The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
1. General
Nature of operations
TransAtlantic Petroleum Ltd. (together with its subsidiaries, “we,” “us,” “our,” the “Company” or “TransAtlantic”) is an international oil and natural gas company engaged in acquisition, exploration, development and production. We have focused our operations in countries that have established, yet underexplored petroleum systems, are net importers of petroleum, have an existing petroleum transportation infrastructure and provide favorable commodity pricing, royalty rates and tax rates to exploration and production companies. We hold interests in developed and undeveloped oil and natural gas properties in Turkey and Bulgaria. As of November 8, 2016, approximately 39% of our outstanding common shares were beneficially owned by N. Malone Mitchell 3rd, our chief executive officer and chairman of our board of directors.
TransAtlantic is a holding company with two operating segments – Turkey and Bulgaria. Its assets consist of its ownership interests in subsidiaries that primarily own assets in Turkey and Bulgaria, and an operated interest in a joint venture in Albania.
Basis of presentation
Our consolidated financial statements are expressed in U.S. Dollars and have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All amounts in the notes to the consolidated financial statements are in U.S. Dollars unless otherwise indicated. In preparing financial statements, management makes informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews estimates, including those related to fair value measurements associated with acquisitions and financial derivatives, the recoverability and impairment of long-lived assets, contingencies and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates. During the nine months ended September 30, 2016, we reclassified certain balance sheet amounts previously reported on our consolidated balance sheet at December 31, 2015 to conform to current year presentation.
Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2015.
2. Going concern
These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern. These principles assume that we will be able to realize our assets and discharge our obligations in the normal course of operations for the foreseeable future.
We had net a loss of $0.5 million for the nine months ended September 30, 2016, which included net income from discontinued operations of $16.2 million. At September 30, 2016, the outstanding principal amount of our debt was $87.4 million and we had a working capital deficit of $54.1 million.
On August 23, 2016, the Turkish branch of TransAtlantic Exploration Mediterranean International Pty Ltd (“TEMI”), entered into a general credit agreement (the “Credit Agreement”) with DenizBank, A.S. (“DenizBank”). On August 31, 2016, DenizBank entered into a $30.0 million term loan (the “Term Loan”) with TEMI under the Credit Agreement. TEMI is a wholly-owned subsidiary of TransAtlantic.
On September 7, 2016, TEMI used approximately $22.9 million of the proceeds from the Term Loan to repay in full (including accrued interest) the Company’s senior credit facility (the “Senior Credit Facility”) with BNP Paribas (Suisse) SA (“BNP”) and the International Finance Corporation (“IFC”), which was terminated upon repayment. In connection with the repayment of the Senior Credit Facility, the Company unwound its oil hedges with BNP, receiving proceeds of $2.6 million.
6
The Term Loan bears interest at a fixed rate of 5.25% (plus 0.2625% for Banking and Insurance Transactions Tax per the Turkish government) per annum and is payable in six monthly installments of $1.25 m
illion each through February 2017 and thereafter in twelve monthly installments of $1.88 million each through February 2018. The Term Loan matures in February 2018. Of the $28.8 million outstanding under the Term Loan at September 30, 2016, $19.4 million
is classified as short-term debt. In addition, the Company’s $55.0 million of outstanding 13.0% convertible notes due 2017 (the “2017 Notes”) are due in full on July 1, 2017
.
Consequently, we will need some form of debt restructuring, capital raising effort or asset sale in order to fund our operations and meet our substantial debt service obligations of approximately $7.3 million during the fourth quarter of 2016 and $76.3 million in 2017. As a result, there is substantial doubt regarding our ability to continue as a going concern. The Company continues to focus on the sale of assets to raise cash, capital raising and restructuring, and repaying or refinancing its debt obligations. See Note 14. “Subsequent Events.”
Management believes the going concern assumption to be appropriate for these consolidated financial statements. If the going concern assumption was not appropriate, adjustments would be necessary to the carrying values of assets and liabilities, reported revenues and expenses, and in the balance sheet classifications used in these consolidated financial statements.
3. Recent accounting pronouncements
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-11,
Simplifying the Measurement of Inventory
(“ASU 2015-11”), an amendment to Accounting Standards Codification (“ASC”) Subtopic 330-10. The amendment states that entities should measure inventory at the lower of cost and net realizable value. The amendment does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendment applies to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. ASU 2015-11 is effective for fiscal years beginning after December 31, 2016, including interim periods within those fiscal years. We are currently assessing the potential impact of ASU 2015-11 on our consolidated financial statements and results of operations.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
(“ASU 2016-08”). ASU 2016-08 does not change the core principle of Topic 606 but clarifies the implementation guidance on principal versus agent considerations. ASU 2016-08 is effective for the annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-08 on our consolidated financial statements and results of operations.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. We are currently assessing the potential impact of ASU 2016-09 on our consolidated financial statements and results of operations.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing
(“ASU 2016-10”). ASU 2016-10 does not change the core principle of Topic 606 but clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective for annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-10 on our consolidated financial statements and results of operations.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses
(“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for a fiscal year beginning after December 15, 2018, including interim periods within that fiscal year. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently assessing the potential impact of ASU 2016-13 on our consolidated financial statements and results of operations.
7
In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows
(Topic 230):
Classification of Certai
n Cash Receipts and Cash Payments
("ASU 2016-15"). ASU 2016-15 reduces diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in ASU 2016-15 provide guidance on specific cash flow issues including de
bt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payment
s made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. ASU 2016-15 is effective for annual and
interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-15 on our consolidated financial statements and results of operations.
We have reviewed other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operations, financial position and cash flows. Based on that review, we believe that none of these pronouncements will have a significant effect on current or future earnings or operations.
4. Property and equipment
Oil and natural gas properties
The following table sets forth the capitalized costs under the successful efforts method for our oil and natural gas properties as of:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(in thousands)
|
|
|
Oil and natural gas properties, proved:
|
|
|
|
|
|
|
|
|
Turkey
|
$
|
264,646
|
|
|
$
|
270,591
|
|
|
Bulgaria
|
|
499
|
|
|
|
489
|
|
|
Total oil and natural gas properties, proved
|
|
265,145
|
|
|
|
271,080
|
|
|
Oil and natural gas properties, unproved:
|
|
|
|
|
|
|
|
|
Turkey
|
|
29,883
|
|
|
|
31,135
|
|
|
Total oil and natural gas properties, unproved
|
|
29,883
|
|
|
|
31,135
|
|
|
Gross oil and natural gas properties
|
|
295,028
|
|
|
|
302,215
|
|
|
Accumulated depletion
|
|
(156,210
|
)
|
|
|
(139,002
|
)
|
|
Net oil and natural gas properties
|
$
|
138,818
|
|
|
$
|
163,213
|
|
At September 30, 2016 and December 31, 2015, we excluded $0.1 million and $0.7 million, respectively, from the depletion calculation for proved development wells currently in progress and for costs associated with fields currently not in production.
At September 30, 2016, the capitalized costs of our oil and natural gas properties, net of accumulated depletion, included $17.7 million relating to acquisition costs of proved properties, which are being depleted by the unit-of-production method using total proved reserves, and $91.2 million relating to well costs and additional development costs, which are being depleted by the unit-of-production method using proved developed reserves.
