EX-99.19 20 ex99-19.htm

 

Exhibit 99.19

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

MARCH 31, 2023

 

Kolibri Global Energy Inc. | 1 | First Quarter 2023

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

The following is management’s discussion and analysis (“MD&A”) of Kolibri Global Energy Inc.’s (“KEI” or the “Company”) operating and financial results for the three months ended March 31, 2023, compared to the corresponding period in the prior year, as well as information and expectations concerning the Company’s outlook based on currently available information. The MD&A should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2023 and the audited consolidated financial statements and MD&A for the year ended December 31, 2022. The condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting”. The reporting and measurement currency is the United States dollar. Additional information relating to KEI including its Annual Information Form is filed on SEDAR at www.sedar.com and on the Company’s website at www.kolibrienergy.com.

 

Netback from operations, netback including commodity contracts, net operating income and adjusted EBITDA (collectively, the “Company’s Non-GAAP Measures”) are not measures or ratios recognized under IFRS and do not have any standardized meanings prescribed by IFRS. Management of the Company believes that such measures and ratios are relevant for evaluating returns on each of the Company’s projects as well as the performance of the enterprise as a whole. The Company’s Non-GAAP Measures may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable to similar non-GAAP measures and ratios as reported by such organizations. The Company’s Non-GAAP Measures should not be construed as alternatives to net income, cash flows from operating activities, working capital or other financial measures and ratios determined in accordance with IFRS, as an indicator of the Company’s performance.

 

This report is prepared as of May 4, 2023. Please read carefully the important cautionary notes regarding technical information, forward-looking statements and other matters set out in this report.

 

Description of Business

 

KEI is an international energy company focused on finding and exploiting energy projects in oil, gas and clean and sustainable energy. Through various subsidiaries, the Company owns and operates energy properties in the United States. The Company continues to utilize its technical and operational expertise to identify and acquire additional projects. The common shares of the Company trade on the Toronto Stock Exchange (“TSX”) under the symbol “KEI” and on the Over the Counter QX (“OTCQX”) under the symbol “KGEIF”.

 

Operating Summary

 

The Company’s results of operations are dependent on production volumes of natural gas, crude oil and natural gas liquids and the prices received for the production. Prices for these commodities have shown significant volatility during recent years and are determined by supply and demand factors, including weather and general economic conditions.

 

Kolibri Global Energy Inc. | 2 | First Quarter 2023

 

 

OVERVIEW

 

Results at a Glance

 

   Three Months ended 
   March 31, 
   2023   2022 
         
Financial (US $000 except per share)        
Oil and gas gross revenues   18,074    7,111 
Oil and gas revenues, net of royalties   14,293    5,547 
Net operating income(1)   12,740    4,640 
Net income (loss)   7,896    (2,456)
Basic and diluted net income (loss) per share   0.22    (0.07)
Cash flows from operating activities   13,029    1,243 
Adjusted EBITDA(2)   11,396    2,812 
Additions to property, plant and equipment   4,188    7,401 
           
Operating          
Average production (Boepd)   3,194    1,054 
Average price ($/BOE)   62.87    74.97 
Netback from operations ($/BOE)(3)   43.67    48.91 
Netback including commodity contracts ($/BOE)(3)   42.23    36.88 

 

   March 31,   December 31, 
   2023   2022 
Balance Sheet          
Cash and cash equivalents   3,771    1,037 
Total assets   188,023    184,082 
Working capital (deficiency)   113    (6,569)
Total non-current liabilities   19,937    19,835 

 

(1) Net operating income is considered a non-GAAP measure. Refer to the section entitled “Non-GAAP Measures” at the end of this MD&A.

 

(2) Adjusted EBITDA is considered a non-GAAP measure. Refer to the section entitled “Non-GAAP Measures” at the end of this MD&A.

 

(3) Netback from operations and netback including commodity contracts are considered non-GAAP ratios. Refer to the section entitled “Non-GAAP Measures” at the end of this MD&A.

