 2012, the Company recorded a liability of $2.1 million to recognize the fair value of the vested stock units (December 31, 2011 - $2.0 million).
|
||
(d)
|
Restricted share units
|
|
The Restricted Share Unit Plan became effective on March 24, 2011, to attract and retain experienced personnel with incentive compensation tied to shareholder return. Under the plan, each grantee will be entitled to, in respect of each Restricted Share Unit (“RSU”), a cash amount equal to the fair market value of one common share in the capital of the Company on such vesting date, with the vesting subject to a minimum floor share price. In the three months ended March 31, 2012, 33,333 RSUs were redeemed for a total of $0.1 million (March 31, 2011 – Nil).
|
||
The following table summarizes RSUs outstanding under the plan at March 31, 2012:
|
Units outstanding
|
Units exercisable
|
||||||||||
Floor price ($)
|
Number of units (thousands)
|
Average remaining contractual life (years)
|
Weighted average floor price ($)
|
Number of units (thousands)
|
Weighted average floor price ($)
|
||||||
0.00 – 3.00
|
262
|
1.60
|
2.24
|
94
|
3.00
|
||||||
3.01 – 3.50
|
42
|
1.79
|
3.13
|
14
|
3.13
|
||||||
3.51 – 3.64
|
11
|
1.79
|
3.64
|
4
|
3.64
|
||||||
0.00 – 3.64
|
315
|
1.63
|
2.41
|
112
|
3.04
|
Q1 2012 FS
|
Page 13
|
13.
|
Share based compensation (continued)
|
RSUs issued during the year were initially valued at the grant date and revalued at March 31, 2012, using a binomial lattice model with weighted average assumptions as follows:
|
Valuation at
March 31, 2012
|
Valuation at
grant date
|
|||
Share price ($)
|
2.44
|
2.55
|
||
Risk free rate (%)
|
1.2
|
1.5
|
||
Expected life (years)
|
1.5
|
2.4
|
||
Expected volatility (%)
|
55
|
55
|
||
Weighted average fair value ($)
|
1.55
|
2.10
|
The following table summarizes share based compensation expense:
|
For the three months ended March 31
|
2012
|
2011
|
||
Stock option expense
|
242
|
803
|
||
Stock unit award expense
|
123
|
442
|
||
Restricted share unit expense
|
(43)
|
--
|
||
Share based compensation
|
322
|
1,245
|
The following table summarizes the share based compensation liability:
|
March 31
2012
|
December 31
2011
|
|||
Stock unit award liability
|
2,078
|
1,955
|
||
Restricted share unit liability
|
364
|
493
|
||
Share based compensation liability
|
2,442
|
2,448
|
14.
|
Supplemental cash flow information
|
Changes in non-cash working capital
|
For the three months ended March 31
|
2012
|
2011
|
||
Accounts receivable
|
2,284
|
(235)
|
||
Prepaid expenses and deposits
|
(193)
|
160
|
||
Accounts payable and accrued liabilities
|
(8,680)
|
(3,063)
|
||
Provisions
|
(12,718)
|
(534)
|
||
Foreign currency translation adjustment
|
245
|
583
|
||
Change in non-cash working capital
|
(19,062)
|
(3,089)
|
The change in non-cash working capital is attributed to the following activities:
|
For the three months ended March 31
|
2012
|
2011
|
||
Operating
|
1,094
|
(565)
|
||
Investing
|
(20,156)
|
(2,524)
|
||
(19,062)
|
(3,089)
|
Q1 2012 FS
|
Page 14
|
15.
|
Discontinued operations
|
|
(a)
|
Trinidad and Tobago
|
|
On June 22, 2011, the Company completed the sale of its remaining 25% interest in Block 5(c) and the Mayaro-Guayaguayare block (“MG Block”) exploration and production license for cash proceeds of US$78.1 million and the assumption of the Company’s performance guarantee provided for the MG Block of US$12.0 million. On December 15, 2011, the Government of Trinidad and Tobago granted the Company’s request to transfer the MG Block and the related performance guarantee to the purchaser in accordance with the terms of the purchase agreement.