At December 31, 2015, the capitalized costs of our oil and natural gas properties included $20.0 million relating to acquisition costs of proved properties, which are being amortized by the unit-of-production method using total proved reserves, and $111.4 million relating to well costs and additional development costs, which are being amortized by the unit-of-production method using proved developed reserves
Impairments of proved properties and impairment of exploratory well costs
Proved oil and natural gas properties are reviewed for impairment when events and circumstances indicate the carrying value of such properties may not be recoverable. We primarily use Level 3 inputs to determine fair value, including but are not limited to, estimates of proved reserves, future commodity prices, the timing and amount of future production and capital expenditures and discount rates commensurate with the risk reflective of the lives remaining for the respective oil and natural gas properties.
During the three and nine months ended September 30, 2016, we recorded $1.5 million and $3.0 million, respectively, of impairment of proved properties and exploratory well costs, which are primarily measured using Level 3 inputs. We recorded $0.7 million of exploratory well costs related to the Guney Residere well during the three and nine months ended September 30, 2016.
8
Capitalized cost greater than one year
As of September 30, 2016, we had $1.2 million and $2.1 million of exploratory well costs capitalized for the Hayrabolu-10 and Pinar-1 wells, respectively, in Turkey, which we spud in February 2013 and March 2014, respectively. The Hayrabolu-10 and Pinar-1 wells continue to be held for completion.
Equipment and other property
The historical cost of equipment and other property, presented on a gross basis with accumulated depreciation, is summarized as follows:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(in thousands)
|
|
|
Inventory
|
$
|
15,067
|
|
|
$
|
21,338
|
|
|
Leasehold improvements, office equipment and software
|
|
7,632
|
|
|
|
7,794
|
|
|
Gas gathering system and facilities
|
|
-
|
|
|
|
4,798
|
|
|
Other equipment
|
|
2,487
|
|
|
|
2,378
|
|
|
Vehicles
|
|
389
|
|
|
|
400
|
|
|
Gross equipment and other property
|
|
25,575
|
|
|
|
36,708
|
|
|
Accumulated depreciation
|
|
(6,141
|
)
|
|
|
(9,216
|
)
|
|
Net equipment and other property
|
$
|
19,434
|
|
|
$
|
27,492
|
|
As of September 30, 2016, we have classified $4.9 million of inventory as a current asset, which represents our expected consumption in the next twelve months. We classify the remainder of our materials and supply inventory as a long-term asset because such materials will ultimately be classified as a long-term asset when the material is used in the drilling of a well.
At September 30, 2016 and December 31, 2015, we excluded $20.0 million and $21.3 million of inventory, respectively, from depreciation as the inventory had not been placed into service.
5. Asset retirement obligations
The following table summarizes the changes in our asset retirement obligations (“ARO”) for the nine months ended September 30, 2016 and for the year ended December 31, 2015:
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
(in thousands)
|
|
|
Asset retirement obligations at beginning of period
|
$
|
9,237
|
|
|
$
|
10,543
|
|
|
Change in estimates
|
|
-
|
|
|
|
385
|
|
|
Foreign exchange change effect
|
|
(252
|
)
|
|
|
(2,137
|
)
|
|
Additions
|
|
-
|
|
|
|
78
|
|
|
Accretion expense
|
|
285
|
|
|
|
368
|
|
|
Asset retirement obligations at end of period
|
|
9,270
|
|
|
|
9,237
|
|
|
Less: current portion
|
|
-
|
|
|
|
-
|
|
|
Long-term portion
|
$
|
9,270
|
|
|
$
|
9,237
|
|
Our ARO is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs.
6. Commodity derivative instruments
Historically, we have used derivative contracts to hedge against the variability in cash flows associated with the forecasted sale of a portion of our future oil production. We have not designated the derivative contracts as hedges for accounting purposes, and accordingly, we have recorded the derivative contracts at fair value and recognize changes in fair value in earnings as they occur.
9
To the extent that a legal right of offset exists, we net the value of our derivative contracts with the same counterp
arty in our consolidated balance sheets. All of our oil derivative contracts were settled based upon Brent crude oil pricing. We recognize gains and losses related to these contracts on a fair value basis in our consolidated statements of comprehensive inc
ome (loss) under the caption “(Loss) gain on commodity derivative contracts.” Settlements of derivative contracts are included in operating activities on our consolidated statements of cash flows under the caption “Cash settlement on commodity derivative c
ontracts.”
During the three months ended September 30, 2016 and 2015, we recorded a net loss on commodity derivative contracts of $0.2 million and a net gain of $24.9 million, respectively. During the nine months ended September 30, 2016 and 2015, we recorded a net loss on commodity derivative contracts of $2.4 million and a net gain of $25.4 million, respectively.
On September 7, 2016 and September 9, 2016, we unwound all of our existing crude oil hedges for the periods September 10, 2016 through March 31, 2019. The unwinding of these hedging transactions resulted in proceeds of $2.6 million and was used for general corporate purposes. See Note 14. “Subsequent Events” for more information.
At December 31, 2015, we had outstanding hedging contracts with respect to our future crude oil production as set forth in the table below:
Fair Value of Derivative Instruments as of December 31, 2015
|
|
|
|
|
Puts
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Estimated Fair
|
|
|
|
|
|
|
Quantity
|
|
|
Price
|
|
|
Value of
|
|
|
Type
|
|
Period
|
|
(Bbl/day)
|
|
|
(per Bbl)
|
|
|
Asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
Put
|
|
January 1, 2016—
December 31, 2016
|
|
|
808
|
|
|
$
|
50.00
|
|
|
$
|
3,235
|
|
|
Put
|
|
January 1, 2017—
December 31, 2017
|
|
|
610
|
|
|
$
|
50.00
|
|
|
|
1,798
|
|
|
Put
|
|
January 1, 2018—
December 31, 2018
|
|
|
494
|
|
|
$
|
50.00
|
|
|
|
1,292
|
|
|
Put
|
|
January 1, 2019—
March 31, 2019
|
|
|
443
|
|
|
$
|
50.00
|
|
|
|
280
|
|
|
Total estimated fair value of asset
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,605
|
|
Balance sheet presentation
The following table summarizes both: (i) the gross fair value of our commodity derivative instruments by the appropriate balance sheet classification even when the commodity derivative instruments are subject to netting arrangements and qualify for net presentation in our consolidated balance sheets at December 31, 2015, and (ii) the net recorded fair value as reflected on our consolidated balance sheets at December 31, 2015.