 


Highlights

 

The average production for the first quarter of 2023 was 3,194 BOEPD, an increase of 203% compared to first quarter 2022 production of 1,054 BOEPD. The increase is due to production from the Barnes 7-3H well and the Barnes 8-4H well which started production during the first half of 2022, and the Emery 17-2H, the Brock 9-3H and the Glenn 16-3H wells which started production at the end 2022.

 

Kolibri Global Energy Inc. | 3 | First Quarter 2023

 

 

Adjusted EBITDA(1) was $11.4 million for the first quarter of 2023 compared to $2.8 million for 2022, an increase of 305%. The increase was due to the increase in production of 203% partially offset by a 16% decrease in average prices.

 

Gross revenues for the first quarter of 2023 increased by 154% compared to the first quarter of 2022. The increase was due to the increase in production of 203% partially offset by a 16% decrease in average prices.

 

Net income in the first quarter of 2023 was $7.9 million, compared to a net loss of $2.5 million in the same period of 2022. The increase was due to higher production partially offset by lower average prices. In addition, the Company had an unrealized gain on commodity contracts in the first quarter of 2023 compared to an unrealized loss in the first quarter of 2022.

 

Netback from operations(2) decreased to $43.67 per BOE in the first quarter of 2023 compared to $48.91 per BOE in in the same period of 2022, a decrease of 11% due to lower average prices. Netback including commodity contracts(2) for the first quarter of 2023 was $42.23 per BOE compared to $36.88 in 2022, an increase of 15% from the prior year period. The increase compared to the prior year was due to lower realized losses from commodity contracts in the first quarter of 2023 compared to the first quarter of 2022.

 

Production and operating expense per barrel averaged $6.04 per BOE in the first quarter of 2023 compared to $9.56 per BOE in the first quarter of 2022, a decrease of 37%. The decrease was due to lower production taxes and increased production which reduced the per barrel fixed costs.

 

At March 31, 2023, the Company had $6.8 million of available borrowing capacity on the credit facility. The Company is currently awaiting its next redetermination from the bank which is expected to occur in the second quarter of 2023.

 

(1) Adjusted EBITDA is considered a non-GAAP measure. Refer to the section entitled “Non-GAAP Measures” at the end of this MD&A.

 

(2) Netback from operations and netback including commodity contracts are considered non-GAAP ratios. Refer to the section entitled “Non-GAAP Measures” at the end of this MD&A.

 

OPERATIONS UPDATE

 

Tishomingo Field, Ardmore Basin, Oklahoma

 

The average production for the first quarter of 2023 was 3,194 BOEPD, an increase of 203% compared to first quarter 2022 production of 1,054 BOEPD. The increase is due to production from the Barnes 7-3H well and the Barnes 8-4H well which started production during the first half of 2022, and the Emery 17-2H, the Brock 9-3H and the Glenn 16-3H wells which started production at the end 2022.

 

The Company has started the first three wells in its 2023 drilling program. As of the end of April 2023, both the Barnes 8-2H (98% working interest) and the Barnes 8-3H (98% working interest) have been drilled and cased and the Barnes 8-1H (98% working interest) is currently being drilled. We expect to begin fracture stimulation operations in late May 2023 with production expected to begin in June 2023.

 

Kolibri Global Energy Inc. | 4 | First Quarter 2023

 

 

DISCUSSION OF OPERATING RESULTS

 

Production and Revenue

 

   Three months ended March 31 
   2023   2022   % 
Average oil production (Bopd)   2,431    714    240 
Average natural gas production (mcf/d)   2,138    922    132 
Average NGL production (Boepd)   407    186    119 
Average production (Boepd)   3,194    1,054    203 
Average oil price ($/bbl)   74.40    96.17    (23)
Average natural gas price ($/mcf)   4.24    4.71    (10)
Average NGL price ($/bbl)   26.77    32.25    (17)
Average price ($/BOE)   62.87    74.97    (16)
Oil revenue ($000)   16,278    6,179    163 
Natural gas revenue ($000)   815    391    108 
NGL revenue ($000)   981    541    81 

 

Oil production for the first quarter of 2023 was 2,431 BOPD compared to 714 BOPD for the same period of 2022, an increase of 240%. The production increase is due to the additional production from the five wells in the 2022 drilling program. Oil revenue increased by 163% in the first quarter of 2023 versus the same period of 2022 due to the production increase, partially offset by a decrease in oil prices of 23%.