|
||
On February 8, 2011, as part of the agreement, the Company had issued a US$20.0 million debenture to the purchaser. The debenture accrued interest at 6.0% per annum and was secured against the Company’s Block 5(c) interests. Upon closing of the agreement, the US$20.0 million was applied against the proceeds of US$78.1 million.
|
Proceeds from disposition
|
(CDN$ thousands)
|
|||
Cash received
|
56,877
|
|||
Debenture retired
|
19,898
|
|||
MG Block performance guarantee assumed by purchaser
|
11,716
|
|||
Transaction costs
|
(583)
|
|||
Proceeds net of transaction costs
|
87,908
|
|||
Net assets disposed at carrying value
|
||||
Exploration and evaluation assets
|
79,664
|
|||
Decommissioning provisions
|
(3,040)
|
|||
Net assets
|
76,624
|
|||
Gain before understated
|
11,284
|
|||
Realized foreign currency translation reserve, reclassified from shareholders’ equity
|
(5,975)
|
|||
Net gain on disposition
|
5,309
|
(b)
|
LNG Project
|
|
On February 22, 2011, the Company completed the sale of its wholly owned subsidiary Liberty Natural Gas LLC which owned a 100% working interest in the LNG Project and received US$1.0 million for reimbursable costs incurred between January 1, 2011, and February 22, 2011. The Company is entitled to receive deferred cash consideration of US$12.5 million payable upon the project’s first successful gas delivery. No amounts have been recorded in the Financial Statements related to this contingent consideration.
|
||
(c)
|
Financial information from discontinued operations
|
|
Loss from discontinued operations reported in the consolidated statement of operations, comprehensive loss and deficit is as follows:
|
Trinidad and Tobago
|
LNG Project
|
Total
|
|||||||||||
For the three months ended March 31
|
2012
|
2011
|
2012
|
2011
|
2012
|
2011
|
|||||||
(CDN$ thousands)
|
|||||||||||||
Expenses
|
|||||||||||||
General and administrative
|
--
|
(189)
|
--
|
(845)
|
--
|
(1,034)
|
|||||||
Finance costs
|
--
|
(192)
|
--
|
--
|
--
|
(192)
|
|||||||
Loss from discontinued operations
|
--
|
(381)
|
--
|
(845)
|
--
|
(1,226)
|
|||||||
Foreign currency translation gain (loss) relating to assets and liabilities held for sale
|
--
|
(1,690)
|
--
|
12
|
--
|
(1,678)
|
|||||||
Total comprehensive loss from discontinued operations
|
--
|
(2,071)
|
--
|
(833)
|
--
|
(2,904)
|
Q1 2012 FS
|
Page 15
|
|
·
|
business strategy, plans and priorities;
|
|
·
|
planned exploration and development activities;
|
|
·
|
planned capital expenditures;
|
|
·
|
expected sources of funding for the capital program;
|
|
·
|
expected increases in oil and gas production;
|
|
·
|
future oil and gas prices and interest rates in respect of Sonde's commodity risk management programs;
|
|
·
|
the outcome of financing alternatives in North Africa;
|
|
·
|
other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance; and
|
|
·
|
Sonde's tax pools.
|
|
·
|
the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable facilities outages;
|
Q1 2012 MD&A
|
Page 1
|
|
·
|
risks and uncertainties involving geology of oil and gas deposits;
|
|
·
|
uncertainty related to production, marketing and transportation;
|
|
·
|
availability of experienced service industry personnel and equipment;
|
|
·
|
availability of qualified personnel and the ability to attract or retain key employees or members of management;
|
|
·
|
the uncertainty of reserves and resources estimates, reserves life and underlying reservoir risk;
|
|
·
|
the uncertainty of estimates and projections relating to production, costs and expenses;
|
|
·
|
potential delays or changes in plans with respect to exploration or development projects or capital expenditures;
|
|
·
|
delays due to adverse weather conditions;
|
|
·
|
fluctuations in oil and gas prices, foreign currency exchange rates and interest rates;
|
|
·
|
the outcome and effects of any future acquisitions and dispositions;
|
|
·
|
health, safety and environmental risks;
|
|
·
|
uncertainties as to the availability and cost of financing and changes in capital markets;
|
|
·
|
risks in conducting foreign operations (for example, political and fiscal instability or the possibility of civil unrest or military action);
|
|
·
|
risks associated with competition from other producers;
|
|
·
|
changes in general economic and business conditions; and
|
|
·
|
the possibility that government policies or laws may change or government approvals may be delayed or withheld.