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Net Amount of
|
|
|
|
|
|
|
Gross
|
|
|
Offset in the
|
|
|
Assets
|
|
|
|
|
|
|
Amount of
|
|
|
Consolidated
|
|
|
Presented in the
|
|
|
|
|
|
|
Recognized
|
|
|
Balance
|
|
|
Consolidated
|
|
|
Underlying Commodity
|
|
Location on Balance Sheet
|
|
Assets
|
|
|
Sheets
|
|
|
Balance Sheets
|
|
|
|
|
|
|
(in thousands)
|
|
|
Crude oil
|
|
Current assets
|
|
$
|
3,235
|
|
|
$
|
-
|
|
|
$
|
3,235
|
|
|
Crude oil
|
|
Long-term assets
|
|
$
|
3,370
|
|
|
$
|
-
|
|
|
$
|
3,370
|
|
10
7. Loans payable
As of the dates indicated, our third-party debt consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Fixed and floating rate loans
|
(in thousands)
|
|
|
Term Loan
|
$
|
28,750
|
|
|
$
|
-
|
|
|
2017 Notes
|
|
34,450
|
|
|
|
34,400
|
|
|
2017 Notes - Related Party
|
|
20,550
|
|
|
|
20,600
|
|
|
Senior Credit Facility
|
|
-
|
|
|
|
32,075
|
|
|
Unamortized deferred financing cost - Senior Credit Facility and
2017 Notes
|
|
-
|
|
|
|
(1,260
|
)
|
|
TBNG credit facility
|
|
-
|
|
|
|
5,192
|
|
|
ANBE Note
|
|
3,593
|
|
|
|
3,592
|
|
|
Short-term lines of credit
|
|
78
|
|
|
|
-
|
|
|
West Promissory Notes
|
|
-
|
|
|
|
1,000
|
|
|
Loans payable
|
|
87,421
|
|
|
|
95,599
|
|
|
Less: current portion
|
|
78,046
|
|
|
|
40,599
|
|
|
Long-term portion
|
$
|
9,375
|
|
|
$
|
55,000
|
|
Senior Credit Facility
On May 6, 2014, certain of our wholly-owned subsidiaries entered into the Senior Credit Facility with BNP Paribas and IFC. The Senior Credit Facility was guaranteed by us and each of TransAtlantic Petroleum (USA) Corp. (“TransAtlantic USA”) and TransAtlantic Worldwide, Ltd. (“TransAtlantic Worldwide”). On August 31, 2016, TEMI entered into the Term Loan and, on September 7, 2016, we repaid the Senior Credit Facility in full and terminated it.
TEMI Term Loan
On August 23, 2016, the Turkish branch of TEMI entered into the Credit Agreement with DenizBank. The Credit Agreement is a master agreement pursuant to which DenizBank may make loans to TEMI from time to time pursuant to additional loan agreements.
On August 31, 2016, DenizBank entered into the $30.0 million Term Loan with TEMI under the Credit Agreement. In addition, the Company and DenizBank entered into additional agreements with respect to up to $20.0 million of non-cash facilities, including guarantee letters and treasury instruments for future hedging transactions.
On September 7, 2016, TEMI used approximately $22.9 million of the proceeds from the Term Loan to repay in full the Senior Credit Facility.
The Term Loan bears interest at a fixed rate of 5.25% (plus 0.2625% for Banking and Insurance Transactions Tax per the Turkish government) per annum and is payable in six monthly installments of $1.25 million each through February 2017 and thereafter in twelve monthly installments of $1.88 million each through February 2018. The Term Loan matures in February 2018. Amounts repaid under the Term Loan may not be re-borrowed, and early repayments under the Term Loan are subject to early repayment fees.
The Term Loan is guaranteed by DMLP, Ltd. (“DMLP”), TransAtlantic Turkey, Ltd. (“TransAtlantic Turkey”), Talon Exploration, Ltd. (“Talon Exploration”) and TransAtlantic Worldwide (collectively, the “Guarantors”). Each of the Guarantors is a wholly-owned subsidiary of the Company.
The Term Loan contains standard prohibitions on the activities of TEMI as the borrower, including prohibitions on granting of liens on its assets, incurring additional debt, dissolving, liquidating, merging, consolidating, paying dividends, making certain investments, selling assets or transferring revenue, and other similar matters. In addition, the Term Loan prohibits Amity Oil International Pty Ltd (“Amity”) and Petrogas Petrol Gaz ve Petrokimya Urunleri Insaat Sanayi ve Ticaret A.S. (“Petrogas”) from incurring additional debt. An event of default under the Term Loan includes, among other events, failure to pay principal or interest when due, breach of certain covenants, representations, warranties and obligations, bankruptcy or insolvency and the occurrence of a material adverse effect.
11
The Term Loan is secured by a pledge of (i) the stock of TEMI, DMLP, TransAtlantic Turkey and Talon Exploration, (ii) substantially all of the assets of TEMI, (iii) certain real estate owned by Petrogas, (iv) the Gundem real estate and Mura
tli real estate owned by Gundem Turizm Yatirim ve Isletmeleri A.S. (“Gundem”) and (v) the Diyarbakir real estate owned 80% by N. Malone Mitchell 3
rd
and 20%
by
Selami Erdem Uras. In addition, TEMI assigned its Turkish collection accounts and its receivabl
es from the sale of oil to DenizBank as additional security for the Term Loan. Gundem is beneficially owned by Mr. Mitchell, his adult children, and Mr. Uras. Mr. Mitchell is our
c
hief
e
xecutive
o
fficer and
c
hairman of
our b
oard
of directors
. Mr. Uras i
s our
v
ice
p
resident, Turkey.
At September 30, 2016, we had $28.8 million outstanding under the Term Loan and no availability, and were in compliance with the covenants in the Term Loan.
2017 Notes
As of
September
30, 2016, we had $55.0
million aggregate principal amount of outstanding 2017 Notes.
The 2017 Notes bear interest at a rate of 13.0% per annum and mature on July 1, 2017. The 2017 Notes are convertible at any time, at the election of a holder, into our common shares at a conversion price of $6.80 per share.
On June 30, 2016, we issued 2,905,737 common shares in a private placement to certain holders of the 2017 Notes, at the election of such holders to receive common shares in lieu of cash interest on the 2017 Notes. See Note 14. “Subsequent Events” for more information.
TBNG credit facility
Thrace Basin Natural Gas (Turkiye) Corporation (“TBNG”) had a fully-drawn credit facility with a Turkish bank. On August 9, 2016, TBNG repaid the credit facility in full and terminated it.
West Promissory Notes
In August 2015, TransAtlantic USA entered into promissory notes (the “Promissory Notes”) with each of Mary West CRT 2 LLC and Gary West CRT 2 LLC, shareholders of the Company (collectively, the “Holders”), whereby TransAtlantic USA could borrow up to $1.5 million under each Promissory Note to fund our share repurchase program. The Holders are managed by Randy Rochman, an observer of our board of directors. On September 9, 2016, the Promissory Notes were repaid in full with proceeds from the Term Loan and were terminated.
ANBE Note
On December 30, 2015, TransAtlantic USA entered into a $5.0 million draw down convertible promissory note (the “Note”) with ANBE Holdings, L.P. (“ANBE”), an entity owned by the adult children of Mr. Mitchell and controlled by an entity managed by Mr. Mitchell and his wife. The Note bears interest at a rate of 13.0% per annum. On December 30, 2015, the Company borrowed $3.6 million under the Note (the “Initial Advance”) for general corporate purposes. On June 30, 2016, the Company issued 355,826 common shares in a private placement to ANBE in lieu of paying cash interest on the Note. As of September 30, 2016, the Company had borrowed $3.6 million under the Note and had no availability.
Advances under the Note may be converted, at the election of ANBE, any time prior to the maturity of the Note into common shares of the Company. The conversion price per common share for each advance is equal to 105% of the closing price of the Company’s common shares on the NYSE MKT on the trading date immediately prior to such advance. The conversion price of the Initial Advance is $1.3755 per share. See Note 14. “Subsequent Events” for more information.
8. Contingencies relating to production leases and exploration permits
Selmo
We are involved in litigation with persons who claim ownership of a portion of the surface at the Selmo oil field in Turkey. These cases are being vigorously defended by TEMI and Turkish governmental authorities. We do not have enough information to estimate the potential additional operating costs we would incur in the event the purported surface owners’ claims are ultimately successful. Any adjustment arising out of the claims will be recorded when it becomes probable and measurable.