 

For the first quarter of 2023, average natural gas production was 2,138 MCFPD compared to 922 MCFPD for the same period of 2022, an increase of 132%. The increase in the first quarter of 2023 is due to the additional production from the five wells in the 2022 drilling program. Natural gas revenue increased by 108% in the first quarter of 2023 versus the same period in 2022 due to the production increase partially offset by a decrease in natural gas prices of 10%.

 

Natural gas liquids (NGL) production in the first quarter of 2023 increased to 407 BOEPD from 186 BOEPD in the same period of 2022, an increase of 119%. NGL revenue increased by 81% in the first quarter of 2023 compared to the same period in 2022 due to the production increase partially offset by a decrease in NGL prices of 17%.

 

Average production on a per BOE basis was 3,194 BOEPD in the first quarter of 2023 compared to 1,054 BOEPD in the same period of 2022, an increase of 203%. The increase is due to the factors discussed above. Gross revenue for the first quarter of 2023 increased by 154% compared to the first quarter of 2022 due to an increase in production partially offset by a decrease in average prices.

 

Kolibri Global Energy Inc. | 5 | First Quarter 2023

 

 

Royalties, Operating Expenses and Netback

 

   Three months ended 
  March 31, 
($/BOE)  2023   2022   % 
Average price   62.87    74.97    (16)
Less: Royalties   13.16    16.50    (20)
Less: Operating expenses(3)   6.04    9.56    (37)
Netback from operations(1)   43.67    48.91    (11)
Price adjustment from commodity contracts(2)   (1.44)   (12.03)   (88)
Netback including commodity contracts(1)   42.23    36.88    15 

 

(1) Netback from operations and netback including commodity contracts are considered non-GAAP ratios. Refer to the section entitled “Non-GAAP Measures” at the end of this MD&A.

 

(2) Price adjustment from commodity contracts includes the positive or negative adjustment to the average price per barrel that the Company realized from its commodity contracts. See the listing of commodity contracts below.

 

(3) Operating expenses in the first quarter of 2023 include $182,625 of compressor costs that are accounted for as a lease under IFRS 16 as of January 1, 2023.

 

Average prices decreased by 16% in the first quarter of 2023, compared to the same period in the prior year, due to the price decreases in oil, gas and NGLs discussed above. Oil made up 76% of the production mix in the first quarter of 2023 compared to 68% for the same period in 2022.

 

Royalties on Tishomingo production averaged approximately 20.9% for the first quarter of 2023 versus 22.0% in the first quarter of 2022. The percentages differences are due to different royalty burdens on the wells produced by the Company.

 

Major production and operating expenses are related to the gathering and processing of natural gas and NGLs as well as periodic well repairs and maintenance. Operating expenses averaged $6.04 per BOE for the first quarter of 2023 compared to $9.56 per BOE for the same period in 2022. The decrease was due to increased production which reduced the fixed per barrel costs and lower production taxes due to a decrease in prices.

 

Realized and Unrealized Gains and Losses from Risk Management Contracts

 

The Company has entered into financial commodity contracts which are summarized in the table below. Total Volume Hedged in the table is the annual volumes and Price is the fixed price specified in the financial commodity contracts.