|
Q1 2012 MD&A
|
Page 2
|
|
·
|
cautiously using available cash and borrowing capacity while waiting for the outcome of the North African unitization, exploitation and financing alternative program;
|
|
·
|
developing the Western Canada asset base to increase average daily oil production, along with replacement of producing reserves on an economic and cost effective basis through exploitation, full-cycle exploration and strategic acquisition;
|
|
·
|
currently evaluating its entire acreage position and initiating an aggressive oil and liquids oriented, multi-year drilling program;
|
Q1 2012 MD&A
|
Page 3
|
|
·
|
establishing organic growth through repeatable drilling programs;
|
|
·
|
providing shareholders access to high-leverage oil-oriented growth in Western Canada by annually purchasing significant lease acreage in emerging “oil-resource” plays such as the Montney and Duvernay oil plays; and
|
|
·
|
taking the actions necessary to preserve Sonde’s assets in North Africa while exploring options.
|
($ thousands)
|
($ per boe)
|
|||||||||||||||||||||||
Three months ended March 31
|
2012
|
2011
|
% change
|
2012
|
2011
|
% change
|
||||||||||||||||||
Petroleum and natural gas sales
|
8,429 | 9,377 | (10 | ) | 33.73 | 38.03 | (11 | ) | ||||||||||||||||
Realized gain (loss) on financial instruments
|
(67 | ) | 76 | -- | (0.27 | ) | 0.31 | -- | ||||||||||||||||
Transportation
|
(196 | ) | (259 | ) | (24 | ) | (0.78 | ) | (1.05 | ) | (26 | ) | ||||||||||||
Royalties
|
(1,180 | ) | (445 | ) | 165 | (4.72 | ) | (1.81 | ) | 162 | ||||||||||||||
6,986 | 8,749 | (20 | ) | 27.96 | 35.48 | (21 | ) | |||||||||||||||||
Operating expense
|
(3,836 | ) | (3,117 | ) | 23 | (15.35 | ) | (12.64 | ) | 21 | ||||||||||||||
Well workover expense
|
(477 | ) | (588 | ) | (19 | ) | (1.91 | ) | (2.38 | ) | (20 | ) | ||||||||||||
Operating netback(2)
|
2,673 | 5,044 | (47 | ) | 10.70 | 20.46 | (48 | ) | ||||||||||||||||
General and administrative
|
(2,836 | ) | (3,277 | ) | (13 | ) | (11.35 | ) | (13.29 | ) | (15 | ) | ||||||||||||
Foreign exchange gain (loss)
|
(402 | ) | 469 | --- | (1.61 | ) | 1.90 | -- | ||||||||||||||||
Interest and other income
|
30 | 56 | (46 | ) | 0.12 | 0.23 | (48 | ) | ||||||||||||||||
Interest
|
(97 | ) | (647 | ) | (85 | ) | (0.39 | ) | (2.62 | ) | (85 | ) | ||||||||||||
Income taxes
|
(35 | ) | -- | -- | (0.14 | ) | -- | -- | ||||||||||||||||
Funds from (used for) operations(1,2)
|
(667 | ) | 1,645 | (141 | ) | (2.67 | ) | 6.68 | (140 | ) | ||||||||||||||
Decommissioning expenditures
|
-- | (846 | ) | -- | -- | (3.43 | ) | -- | ||||||||||||||||
Changes in non-cash working capital
|
1,094 | (565 | ) | -- | 4.38 | (2.29 | ) | -- | ||||||||||||||||
Cash provided by operating activities (1)
|
427 | 234 | 82 | 1.71 | 0.96 | 0.76 |
Q1 2012 MD&A
|
Page 4
|
Q1 | Q4 | Q1 | ||||||||||
Commodity
|
2012 | 2011 | 2011 | |||||||||
Natural gas (mcf/d)
|
11,553 | 12,186 | 12,377 | |||||||||
Crude oil (bbls/d)
|
565 | 587 | 469 | |||||||||
Natural gas liquids (bbls/d)
|
255 | 293 | 208 | |||||||||
Total production (boe/d) (6:1)
|
2,746 | 2,911 | 2,740 |
Q1 | Q4 | Q1 | ||||||||||
Region
|
2012 | 2011 | 2011 | |||||||||
Southern Alberta (boe/d)
|
2,129 | 2,324 | 2,099 | |||||||||