12
Morocco
During 2012, we were notified that the Moroccan government may seek to recover approximately $5.5 million in contractual obligations under our Tselfat exploration permit work program. In February 2013, the Moroccan government drew down our $1.0 million bank guarantee that was put in place to ensure our performance of the Tselfat exploration permit work program. Although we believe that the bank guarantee satisfies our contractual obligations, during 2012, we recorded $5.0 million in accrued liabilities relating to our Tselfat exploration permit for this contingency. In September 2016, management determined that, because it had received no communication from the Moroccan government since early 2013, the probability of payment of this contingency is remote, and therefore the Company reversed the $6.0 million in contingent liabilities previously classified as liabilities held for sale.
Bulgaria
During 2012, we were notified that the Bulgarian government may seek to recover approximately $2.0 million in contractual obligations under our Aglen exploration permit work program. Due to the Bulgarian government’s January 2012 ban on fracture stimulation and related activities, a force majeure event under the terms of the exploration permit was recognized by the government. Although we invoked force majeure, we recorded $2.0 million in general and administrative expense relating to our Aglen exploration permit during 2012 for this contractual obligation.
In October 2015, the Bulgarian Ministry of Energy and Economy filed a suit against our subsidiary, Direct Petroleum Bulgaria EOOD (“Direct Bulgaria”), claiming a $200,000 penalty for Direct Bulgaria’s alleged failure to fulfill the Aglen work program. We believe that Direct Bulgaria is not under any obligation to fulfill the work program until the 2012 force majeure event is rectified and intend to vigorously defend this claim.
9. Shareholders’ equity
June 2016 share issuance
On June 30, 2016, we issued an aggregate of 5,773,305 common shares in private placements under the Securities Act of 1933, as amended (the “Securities Act”). Of the 5,773,305 common shares, (i) 2,905,737 common shares were issued to holders of the 2017 Notes at the election of such holders to receive common shares in lieu of cash interest on the 2017 Notes; (ii) 355,826 common shares were issued to ANBE in lieu of cash interest on the Note; and (iii) 2,511,742 common shares were issued for cash, which was used to pay cash interest to certain holders of the 2017 Notes. All of the shares were issued at a value of $0.6599 per share, which was equal to 75% of the 10-day volume weighted average price through the close of trading of the common shares on the NYSE MKT on June 29, 2016.
Restricted stock units
We recorded non-cash share-based compensation expense of $0.1 million and $0.3 million for awards of restricted stock units (“RSUs”) for the three months ended September 30, 2016 and 2015, respectively. We recorded non-cash share-based compensation expense of $0.5 million and $0.8 million for awards of RSUs for the nine months ended September 30, 2016 and 2015, respectively.
As of September 30, 2016, we had approximately $0.8 million of unrecognized non-cash compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.5 years.
Earnings per share
We account for earnings per share in accordance with ASC Subtopic 260-10,
Earnings Per Share
(“ASC 260-10”). ASC 260-10 requires companies to present two calculations of earnings per share: basic and diluted. Basic earnings per common share for the three and nine months ended September 30, 2016 and 2015 equals net income (loss) divided by the weighted average shares outstanding during the periods. Weighted average shares outstanding are equal to the weighted average of all shares outstanding for the period, excluding unvested RSUs. Diluted earnings per common share for the three and nine months ended September 30, 2016 and 2015 are computed in the same manner as basic earnings per common share after assuming the issuance of common shares for all potentially dilutive common share equivalents, which includes RSUs. For the three and nine months ended September 30, 2016, there were no dilutive securities included in the calculation of diluted earnings per share.
13
The following table presents the basic and diluted earnings per common share computations:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30
|
|
|
September 30
|
|
|
(in thousands, except per share amounts)
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Net (loss) income from continuing operations
|
$
|
(4,636
|
)
|
|
$
|
15,633
|
|
|
$
|
(16,746
|
)
|
|
$
|
5,921
|
|
|
Net income (loss) from discontinued operations
|
$
|
16,305
|
|
|
$
|
(10,731
|
)
|
|
$
|
16,202
|
|
|
$
|
(13,763
|
)
|
|
Basic net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
46,854
|
|
|
|
40,943
|
|
|
|
42,879
|
|
|
|
40,895
|
|
|
Basic net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.10
|
)
|
|
$
|
0.38
|
|
|
$
|
(0.39
|
)
|
|
$
|
0.14
|
|
|
Discontinued operations
|
$
|
0.35
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.38
|
|
|
$
|
(0.34
|
)
|
|
Diluted net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
46,854
|
|
|
|
40,943
|
|
|
|
42,879
|
|
|
|
40,895
|
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
Restricted stock units
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
46,854
|
|
|
|
40,956
|
|
|
|
42,879
|
|
|
|
40,895
|
|
|
Diluted net (loss) income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
(0.10
|
)
|
|
$
|
0.38
|
|
|
$
|
(0.39
|
)
|
|
$
|
0.14
|
|
|
Discontinued operations
|
$
|
0.35
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.38
|
|
|
$
|
(0.34
|
)
|
10. Segment information
In accordance with ASC 280,
Segment Reporting
(“ASC 280”), we have two reportable geographic segments: Turkey and Bulgaria. Summarized financial information from continuing operations concerning our geographic segments is shown in the following table:
|
|
Corporate
|
|
|
Turkey
|
|
|
Bulgaria
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
For the three months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
16,659
|
|
|
$
|
-
|
|
|
$
|
16,659
|
|
|
(Loss) income from continuing operations before income
taxes
|
|
(3,102
|
)
|
|
|
734
|
|
|
|
(44
|
)
|
|
|
(2,412
|
)
|
|
Capital expenditures
|
$
|
-
|
|
|
$
|
1,484
|
|
|
$
|
-
|
|
|
$
|
1,484
|
|
|
For the three months ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
18,337
|
|
|
|
|
|
|
$
|
18,337
|
|
|
(Loss) income from continuing operations before income
taxes
|
|
(3,884
|
)
|
|
|
22,390
|
|
|
|
(146
|
)
|
|
|
18,360
|
|
|
Capital expenditures
|
$
|
-
|
|
|
$
|
7,679
|
|
|
$
|
-
|
|
|
$
|
7,679
|
|
|
For the nine months ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
49,923
|
|
|
$
|
-
|
|
|
$
|
49,923
|
|
|
(Loss) income from continuing operations before income
taxes
|
|
(12,092
|
)
|
|
|
1,413
|
|
|
|
(247
|
)
|
|
|
(10,926
|
)
|
|
Capital expenditures
|
$
|
-
|
|
|
$
|
4,675
|
|
|
$
|
-
|
|
|
$
|
4,675
|
|
|
For the nine months ended September 30, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
69,147
|
|
|
$
|
-
|
|
|
$
|
69,147
|
|
|
(Loss) income from continuing operations before income
taxes
|
|
(15,787
|
)
|
|
|
31,567
|
|
|
|
(4,113
|
)
|
|
|
11,667
|
|
|
Capital expenditures
|
$
|
163
|
|
|
$
|
18,411
|
|
|
$
|
41
|
|
|
$
|
18,615
|
|
|
Segment assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
$
|
14,378
|
|
|
$
|
211,555
|
|
|
$
|
616
|
|
|
$
|
226,549
|
|
|
December 31, 2015
(1)
|
$
|
14,689
|
|
|
$
|
231,388
|
|
|
$
|
601
|
|
|
$
|
246,678
|
|
|
(1)
|
Excludes assets from our discontinued Albanian and Moroccan operations of $51.5 million December 31, 2015.
|
14
11. Financial instruments
Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and our loans payable were each estimated to have a fair value approximating the carrying amount at September 30, 2016 and December 31, 2015, due to the short maturity of those instruments.