 

At March 31, 2023 the following financial commodity contracts were outstanding and recorded at estimated fair value:

 

       Total Volume Hedged   Price 
Commodity  Period   (BBLS)   ($/BBL) 
Oil – WTI Swap  April 1, 2023 to May 31, 2023    18,000   $56.02 
Oil – WTI Swap  April 1, 2023 to December 29, 2023    27,000   $90.45 
Oil – WTI Costless Collars  April 1, 2023 to December 29, 2023    36,000    $70.00 - $94.00 
Oil – WTI Swap  June 1, 2023 to December 31, 2023    63,000   $64.90 
Oil – WTI Swap  January 1, 2024 to May 31, 2024    40,000   $62.77 
Oil – WTI Costless Collars  January 2, 2024 to June 28, 2024    6,000    $65.00 - $79.50 
Oil – WTI Costless Collars  January 2, 2024 to June 28, 2024    24,000    $65.00 - $86.00 
Oil – WTI Costless Collars  June 3, 2024 to June 28, 2024    8,000    $60.00 - $78.15 
Oil – WTI Costless Collars  July 1, 2024 to September 30, 2024    21,000    $60.00 - $86.65 
Oil – WTI Costless Collars  July 1, 2024 to September 30, 2024    18,000    $60.00 - $78.00 
Oil – WTI Costless Collars  October 1, 2024 to December 31, 2024    39,000    $60.00 - $82.50 

 

The estimated fair value results in a $0.6 million liability as of March 31, 2023 (December 31, 2022: $2.0 million liability) for the financial oil and gas contracts which has been determined based on the prospective amounts that the Company would receive or pay to terminate the contracts, consisting of a current liability of $0.6 million (December 31, 2022: current liability of $1.4 million and a long term liability of $0.6 million).

 

Kolibri Global Energy Inc. | 6 | First Quarter 2023

 

 

In April 2023, the Company entered into the following additional financial commodity contracts:

 

       Total Volume Hedged   Price 
Commodity  Period   (BBLS)   ($/BBL) 
Oil – WTI Costless Collars  January 2, 2025 to March 31, 2025    36,000   $60.00 - $77.00 

 

The realized and unrealized gains/losses from the financial commodity contracts are as follows:

 

($000s)  Three months ended March 31, 
   2023   2022 
Realized loss on financial commodity contracts   (414)   (1,142)
           
Unrealized gain (loss) on financial commodity contracts   1,390    (3,786)

 

Production and Operating Expenses

 

Production and operating expenses for the first quarter of 2023 was $1.6 million compared to $0.9 million for the same period of 2022, an increase of 77%. The increase is due to the increase in production of 203% partially offset by lower production taxes and compressor costs which are accounted for as leases under IFRS 16 and therefore not included in the first quarter of 2023 production and operating expenses. Production and operating expenses including these compressor costs would have been $1.7 million for the first quarter of 2023.

 

General and Administrative Expenses

 

G&A expense for the first quarter of 2023 was $0.9 million compared to $0.7 million for the same period of 2022, an increase of 29%. The increase is due to increases in both payroll costs and director fees in 2023 and an increase in investor relations and marketing costs in 2023.

 

Depletion and Depreciation

 

Depletion and depreciation expense for the first quarter of 2023 was $4.3 million compared to $1.1 million in the same period of 2022. The increase of 290% is due to increased production and a higher PP&E balance. Depletion and depreciation expense on a per barrel basis was $15.09 for 2023 compared to $12.00 for 2022.

 

Kolibri Global Energy Inc. | 7 | First Quarter 2023

 

 

Interest on loans and borrowings

 

Interest on loans and borrowings increased from $0.2 million in the first quarter of 2022 to $0.5 million for the same period of 2023. The increase is due to an increase in interest rates in the first quarter of 2023 and an increase in the outstanding balance in the first quarter of 2023 compared to the first quarter of 2022.