Central Alberta (boe/d)
|
408 | 276 | 253 | |||||||||
Other Western Canada (boe/d)
|
209 | 311 | 388 | |||||||||
Total production (boe/d) (6:1)
|
2,746 | 2,911 | 2,740 |
Q1 | Q4 | Q1 | ||||||||||
2012 | 2011 | 2011 | ||||||||||
($ thousands, except where otherwise noted)
Petroleum and natural gas sales
|
||||||||||||
Natural gas
|
2,314 | 3,895 | 4,607 | |||||||||
Crude oil
|
4,673 | 4,956 | 3,532 | |||||||||
Natural gas liquids
|
1,442 | 1,389 | 1,238 | |||||||||
Transportation
|
(196 | ) | (255 | ) | (259 | ) | ||||||
Royalties
|
(1,180 | ) | (1,048 | ) | (445 | ) | ||||||
Realized gain (loss) on commodity derivatives
|
(67 | ) | 508 | 76 | ||||||||
Total
|
6,986 | 9,445 | 8,749 | |||||||||
Average sales price (including commodity derivatives)
|
||||||||||||
Natural gas ($/mcf)
|
2.20 | 3.93 | 4.14 | |||||||||
Crude oil ($/bbl)
|
89.54 | 91.73 | 83.70 | |||||||||
Natural gas liquids ($/bbl)
|
62.08 | 51.64 | 65.92 | |||||||||
Average sales price ($/boe)
|
33.47 | 40.13 | 35.48 | |||||||||
AECO Gas ($/mcf)(1)
|
2.31 | 3.43 | 3.79 | |||||||||
Edmonton Light ($/bbl) (1)
|
93.11 | 97.33 | 88.39 |
Q1 2012 MD&A
|
Page 5
|
Q1 | Q4 | Q1 | ||||||||||
2012 | 2011 | 2011 | ||||||||||
($ thousands, except where otherwise noted)
Royalties
|
||||||||||||
Crown
|
922 | 713 | 475 | |||||||||
Freehold and overriding
|
258 | 335 | (30 | ) | ||||||||
Total
|
1,180 | 1,048 | 445 | |||||||||
Royalties per boe ($)
|
4.72 | 3.91 | 1.81 | |||||||||
Average royalty rate (%)
|
14.5 | 10.0 | 4.8 |
Q1 | Q4 | Q1 | ||||||||||
2012 | 2011 | 2011 | ||||||||||
($ thousands)
Acquisitions
|
-- | 153 | -- | |||||||||
Exploration and evaluation
|
4,785 | 2,353 | 8,126 | |||||||||
Drilling and completions
|
1,782 | 9,828 | 1,692 | |||||||||
Plants, facilities and pipelines
|
2,050 | 2,559 | 1,379 | |||||||||
Land and lease
|
754 | 3,316 | 173 | |||||||||
Capital well workovers
|
569 | 550 | 59 | |||||||||
Capitalized general and administrative expenses
|
861 | 898 | 1,036 | |||||||||
Capital expenditures
|
10,801 | 19,657 | 12,465 | |||||||||
Western Canada dispositions
|
(74,979 | ) | (501 | ) | -- | |||||||
Exploration and evaluation impairment, charged to exploration expense
|
(886 | ) | (159 | ) | (164 | ) | ||||||
Net capital expenditures
|
(65,064 | ) | 18,997 | 12,201 |
Q1 2012 MD&A
|
Page 6
|
Q1 | Q4 | Q1 | ||||||||||
2012 | 2011 | 2011 | ||||||||||
($ thousands)
|
||||||||||||
Canada
|
(70,825 | ) | 16,381 | 2,921 | ||||||||
North Africa
|
5,433 | 2,436 | 8,976 | |||||||||
Corporate Assets
|
328 | 180 | 359 | |||||||||
Trinidad and Tobago
|
-- | -- | (55 | ) | ||||||||
Net capital expenditures
|
(65,064 | ) | 18,997 | 12,201 |
Q1 2012 MD&A
|
Page 7
|
Year
|
AECO Gas (Cdn/mmbtu) (1)
|
Edmonton Light Sweet
Crude Oil (Cdn/bbl) (1)
|
|||||||
2012 (Q2 – Q4) | $ | 2.63 | $ | 94.17 | |||||
2013 | 3.67 | 98.98 | |||||||
2014 | 4.13 | 101.02 | |||||||
2015 | 4.59 | 101.02 | |||||||
2016 | 5.05 | 101.02 | |||||||
2017 | 5.51 | 101.02 | |||||||
2018 | 5.94 | 102.40 | |||||||
2019 | 6.06 | 104.47 | |||||||
2020 | 6.19 | 106.58 | |||||||
2021 | 6.31 | 108.73 | |||||||
Remainder(2)
|
2.0 | % | 2.0 | % | |||||
(1) Source: Independent qualified reserves evaluator’s price forecast, effective April 1, 2012.