Interest rate risk
We are exposed to interest rate risk as a result of our variable rate short-term cash holdings.
Foreign currency risk
We have underlying foreign currency exchange rate exposure. Our currency exposures relate to transactions denominated in the Canadian Dollar, Bulgarian Lev, European Union Euro, Romanian New Leu and Turkish Lira (“TRY”). We are also subject to foreign currency exposures resulting from translating the functional currency of our foreign subsidiary financial statements into the U.S. Dollar reporting currency. We have not used foreign currency forward contracts to manage exchange rate fluctuations. At September 30, 2016, we had 47.6 million TRY (approximately $15.9 million) in cash and cash equivalents, which exposes us to exchange rate risk based on fluctuations in the value of the TRY.
Commodity price risk
We are exposed to fluctuations in commodity prices for oil and natural gas. Commodity prices are affected by many factors, including, but not limited to, supply and demand. At December 31, 2015, we were a party to commodity derivative contracts (see Note 6, “Commodity derivative instruments”).
Concentration of credit risk
The majority of our receivables are within the oil and natural gas industry, primarily from our industry partners and from government agencies. Included in receivables are amounts due from Turkiye Petrolleri Anonim Ortakligi, the national oil company of Turkey, and Turkiye Petrol Rafinerileri A.Ş., a privately owned oil refinery in Turkey, which purchases all of our oil production. The receivables are not collateralized. To date, we have experienced minimal bad debts from customers in Turkey. The majority of our cash and cash equivalents are held by three financial institutions in the United States and Turkey.
Fair value measurements
The following table summarizes the valuation of our financial assets and liabilities as of September 30, 2016:
|
|
Fair Value Measurement Classification
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Liabilities
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Disclosed but not carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(25,244
|
)
|
|
$
|
(25,244
|
)
|
|
2017 Notes
|
|
-
|
|
|
|
-
|
|
|
|
(49,438
|
)
|
|
|
(49,438
|
)
|
|
Total
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(74,682
|
)
|
|
$
|
(74,682
|
)
|
At September 30, 2016, the fair values of the Term Loan and 2017 Notes were estimated using a discounted cash flow analysis based on unobservable Level 3 inputs, including our own credit risk associated with the loans payable.
15
The following table summarizes the valuation of our financial assets and liabilities as of December 31, 2015:
|
|
Fair Value Measurement Classification
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Liabilities
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
Measured on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
-
|
|
|
$
|
6,605
|
|
|
$
|
-
|
|
|
$
|
6,605
|
|
|
Disclosed but not carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Credit Facility
|
|
-
|
|
|
|
-
|
|
|
|
(30,050
|
)
|
|
|
(30,050
|
)
|
|
2017 Notes
|
|
-
|
|
|
|
-
|
|
|
|
(44,489
|
)
|
|
|
(44,489
|
)
|
|
Total
|
$
|
-
|
|
|
$
|
6,605
|
|
|
$
|
(74,539
|
)
|
|
$
|
(67,934
|
)
|
We remeasure our derivative contracts on a recurring basis, with changes flowing through earnings. At December 31, 2015, the fair values of the Senior Credit Facility and 2017 Notes were estimated using a discounted cash flow analysis based on unobservable Level 3 inputs, including our own credit risk associated with the loans payable.
12. Related party transactions
The following table summarizes related party accounts receivable and accounts payable as of the dates indicated:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
Related party accounts receivable:
|
|
|
|
|
|
|
|
|
Riata Management service agreement
|
$
|
408
|
|
|
$
|
194
|
|
|
PSIL MSA
|
|
60
|
|
|
|
-
|
|
|
Viking International master services agreement
|
|
-
|
|
|
|
220
|
|
|
Total related party accounts receivable
|
$
|
468
|
|
|
$
|
414
|
|
|
Related party accounts payable:
|
|
|
|
|
|
|
|
|
PSIL MSA
|
$
|
1,768
|
|
|
$
|
-
|
|
|
Interest Payable on 2017 Notes and ANBE Note
|
|
768
|
|
|
|
-
|
|
|
Riata Management service agreement
|
|
228
|
|
|
|
384
|
|
|
Viking International master services agreement
|
|
-
|
|
|
|
2,300
|
|
|
Total related party accounts payable
|
$
|
2,764
|
|
|
$
|
2,684
|
|
Services transactions
On March 3, 2016, Mr. Mitchell closed a transaction whereby he sold his interests in Viking Services B.V. (“Viking Services”), the beneficial owner of Viking International Limited (“Viking International”), Viking Petrol Sahasi Hizmetleri A.S. (“VOS”) and Viking Geophysical Services Ltd. (“Viking Geophysical”), to a third party. As part of the transaction, Mr. Mitchell acquired certain equipment used in the performance of stimulation, wireline, workover and similar services, which equipment is owned and operated by Production Solutions International Petrol Arama Hizmetleri Anonim Sirketi (“PSIL”). PSIL is beneficially owned by Dalea Investment Group, LLC, which is controlled by Mr. Mitchell. Consequently, on March 3, 2016, TEMI entered into a master services agreement (the “PSIL MSA”) with PSIL on substantially similar terms to the master services agreements with Viking International, VOS and Viking Geophysical. Pursuant to the PSIL MSA, PSIL performs the services on behalf of TEMI and its affiliates. The master service agreements with each of Viking International, VOS and Viking Geophysical will remain in effect through the remainder of the five-year term of the agreements ending on June 13, 2017.
16
Dalea Amended Note and Pledge Agreement
On April 19, 2016, we entered into a note amendment agreement (the “Note Amendment Agreement”) with Mr. Mitchell, and Dalea Partners, LP (“Dalea”), pursuant to which Dalea agreed to deliver an amended and restated promissory note (the “Amended Note”) in favor of us, in the principal sum of $7,964,053, which Amended Note would amend and restate that certain promissory note, dated June 13, 2012, made by Dalea in favor of us in the principal amount of $11.5 million (the “Original Note”). The Note Amendment Agreement reduced the principal amount of the Original Note to $8.0 million in exchange for the cancellation of an account payable of approximately $3.5 million (the “Account Payable”) owed by TransAtlantic Albania Ltd. (“TransAtlantic Albania”), a former subsidiary of the Company, to Viking International. We have indemnified a third party for any liability relating to the payment of the Account Payable.