 

Net income for the period

 

The Company had net income of $7,896,000 ($0.22 per basic share) in the first quarter of 2023 compared to net loss of $2,456,000 ($0.07 per share) for the same period of 2022. The change in net income in 2023 compared to the net loss in the same period in 2022 is due to an increase in revenue net of royalties of $8,746,000, and realized and unrealized gains in financial commodity contracts in the first quarter of 2023 totaling $976,000 versus losses of $4,928,000 in the same period of 2022 partially offset by an increase in depletion, depreciation and accretion of $3,238,000, an increase in operating expenses of $646,000, an increase in interest on long term debt of $260,000 and an increase in G&A expense of $244,000.

 

Cash from operating activities

 

Cash flows from operating activities for the first quarter of 2023 was $13.1 million compared to cash flows from continuing operating activities of $1.2 million in the same period of 2022.

 

CAPITAL EXPENDITURES

 

Capital expenditures for the first quarter of 2023 were for the Barnes 8-1H well (operated, KEI 98% working interest), the Barnes 8-2H well (operated, KEI 98% working interest), the Barnes 8-3H well (operated, KEI 98% working interest) all in the Tishomingo field located in Oklahoma.

 

($000)

          
    2023    2022 
           
Additions to oil and gas properties  $4,189   $7,401 
   $4,189   $7,401 

 

LIQUIDITY AND CAPITAL RESOURCES

 

(000s; other than number of shares and per share amounts)  At March 31, 2023   At December 31, 2022 
         
Working Capital (Deficiency) (US$)(1)  $113   $(6,569)
           
Loans and Borrowings (US$)  $18,158   $18,158 
           
Shares Outstanding, end of period   35,620,921    35,615,921 
           
Market Price per share (in Canadian $)  $5.57   $3.98 
Market Value of Shares (in Canadian $)  $198,409   $141,751 

 

In May 2022, the Company’s US subsidiary amended the credit facility from BOK Financial, which is secured by the US subsidiary’s interests in the Tishomingo Field. The credit facility expires in June 2026 and is intended to fund the drilling of the Caney wells in the Tishomingo Field.

 

Kolibri Global Energy Inc. | 8 | First Quarter 2023

 

 

The credit facility has a borrowing base of $25.0 million and the Company had an available borrowing capacity of $6.8 million at March 31, 2023. The credit facility is subject to a semi-annual review and redetermination of the borrowing base. The next redetermination will be in the second quarter of 2023. Future commitment amounts will be subject to new reserve evaluations and there is no guarantee that the size and terms of the credit facility will remain the same after the borrowing base redetermination. Any redetermination of the borrowing base is effective immediately and if the borrowing base is reduced, the Company has six months to repay any shortfall.

 

The credit facility has two primary debt covenants. One covenant requires the US subsidiary to maintain a positive working capital balance which includes any unused excess borrowing capacity and excludes the fair value of commodity contracts and the current portion of long-term debt (the “Current Ratio”). The second covenant ensures the ratio of outstanding debt and long-term liabilities to a trailing twelve month adjusted EBITDA amount (the “Maximum Leverage Ratio”) be no greater than 3 to 1 at any quarter end. Adjusted EBITDA is defined as net income excluding interest expense, depreciation, depletion and amortization expense, and other non-cash and non-recurring charges including severance, share based compensation expense and unrealized gains or losses on commodity contracts.

 

The Company was in compliance with both covenants for the quarter ended March 31, 2023. At March 31, 2023, the Current Ratio of the US Subsidiary was 1.85 to 1.0 and the Maximum Leverage Ratio was 0.61 to 1.0 for the three months ended March 31, 2023. The Company is forecasting to be in compliance with the debt covenants for the next 12 months.

 

At March 31, 2023, loans and borrowings of $18.2 million (December 31, 2022: $18.2 million) are presented net of loan acquisition costs of $0.4 million (December 31, 2022: $0.4 million).

 

At March 31, 2023, the Company had positive working capital of $0.1 million compared to a working capital deficit of $6.6 million at December 31, 2022. The Company closely monitors its working capital and borrowing capacity to ensure adequate funds are available to finance its administrative and operating requirements. In March 2023, the Company began drilling the first of three wells planned to be drilled in the first half of 2023. Planned drilling activity can be adjusted if adequate funds are not available and the Company has available borrowing capacity to manage its working capital requirements.