|
|||||||||
(2) Percentage change represents the change in each year after 2021 to the end of the reserve life.
|
Q1 | Q4 | Q1 | ||||||||||
2012 | 2011 | 2011 | ||||||||||
($ thousands, except where otherwise noted)
Continuing operations
|
||||||||||||
Gross general and administrative expense
|
3,685 | 3,455 | 3,309 | |||||||||
Capitalized general and administrative expense
|
(861 | ) | (898 | ) | (1,066 | ) | ||||||
2,824 | 2,557 | 2,243 | ||||||||||
Discontinued operations
|
||||||||||||
Gross and net general and administrative expense
|
-- | 17 | 1,034 | |||||||||
Total net general and administrative expense
|
2,824 | 2,574 | 3,277 | |||||||||
General and administrative expense ($/boe)
|
11.35 | 9.61 | 13.29 |
Q1 2012 MD&A
|
Page 8
|
Q1 | Q4 | Q1 | ||||||||||
2012 | 2011 | 2011 | ||||||||||
($ thousands)
|
||||||||||||
Stock option expense
|
242 | 455 | 803 | |||||||||
Stock unit award expense
|
123 | 573 | 442 | |||||||||
Restricted share unit expense
|
(43 | ) | 143 | -- | ||||||||
Share based compensation
|
322 | 1,171 | 1,245 |
March 31
|
December 31
|
|||||||
2012
|
2011
|
|||||||
($ thousands)
|
||||||||
Cash and cash equivalents
|
48,062 | 3,743 | ||||||
Accounts receivable
|
5,152 | 7,436 | ||||||
Prepaid expenses and deposits
|
1,759 | 1,528 | ||||||
Accounts payable and accrued liabilities
|
(8,975 | ) | (17,655 | ) | ||||
Stock based compensation liability
|
(2,442 | ) | (2,448 | ) | ||||
Provisions
|
(12 | ) | (12,730 | ) | ||||
Derivative financial liabilities
|
(630 | ) | (781 | ) | ||||
Working capital surplus (deficit)
|
42,914 | (20,907 | ) |
Q1 2012 MD&A
|
Page 9
|
2012
|
2013
|
2014
|
2015
|
2016
|
Thereafter
|
Total
|
||||||||||||||||||||||
Accounts payable and accrued liabilities
|
8,975 | -- | -- | -- | -- | -- | 8,975 | |||||||||||||||||||||
Stock based compensation liability
|
2,442 | -- | -- | -- | -- | -- | 2,442 | |||||||||||||||||||||
Derivative financial liabilities
|
630 | -- | -- | -- | -- | -- | 630 | |||||||||||||||||||||
North Africa exploration commitments
|
-- | 44,888 | -- | -- | -- | -- | 44,888 | |||||||||||||||||||||
Office rent
|
1,066 | 1,212 | 1,212 | 1,217 | 1,233 | 7,159 | 13,099 | |||||||||||||||||||||
Equipment
|
5 | -- | -- | -- | -- | -- | 5 | |||||||||||||||||||||
13,118 | 46,100 | 1,212 | 1,217 | 1,233 | 7,159 | 70,039 |
March 31
|
December 31
|
|||||||
2012
|
2011
|
|||||||
(CDN$ thousands)
|
||||||||
Canadian exploration expense
|
57,862 | 57,861 | ||||||
Canadian oil and gas property expense
|
-- | 49,230 | ||||||
Canadian development expense
|
45,623 | 45,579 | ||||||
Undepreciated capital costs
|
31,902 | 29,945 | ||||||
Foreign exploration expense
|
51,429 | 34,163 | ||||||
Non-capital losses
|
75,624 | 98,429 | ||||||
Capital losses
|
30,234 | 30,234 | ||||||
Share issue costs and other
|
3,726 | 3,726 | ||||||
296,400 | 349,167 |
Q1 2012 MD&A
|
Page 10
|
($ thousands)
|
Petroleum and Natural Gas Sales(1)
|
|||
Change in average sales price for natural gas by $1.00/mcf
|
1,051 | |||
Change in the average sales price for crude oil and natural gas liquids by $1.00/bbl
|
75 | |||
Change in natural gas production by 1 mmcf/d (2)
|
200 | |||
Change in crude oil and natural gas liquids production by 100 bbls/d (2)
|
745 |
(1)
|