Pursuant to the Note Amendment Agreement, on April 19, 2016, we entered into the Amended Note, which amended and restated the Original Note that was issued in connection with our sale of our subsidiaries, Viking International and Viking Geophysical Services, to a joint venture owned by Dalea and Abraaj Investment Management Limited in June 2012. In the Amended Note, we and Dalea acknowledged that (i) while the sale of Dalea’s interest in Viking Services enabled us to take the position that the Original Note was accelerated in accordance with its terms, the principal purpose of including the acceleration events in the Original Note was to ensure that certain oilfield services provided by Viking Services to us would continue to be available to us, and (ii) such services will now be provided pursuant to the PSIL MSA. PSIL is beneficially owned by Dalea Investment Group, LLC, which is controlled by Mr. Mitchell. As a result, the Amended Note revised the events triggering acceleration of the repayment of the Original Note to the following: (i) a reduction of ownership by Dalea (and other controlled affiliates of Mr. Mitchell) of equity interest in PSIL to less than 50%; (ii) the sale or transfer by Dalea or PSIL of all or substantially all of its assets to any person (a “Transferee”) that does not own a controlling interest in Dalea or PSIL and is not controlled by Mr. Mitchell (an “Unrelated Person”), or the subsequent transfer by any Transferee that is not an Unrelated Person of all or substantially all of its assets to an Unrelated Person; (iii) the acquisition by an Unrelated Person of more than 50% of the voting interests of Dalea or PSIL; (iv) termination of the PSIL MSA other than as a result of an uncured default thereunder by TEMI; (v) default by PSIL under the PSIL MSA, which default is not remedied within a period of 30 days after notice thereof to PSIL; and (vi) insolvency or bankruptcy of PSIL. The maturity date of the Amended Note was extended to June 13, 2019. The interest rate on the Amended Note remains at 3.0% per annum and continues to be guaranteed by Mr. Mitchell. The Amended Note contains customary events of default.
In addition, pursuant to the Note Amendment Agreement, on April 19, 2016, we entered into a pledge agreement (the “Pledge Agreement”) with Dalea, whereby Dalea pledged the $2.0 million principal amount of the 2017 Notes owned by Dalea (the “Dalea Convertible Notes”), including any future securities for which the Dalea Convertible Notes are converted or exchanged, as security for the performance of Dalea’s obligations under the Amended Note. The Pledge Agreement provides that interest payable to Dalea under the Dalea Convertible Notes (or any future securities for which the Dalea Convertible Notes are converted or exchanged) will be credited first against the outstanding principal balance of the Amended Note and, upon full repayment of the outstanding principal balance of the Amended Note, any accrued and unpaid interest on the Amended Note. The Pledge Agreement contains customary events of default.
On June 30, 2016, we entered into a waiver with Dalea, whereby we waived our right under the Pledge Agreement to receive the interest payment due July 1, 2016 under the Dalea Convertible Notes in connection with the payment of 201,459 common shares to Dalea with respect to the 2017 Note interest payment paid on June 30, 2016.
Pledge fee agreements
In connection with the pledge of the Gundem real estate and Muratli real estate to DenizBank as collateral for the Term Loan, on August 31, 2016, the Company entered into a pledge fee agreement with Gundem (the “Gundem Fee Agreement”) pursuant to which the Company will pay Gundem a fee equal to 5% per annum of the collateral value of the Gundem real estate and Muratli real estate. Pursuant to the Gundem Fee Agreement, the Gundem real estate has a deemed collateral value of $10.0 million and the Muratli real estate has a deemed collateral value of $5.0 million.
In connection with the pledge of the Diyarbakir real estate to DenizBank as collateral for the Term Loan, on August 31, 2016, the Company entered into a pledge fee agreement with Messrs. Mitchell and Uras (the “Diyarbakir Fee Agreement”) pursuant to which the Company will pay Messrs. Mitchell and Uras a fee of 5% per annum of the collateral value of the Diyarbakir real estate. Pursuant to the Diyarbakir Fee Agreement, the Diyarbakir real estate has a deemed collateral value of $5.0 million.
Amounts payable to Mr. Mitchell under the Gundem Fee Agreement and the Diyarbakir Fee Agreement will be used to reduce the outstanding principal amount of the Amended Note.
17
Private placements
On June 30, 2016, we issued an aggregate of 5,773,305 common shares in private placements under the Securities Act. Of the 5,773,305 common shares, (i) 1,974,452 common shares were issued to Dalea, the trusts of Mr. Mitchell’s four adult children and Pinon Foundation, a nonprofit entity controlled by Mrs. Mitchell, at their election to receive common shares in lieu of cash interest on the 2017 Notes; (ii) 355,826 common shares were issued to ANBE in lieu of cash interest on the Note and (iii) 814,627 common shares were issued to Dalea and the trusts of Mr. Mitchell’s four adult children for cash, which was used to pay cash interest to certain holders of the 2017 Notes (see Note 9, “Shareholders’ equity”).
Indemnity agreement
On May 9, 2016, Mr. Mitchell guaranteed the payment of director and officer liability premiums in the amount of $0.4 million
(the “Guaranteed Payments”) payable to US Premium Finance solely in the event of a change of control of the Company. On May 9, 2016, we entered into an Indemnity Agreement with Mr. Mitchell pursuant to which we agreed to indemnify him for any damages he incurs related to the Guaranteed Payments.
13. Discontinued operations
Discontinued operations in Albania
As of December 31, 2015, we classified our former Albania segment as assets and liabilities held for sale. We have presented the operating results of our former Albanian segment within discontinued operations for all periods presented.
In February 2016, we sold all of the outstanding equity in Stream Oil & Gas Ltd. (“Stream”) to GBC Oil Company Ltd. (“GBC Oil”) in exchange for (i) the future payment of $2.3 million to Raiffeisen Bank Sh.A. (“Raiffeisen”) to pay down the term loan facility dated as of September 17, 2014 (the “Term Loan Facility”) between Stream’s wholly-owned subsidiary, TransAtlantic Albania Ltd. (“TransAtlantic Albania”) and Raiffeisen, and (ii) the assumption of $29.2 million of liabilities owed by Stream, consisting of $23.1 million of accounts payable and accrued liabilities and $6.1 million of debt. TransAtlantic Albania owns all of our former Albanian oil assets and operations. In addition, GBC Oil issued us a warrant pursuant to which we have the option to acquire up to 25% of the fully diluted equity interests in TransAtlantic Albania for nominal consideration at any time on or before March 1, 2019.
On September 1, 2016, the Company completed a joint venture transaction with respect to the assets in the Delvina gas field in Albania (the “Delvina Assets”). The Company transferred (the “Transfer”) 75% of the outstanding shares of Delvina Gas Company Ltd. (“DelvinaCo”), which owns the Delvina Assets, to Ionian Gas Company Ltd. (“Ionian”) in exchange for Ionian’s agreement to pay $12.0 million to DelvinaCo, which will be used primarily to repay debt and for general corporate purposes with respect to the Delvina Assets. These payments will be made each quarter over an 18-month period, with the first payment of $1.0 million to be completed by November 2016.
As a result of this transaction, we have recorded a gain on disposal of discontinued operations of $9.4 million during three and nine months ended September 2016.
After the Transfer, the Company retained a 25% equity interest in DelvinaCo and has agreed to pay 25% of the operating costs of DelvinaCo, subject to a three-year deferral of capital expenditures. For the next three years, Ionian will be responsible for all agreed upon capital expenditures with respect to the Delvina Assets. At the end of the three-year period, the Company will be required to either reimburse Ionian for its 25% share of such capital expenditures or face dilution in its ownership of DelvinaCo.
As of September 30, 2016, we no longer hold our 25% interest in DelvinaCo as assets held for sale, and have consolidated our interest using proportionate consolidation.
At December 31, 2015, TransAtlantic Albania’s third-party debt consisted of the following:
|
|
December 31,
|
|
|
|
2015
|
|
|
Fixed and floating rate loans
|
|
|
|
|
Term Loan Facility
|
$
|
6,123
|
|
|
Loans payable
|
$
|
6,123
|
|
TransAtlantic Albania was a party to the Term Loan Facility with Raiffeisen. The loan was scheduled to mature on December 31, 2016 and bore interest at the rate of LIBOR plus 5.5%, with a minimum interest rate of 7.0%. TransAtlantic Albania was required to pay 1/16th of the total commitment each quarter on the last business day of each of March, June, September and December each year. The loan was guaranteed by TransAtlantic Albania’s parent company, Stream. TransAtlantic Albania could prepay the loan at its option in whole or in part, subject to a 3.0% penalty plus breakage costs. The Term Loan Facility was secured by substantially all of the assets of TransAtlantic Albania.