 

The Company has entered into financial commodity contracts as part of its risk management strategy to manage its cash flow for future activity and to offset commodity price fluctuations. Other potential sources of cash flow include proceeds from additional debt or equity offerings but there is no guarantee that additional financing will be available when needed.

 

CONTRACTUAL OBLIGATIONS

 

The following are the contractual maturities of financial liabilities, excluding estimated interest payments at March 31, 2023:

 

($000s)   Carrying amount    2023    2024    Thereafter 
Liabilities                    
Fair value of commodity contracts  $(625)  $(395)  $(230)   - 
Loans and borrowings*  $(17,819)   -    -   $(17,819)
Trade and other payables  $(8,643)  $(8,643)   -    - 
   $(27,087)  $(9,038)  $(230)  $(17,819)

 

* The Credit Facility provides for interest only payments until the September 2026 maturity date. The Company is required to repay amounts owing under the Credit Facility in full on the September 2026 maturity date. See “Liquidity and Capital Resources” and “Principal Business Risks” for discussion of events that would require early repayment of the Credit Facility.

 

Kolibri Global Energy Inc. | 9 | First Quarter 2023

 

 

QUARTERLY SUMMARY

 

Below is a summary of the Company’s performance over the last eight quarters:

 

   2023   2022   2021 
($000, except as noted)  Q1   Q4   Q3   Q2   Q1   Q4   Q3   Q2 
                                 
Daily Production                                        
Oil (BOPD)   2,431    1,551    1,252    1,439    714    638    641    674 
Natural gas (MCFPD)   2,138    969    1,083    1,271    922    825    845    889 
NGLs (BOEPD)   407    155    269    277    186    155    178    172 
                                         
Average production (BOEPD)   3,194    1,868    1702    1,928    1,054    931    960    994 

 

   2023   2022   2021 
($000, except as noted)  Q1   Q4   Q3   Q2   Q1   Q4   Q3   Q2 
                                 
Average Price                                        
Oil ($/bbl)   74.40    80.42    93.52    109.74    96.17    75.80    69.61    63.77 
                                         
Natural gas ($/mcf)   4.24    6.71    10.24    6.48    4.71    5.49    4.12    2.86 
                                         
NGL ($/bbl)   26.77    26.66    35.33    40.82    32.25    40.56    34.36    23.96 
                                         
Average price ($/bbl)   62.87    72.47    80.89    92.02    74.97    63.56    56.49    49.97 

 

Kolibri Global Energy Inc. | 10 | First Quarter 2023

 

 

   2023   2022   2021 
($000, except as noted)  Q1   Q4   Q3   Q2   Q1   Q4   Q3   Q2 
                                 
Netback(1)                                        
Average price ($/BOE)   62.87    72.47    80.89    92.02    74.97    63.56    56.49    49.97 
                                         
Royalties   13.16    15.83    17.96    21.19    16.50    13.89    12.22    10.86 
                                         
Operating expenses (4)   6.04    8.25    7.77    7.77    9.56    8.79    8.40    8.81 
                                         
Netback from operations(1)   43.67    48.39    55.16    63.06    48.91    40.88    35.87    30.30 
                                         
Price adjustment from commodity contracts   

 

(1.44)

    (2.34)   (5.47)   (9.40)   (12.03)   (11.89)   (8.83)   (6.81)
Netback including commodity contracts(1)   42.23    46.05    49.69    53.66    36.88    28.99    27.04    23.49 

 

   2023   2022   2021 
($000, except as noted)  Q1   Q4   Q3   Q2   Q1   Q4   Q3   Q2 
                                         
Net operating income(2)                                        
Oil and gas revenue   18,074    12,455    12,666    16,114    7,111    5,444    4,989    4,520 
                                         