Reflects the change in petroleum and natural gas sales for the three months ended March 31, 2012.
|
(2)
|
Reflects the change in production multiplied by Sonde’s average sales prices for the three months ended March 31, 2012 excluding fixed price commodity contracts.
|
Q1 2012 MD&A
|
Page 11
|
Three months ended
|
March 31, 2012
|
March 31, 2011
|
|||||||||||||||||||||||
Term
|
Contract
|
Volume (GJ/d)
|
Fixed Price ($/GJ)
|
Realized gain
|
Unrealized gain
|
Realized gain
|
Unrealized gain
|
||||||||||||||||||
March 1, 2011 – December 31, 2011
|
Swap
|
5,000 | $ | 4.11 | -- | -- | $ | 97 | $ | 507 | |||||||||||||||
Three months ended
|
March 31, 2012
|
March 31, 2011
|
|||||||||||||||||||||||
Term
|
Contract
|
Volume (Bbls/d)
|
Fixed Price ($US/bbl)
|
Realized loss
|
Unrealized gain
|
Realized loss
|
Unrealized loss
|
||||||||||||||||||
March 1, 2011 – December 31, 2012
|
Call option
|
250 | $ | 100.00 | $ | (67 | ) | $ | 151 | $ | (21 | ) | $ | (2,247 | ) |
March 31
|
December 31
|
|||||||
2012
|
2011
|
|||||||
(US$ thousands)
|
||||||||
Cash and cash equivalents
|
7,950 | 1,020 | ||||||
North Africa receivables
|
-- | 111 | ||||||
Foreign denominated financial assets
|
7,950 | 1,131 | ||||||
North Africa payables
|
1,537 | 1,720 | ||||||
Mariner swap provision
|
-- | 12,500 | ||||||
Foreign denominated financial liabilities
|
1,537 | 14,220 |
March 31
|
December 31
|
|||||||
2012
|
2011
|
|||||||
(CDN$ thousands)
|
||||||||
Western Canada joint interest billings
|
2,333 | 2,830 | ||||||
Goods and Services Tax receivable
|
146 | 740 | ||||||
North Africa recoverable expenses
|
-- | 113 | ||||||
Revenue accruals and other receivables
|
2,673 | 3,753 | ||||||
Accounts receivable
|
5,152 | 7,436 | ||||||
Cash and cash equivalents
|
48,062 | 3,743 | ||||||
Credit exposure
|
53,214 | 11,179 |
Q1 2012 MD&A
|
Page 12
|
(IFRS)
|
2012
|
2011
|
2011
|
2011
|
2011
|
2010
|
2010
|
2010
|
||||||||||||||||||||||||
Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | |||||||||||||||||||||||||
Production
|
||||||||||||||||||||||||||||||||
Natural gas (mcf/d)
|
11,553 | 12,186 | 12,673 | 11,509 | 12,377 | 14,140 | 12,417 | 13,631 | ||||||||||||||||||||||||
Crude oil and natural gas liquids (bbl/d)
|
820 | 880 | 834 | 672 | 677 | 730 | 646 | 620 | ||||||||||||||||||||||||
Total (boe/d)
|
2,746 | 2,911 | 2,946 | 2,584 | 2,740 | 3,087 | 2,716 | 2,892 | ||||||||||||||||||||||||
Petroleum & natural gas sales (2)
|
6,986 | 9,445 | 9,011 | 7,747 | 8,749 | 10,002 | 7,847 | 7,682 | ||||||||||||||||||||||||
Net income (loss) from continuing operations
|
55,456 | (37,529 | ) | (924 | ) | (872 | ) | (4,150 | ) | (40,952 | ) | (3,333 | ) | (19,957 | ) | |||||||||||||||||
Net income (loss) from continuing operations per share – basic and diluted
|
0.89 | (0.60 | ) | (0.01 | ) | (0.01 | ) | (0.07 | ) | (0.66 | ) | (0.05 | ) | (0.33 | ) | |||||||||||||||||
Net income (loss) (1)
|
55,456 | (37,546 | ) | (668 | ) | 3,019 | (5,376 | ) | (74,177 | ) | (3,362 | ) | (19,988 | ) | ||||||||||||||||||
Net income (loss) per share – basic and diluted(1)
|
0.89 | (0.60 | ) | (0.01 | ) | 0.05 | (0.09 | ) | (1.19 | ) | (0.05 | ) | (0.33 | ) | ||||||||||||||||||
Funds from (used for)
operations (3)
|
(667 | ) | 3,155 | 1,945 | 853 | 1,644 | 871 | 2,528 | (690 | ) | ||||||||||||||||||||||