18
As
of December 31, 2015, TransAtlantic Albania had $6.1 million outstanding under the Term Loan Facility and no availability. As of December 31, 2015, TransAtlantic Albania was in default under the Term Loan Facility for failure to repay $1.1 million due on
December 31, 2015. On February 29, 2016, we sold all the equity interest in Stream, the parent company of TransAtlantic Albania, to GBC Oil, who assumed the Term Loan Facility.
Discontinued operations in Morocco
On June 27, 2011, we decided to discontinue our operations in Morocco. We have substantially completed the process of winding down our operations in Morocco. We have presented the Moroccan segment operating results as discontinued operations for all periods presented.
Assets and liabilities held for sale
The assets and liabilities held for sale at December 31, 2015 were as shown below. As a result of the joint venture transaction related to the Delvina Assets and the reassessment of the Moroccan contingent liabilities, there were no remaining assets or liabilities held for sale at September 30, 2016.
|
|
Albania
|
|
|
Morocco
|
|
|
Total
Held for Sale
|
|
|
|
(in thousands)
|
|
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
1,201
|
|
|
$
|
16
|
|
|
$
|
1,217
|
|
|
Other current assets
|
|
1,853
|
|
|
|
11
|
|
|
|
1,864
|
|
|
Property and equipment, net
|
|
48,430
|
|
|
|
-
|
|
|
|
48,430
|
|
|
Total current assets held for sale
|
$
|
51,484
|
|
|
$
|
27
|
|
|
$
|
51,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and other accrued liabilities
|
$
|
37,888
|
|
|
$
|
6,352
|
|
|
$
|
44,240
|
|
|
Accounts payable - related party
|
|
3,540
|
|
|
|
-
|
|
|
|
3,540
|
|
|
Loans payable
|
|
6,123
|
|
|
|
-
|
|
|
|
6,123
|
|
|
Deferred tax liability
|
|
15,286
|
|
|
|
-
|
|
|
|
15,286
|
|
|
Total current liabilities held for sale
|
$
|
62,837
|
|
|
$
|
6,352
|
|
|
$
|
69,189
|
|
19
Results of discontinued operations
Our operating results from discontinued operations for the three and nine months ended September 30, 2016 and 2015 are summarized as follows:
|
|
Albania
|
|
|
Morocco
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
For the three months ended September, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Production and transportation expense
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total other expenses (income)
|
|
17
|
|
|
|
(6,903
|
)
|
|
|
(6,886
|
)
|
|
(Loss) income before income taxes
|
$
|
(17
|
)
|
|
$
|
6,903
|
|
|
$
|
6,886
|
|
|
Gain on disposal of discontinued operations
|
|
9,419
|
|
|
|
-
|
|
|
|
9,419
|
|
|
Income tax benefit
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Income from discontinued operations
|
$
|
9,402
|
|
|
$
|
6,903
|
|
|
$
|
16,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
1,878
|
|
|
$
|
-
|
|
|
$
|
1,878
|
|
|
Production and transportation expense
|
|
2,612
|
|
|
|
-
|
|
|
|
2,612
|
|
|
Total other costs and expenses
|
|
15,963
|
|
|
|
-
|
|
|
|
15,963
|
|
|
Total other income
|
|
(215
|
)
|
|
|
-
|
|
|
|
(215
|
)
|
|
Loss before income taxes
|
$
|
(16,912
|
)
|
|
$
|
-
|
|
|
$
|
(16,912
|
)
|
|
Income tax benefit
|
|
6,181
|
|
|
|
-
|
|
|
|
6,181
|
|
|
Loss from discontinued operations
|
$
|
(10,731
|
)
|
|
$
|
-
|
|
|
$
|
(10,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
626
|
|
|
$
|
-
|
|
|
$
|
626
|
|
|
Production and transportation expense
|
|
1,155
|
|
|
|
-
|
|
|
|
1,155
|
|
|
Total other expenses (income)
|
|
544
|
|
|
|
(6,903
|
)
|
|
|
(6,359
|
)
|
|
(Loss) income before income taxes
|
$
|
(1,073
|
)
|
|
$
|
6,903
|
|
|
$
|
5,830
|
|
|
Gain on disposal of discontinued operations
|
|
10,168
|
|
|
|
-
|
|
|
|
10,168
|
|
|
Income tax benefit
|
|
204
|
|
|
|
-
|
|
|
|
204
|
|
|
Income from discontinued operations
|
$
|
9,299
|
|
|
$
|
6,903
|
|
|
$
|
16,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
6,554
|
|
|
$
|
-
|
|
|
$
|
6,554
|
|
|
Production and transportation expense
|
|
8,759
|
|
|
|
-
|
|
|
|
8,759
|
|
|
Total other costs and expenses
|
|
20,794
|
|
|
|
-
|
|
|
|
20,794
|
|
|
Total other income
|
|
2,372
|
|
|
|
-
|
|
|
|
2,372
|
|
|
Loss before income taxes
|
$
|
(20,627
|
)
|
|
$
|
-
|
|
|
$
|
(20,627
|
)
|
|
Income tax benefit
|
|
6,864
|
|
|
|
-
|
|
|
|
6,864
|
|
|
Loss from discontinued operations
|
$
|
(13,763
|
)
|
|
$
|
-
|
|
|
$
|
(13,763
|
)
|
During the fourth quarter of 2015, we identified an error related to our deferred tax liability and deferred tax benefit that originated in prior periods and concluded that the error was not material to any of the previously reported periods or to the period in which the error was corrected. The impact of the error resulted in a decrease to our net loss from discontinued operations of $4.7 million for each of the three and nine months ended September 30, 2015. This immaterial error was corrected in our third quarter of 2015 results of operations for discontinued operations.
14. Subsequent Events
Sale of TBNG
On October 13, 2016, we entered into a share purchase agreement (the “Purchase Agreement”) with Valeura Energy Netherlands B.V. (“Valeura”) for the sale of all of the equity interests in TBNG, our wholly-owned subsidiary. TBNG owns a portion of the Company’s interests in the Thrace Basin area in Turkey.
20
Pursuant to the Purchase Agreement, Valeura will pay $22.0 million to TransAtlantic
Worldwide, subject to purchase price adjustments for the period from March 31, 2016 (the effective date of the sale) through the closing date, in exchange for the transfer of all of the equity interests in TBNG.
The Purchase Agreement contains customary representations, warranties, covenants, indemnification and termination rights of the parties. The closing of the sale is subject to the satisfaction of certain closing conditions, including the receipt of required regulatory approvals and the sale by Valeura of certain assets to a third party. The Company expects the transaction to close during the fourth quarter of 2016 or the first quarter of 2017. However, there is no guarantee that the Company will be able to close the sale of TBNG.