Royalties   3781    2,721    2,813    3,717    1,564    1,190    1,079    981 
                                         
Operating expenses   1,553    1,417    1,216    1,364    907    753    742    797 
                                         
    12,740    8,317    8,637    11,033    4,640    3,501    3,168    2,742 

 

Kolibri Global Energy Inc. | 11 | First Quarter 2023

 

 

   2023   2022   2021 
($000, except as noted)  Q1   Q4   Q3   Q2   Q1   Q4   Q3   Q2 
                                 
Net income (loss)   7,896    2,793    9,299    7,007    (2,456)   71,002    608    (1,418)
                                         
Basic income (loss) ($/share)   0.22    0.08    0.26    0.20    (0.07)   3.05    0.03    (0.06)
                                         
Adjusted EBITDA(3)   11,396    6,854    6,874    8,572    2,812    1,861    1,737    1,464 
                                         
Cash flows from operating activities   13,030    6,078    6,387    8,314    1,243    1,812    1,529    1,649 
                                         
Bank debt   17,819    17,799    15,855    15,907    16,143    16,866    17,446    18,451 
                                         
Total assets   188,023    184,082    172,634    169,193    160,882    157,016    79,373    79,984 

 

(1) Netback from operations and netback including commodity contracts are considered non-GAAP ratios. Refer to the section entitled “Non-GAAP Measures” at the end of this MD&A.

 

(2) Net operating income is considered a non-GAAP measure. Refer to the section entitled “Non-GAAP Measures” at the end of this MD&A.

 

(3) Adjusted EBITDA is considered a non-GAAP measure. Refer to the section entitled “Non-GAAP Measures” at the end of this MD&A.

 

(4) Operating expenses in the first quarter of 2023 include $182,625 of compressor costs that are accounted for as a lease under IFRS 16 as of January 1, 2023.

 

Kolibri Global Energy Inc. | 12 | First Quarter 2023

 

 

Quarterly Variability

 

Fluctuations in quarterly results are due to a number of factors, some of which are not within the Company’s control such as:

 

  ● Oil, gas and NGL price changes due to volatile market conditions related to the current conflict between Russia and Ukraine
     
  ● Changes in production resulting from fluctuations in drilling and completions and shut-in of wells
     
  ● Production increases from new wells that begin producing

 

CRITICAL ACCOUNTING ESTIMATES

 

The preparation of the consolidated financial statements requires management to make estimates and use judgment regarding the reported amounts of assets and liabilities, the disclosures of contingencies at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. By their nature, estimates are subject to measurement uncertainty and changes in such estimates in future years could require a material change in the financial statements. Accordingly, actual results may differ from the estimated amounts. Significant estimates and judgments made by management in the preparation of the consolidated financial statements are as follows:

 

Oil and gas assets

 

Development and production assets are assessed for recoverability at cash generating unit (“CGU”) level. The determination of CGUs is subject to management judgments. Recoverability is assessed by comparing the carrying value of the asset to its estimated recoverable amount, which is based on the higher of fair value of the assets less the cost to sell (“FVLCS”) or value in use (“VIU”). The significant estimates used in the determination of the estimated recoverable amount include the following:

 

● Proved and probable oil and gas reserves – Significant assumptions that are valid at the time of oil and gas reserve estimation may change significantly when additional information becomes available. Estimates of economically recoverable proved and probable oil and gas reserves are based upon a number of significant assumptions, such as forecasted production, forecasted oil and gas commodity prices, forecasted operating costs, forecasted royalty costs, and forecasted future development costs. Changes in forecasted oil and gas commodity price assumptions, costs or recovery rates may change the economic status of proved and probable oil and gas reserves and may ultimately result in a restatement of proved and probable oil and gas reserves. Independent third-party reserve evaluators are engaged at least annually to estimate proved and probable oil and gas reserves
   
● Discount rate – The discount rate used to calculate the net present value of cash flows is based on estimates of an industry peer group weighted average cost of capital. Changes in the economic environment could result in significant changes to this estimate.