Funds from (used for) operations per share – basic and diluted (3)
|
(0.01 | ) | 0.05 | 0.03 | 0.01 | 0.03 | 0.01 | 0.04 | (0.01 | ) |
Q1 2012 MD&A
|
Page 13
|
|
·
|
Revenue is directly impacted by Sonde’s ability to replace existing production and add incremental production through its on-going workover, recompletion and capital expenditure program.
|
|
·
|
Fluctuations in Sonde’s petroleum and natural gas sales from quarter to quarter are primarily caused by variations in production volumes, realized oil and natural gas prices and the related impact of royalties.
|
|
·
|
Fluctuations in Sonde’s net income (loss) from quarter to quarter are primarily caused by variations in petroleum and natural gas sales, sales of assets and impairments of property, plant and equipment.
|
|
·
|
Fluctuations in debt levels from quarter to quarter can substantially impact Sonde’s net income and cash flow from operations.
|
Q1 2012 MD&A
|
Page 14
|
1.
|
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Sonde Resources Corp. (the “issuer”) for the interim period ended March 31, 2012.
|
2.
|
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
|
3.
|
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
|
4.
|
Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
|
5.
|
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
|
|
A.
|
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
|
|
I.
|
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
|
|
II.
|
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
|
|
B.
|
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
|
5.1
|
Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the Internal Control over Financial Reporting - Guidance for Smaller Public Companies published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
|
5.2
|
N/A
|
5. 3
|
N/A
|
6.
|
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2012 and ended on March 31, 2012 that has materially affected, or reasonably likely to materially affect, the issuer’s ICFR.
|
1.
|
Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Sonde Resources Corp. (the “issuer”) for the interim period ended March 31, 2012.
|
2.
|
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
|
3.
|
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
|
4.
|
Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.
|
5.
|
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings
|
|
A.
|
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that
|
|
I.
|
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and
|
|
II.
|
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
|
|
B.
|
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.
|
5.1
|
Control framework: The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is the Internal Control over Financial Reporting - Guidance for Smaller Public Companies published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
|
5.2
|
N/A
|
5. 3
|
N/A
|
6.
|
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2012 and ended on March 31, 2012 that has materially affected, or reasonably likely to materially affect, the issuer’s ICFR.
|
SONDE RESOURCES CORP.
|
||||||
(Registrant)
|
||||||
Date:
|
May 14, 2012
|
By:
|
/s/ Kurt A. Nelson
|
|||
Name: Kurt A. Nelson
Title: Chief Financial Officer
|