Extension of ANBE Note
On October 31, 2016, TransAtlantic USA entered into an amendment of the Note with ANBE (the “ANBE Amendment”). The ANBE Amendment extends the maturity date of the Note from October 31, 2016 to September 30, 2017, provides for the Note to be repaid in four quarterly installments of $0.9 million each in December 2016 and March, June and September 2017, and provides for monthly payments of interest. In addition, pursuant to the ANBE Amendment, if the sale of TBNG is completed prior to the extended maturity date of the Note, then the Company will repay the Note in full with proceeds from the sale of TBNG within five business days from the closing of the sale.
Offering of Series A Preferred Shares
On November 4, 2016, the Company issued 921,000 shares of its newly designated 12.0% Series A Convertible Redeemable Preferred Shares, par value $0.01 per share and liquidation preference of $50 per share (the “Series A Preferred Shares”), in private placements under the Securities Act. Of the 921,000 Series A Preferred Shares, (i) 815,000 shares were issued in a private placement exchange offer (the “Exchange Offer”) to certain holders of the 2017 Notes, at an exchange rate of 20 Series A Preferred Shares for each $1,000 principal amount of 2017 Notes, and (ii) 106,000 shares were issued and sold in a private placement (the “Private Offering”) to certain holders of the 2017 Notes. All of the Series A Preferred Shares were issued at a value of $50.00 per share. Gross proceeds from the Private Offering were $5.3 million, which will be used by the Company to redeem $4.3 million of 2017 Notes and for general corporate purposes. The Series A Convertible Redeemable Preferred Shares contain a substantive conversion option and convert into a fixed number of common shares. As a result, we will classify the Series A Preferred Shares within mezzanine equity in our consolidated balance sheet. After completion of the Exchange Offer, $14.3 million aggregate principal amount of the 2017 Notes remain outstanding.
Pursuant to the Certificate of Designations for the Series A Preferred Shares (the “Certificate of Designations”), each Series A Preferred Share may be converted at any time (after approval of the listing of the common shares issuable upon conversion of the Series A Preferred Shares by the NYSE MKT and Toronto Stock Exchange) (the “Listing Condition”), at the option of the holder, into 45.754 common shares, par value $0.10 per share (“Common Shares”) of the Company (which is equal to an initial conversion price of approximately $1.0928 per Common Share and is subject to customary adjustment for stock splits, stock dividends, recapitalizations or other fundamental changes). During the period ending on November 4, 2017, the conversion rate will be adjusted on an economic weighted average anti-dilution basis for the issuance of Common Shares for cash at a price below the conversion price then in effect. Such anti-dilution protection shall exclude (i) dividends paid on the Series A Preferred Shares in Common Shares, (ii) issuances of Common Shares in connection with acquisitions, (iii) issuances of Common Shares under currently outstanding convertible notes and warrants and (iv) issuances of Common Shares in connection with employee compensation arrangements and employee benefit plans. This non-standard dilution adjustment clause will result in a contingent beneficial conversion feature.
If not converted sooner, on November 4, 2024, the Company is required to redeem the outstanding Series A Preferred Shares in cash at a price per share equal to the liquidation preference plus accrued and unpaid dividends. At any time on or after November 4, 2020, the Company may redeem all or a portion of the Series A Preferred Shares at the redemption prices listed below (expressed as a percentage of the liquidation preference amount per share) plus accrued and unpaid dividends to the date of redemption, if the closing sale price of the Common Shares equals or exceeds 150% of the conversion price then in effect for at least 10 trading days (whether or not consecutive) in a period of 20 consecutive trading days, including the last trading day of such 20 trading day period, ending on, and including, the trading day immediately preceding the business day on which the Company issues a notice of optional redemption. The redemption prices for the 12-month period starting on the date below are:
|
|
|
|
Period Commencing
|
Redemption Price
|
|
November 4, 2020
|
105.000%
|
|
November 4, 2021
|
103.000%
|
|
November 4, 2022
|
101.000%
|
|
November 4, 2023 and thereafter
|
100.000%
|
21
Additionally, upon the occurrence of a change of control, the Company is required to offer to redeem the Series A
Preferred Shares within 120 days after the first date on which such change of control occurred, for cash at a redemption price equal to the liquidation preference per share, plus any accrued and unpaid dividends.
Dividends on the Series A Preferred Shares are payable quarterly at the election of the Company in cash, Common Shares or a combination of cash and Common Shares at an annual dividend rate of 12.0% of the liquidation preference if paid all in cash or 16.0% of the liquidation preference if paid in Common Shares. If paid partially in cash and partially in Common Shares, the dividend rate on the cash portion shall be 12.0%, and the dividend rate on the Common Share portion shall be 16.0%. Dividends are payable quarterly, on June 30, September 30, December 31, and March 31 of each year, beginning on December 31, 2016, with the dividend payable on December 31, 2016 being pro-rated for the period from November 4, 2016. The holders of the Series A Preferred Shares also shall be entitled to participate pro-rata in any dividends paid on the Common Shares on an as-converted-to-Common Shares basis.
Except as required by Bermuda law the holders of Series A Preferred Shares will have no voting rights, except that for so long as at least 400,000 Series A Preferred Shares are outstanding, the holders of the Series A Preferred Shares voting as a separate class shall have the right to elect two directors to the Company’s Board of Directors. For so long as between 80,000 and 399,999 Series A Preferred Shares are outstanding, the holders of the Series A Preferred Shares voting as a separate class shall have the right to elect one director to the Company’s Board of Directors. Upon less than 80,000 Series A Preferred Shares remaining outstanding, any directors elected by the holders of Series A Preferred Shares shall immediately resign from the Company’s Board of Directors.
The Certificate of Designation also provides that without the approval of the holders of a majority of the outstanding Series A Preferred Shares, the Company will not issue indebtedness for money borrowed or other securities which are senior to the Series A Preferred Shares in excess of the greater of (i) $100 million or (ii) 35% of Company’s PV-10 of proved reserves as disclosed in its most recent independent reserve report filed or furnished by the Company on EDGAR. In addition, until the Company’s 2017 Notes are repaid in full, the Company will not issue indebtedness for money borrowed (other than ordinary trade indebtedness and up to $30.0 million borrowed from DenizBank) unless the net proceeds thereof are used (i) to redeem, retire or repay the 2017 Notes, (ii) spud, drill or complete two designated wells, or (iii) used in connection with collateralization or guarantees with respect to the Company’s hedging efforts.
The Company has agreed to use commercially reasonable efforts to file a shelf registration statement for the resale of the Series A Preferred Shares and the Common Shares issuable upon conversion of the Series A Preferred Shares prior to November 5, 2017 and have such shelf registration statement declared effective by the Securities and Exchange Commission as soon as practicable after filing.
Hedging Transactions
On October 6, 2016, we entered into costless collars with DenizBank to hedge a portion of our oil production in Turkey. The following table sets forth information about these hedges.
|
|
|
|
|
Collars
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Quantity
|
|
|
Minimum
|
|
|
Maximum
|
|
|
Type
|
|
Period
|
|
(Bbl/day)
|
|
|
Price (per Bbl)
|
|
|
Price (per Bbl)
|
|
|
Collar
|
|
December 1, 2016 — December 31, 2016
|
|
|
290
|
|
|
$
|
47.50
|
|
|
$
|
61.00
|
|
|
Collar
|
|
January 1, 2017 — December 31, 2017
|
|
|
296
|
|
|
$
|
47.50
|
|
|
$
|
61.00
|
|
|
Collar
|
|
January 1, 2018 — May 31, 2018
|
|
|
298
|
|
|
$
|
47.50
|
|
|
$
|
61.00
|
|
22