 

Kolibri Global Energy Inc. | 13 | First Quarter 2023

 

 

Depletion of oil and gas assets

 

Depletion of development and production assets is determined based on proved and probable oil and gas reserves and includes forecasted future development costs as estimated by the Company’s independent third-party reserve evaluators. By their nature, the estimates of proved and probable oil and gas reserves are subject to measurement uncertainty. Accordingly, the impact to the consolidated financial statements in future periods could be material.

 

Asset retirement obligations

 

The provisions for site restoration and abandonment is based on current legal requirements, technology, price levels and expected plans and are based on significant assumptions such as inflation rate and discount rate. Actual costs and cash outflows can differ from estimates because of changes in laws or regulations, market conditions and changes in technology.

 

Derivative instruments

 

The estimated fair value of derivative financial instruments resulting in financial assets and liabilities, by their very nature is subject to estimation, due to the use of future oil and natural gas prices and the volatility in these prices.

 

Compensation costs

 

Compensation costs recognized for share based compensation plans are subject to the estimation of what the ultimate payout will be using pricing models such as Black-Scholes model which is based on assumptions such as volatility, forfeiture rate, interest rate and expected term.

 

Income taxes

 

Tax interpretations, regulations and legislation in the various jurisdictions in which the Company operates are subject to change. As such income taxes are subject to measurement uncertainty. Deferred income tax assets are assessed by management at the end of the reporting period to determine the likelihood that they will be realized from future taxable earnings.

 

Liquidity

 

The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

 

Typically the Company ensures that it has sufficient cash on demand and cash flows from operating activities to meet expected operational expenses for a one-year period, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. To achieve this objective, the Company prepares annual capital expenditure budgets, which are regularly monitored and updated as considered necessary. Further, the Company utilizes authorizations for expenditures on both operated and non-operated projects to further manage capital expenditure. The Company also attempts to match its payment cycle with collection of oil revenue on the 20th of each month.

 

Kolibri Global Energy Inc. | 14 | First Quarter 2023

 

 

The Company monitors its expected cash inflows from trade and other receivables and its expected cash outflows on trade and other payables and principal debt payments. The current volatile economic climate may lead to adverse changes in cash flow and working capital levels which may also have a direct impact on the Company’s results and financial position and which may adversely affect the Company’s liquidity.

 

OUTSTANDING SHARE DATA

 

There were 35,620,921, 35,620,921 and 35,615,921 common shares outstanding as of May 4, 2023, March 31, 2023 and December 31, 2022, respectively. The Company had 869,300, 759,500 and 776,000 stock options outstanding as of May 4, 2023, March 31, 2023 and December 31, 2022, respectively. As of May 4, 2023, the Company had issued 72,000 restricted stock units (RSUs).

 

PRINCIPAL BUSINESS RISKS

 

KEI’s business and results of operations are subject to a number of risks and uncertainties, including but not limited to the following:

 

  ● the uncertainty of finding oil and gas in commercial quantities
  ● securing markets for existing and future production
  ● commodity price fluctuations due to market forces
  ● volatile market conditions related to the current conflict between Russia and Ukraine
  ● financial risk due to foreign exchange rates and interest rate exposure
  ● changes to government regulations in the United States, including regulations relating to prices, taxes, royalties and environmental protection
  ● changing government policies and regulations, social instability and other political, economic or diplomatic developments in the countries in which the Company operates
  ● the ability to fund wells drilled in non-operated sections of the Tishomingo field
  ● the uncertainty of pipeline repairs leading to temporary shutting-in of wells
  ● availability of equity or debt financing is affected by many factors many of which are beyond the control of the Company
  ● uncertainties inherent in estimating quantities of oil and natural gas reserves and cash flows to be derived therefrom
  ● the oil and gas industry is intensely competitive and the Company competes with a large number of companies with greater resources
  ● risks related to evolving emissions, carbon and other regulations impacting climate change and the advancement of alternative sources of renewable energy
  ● risks related to the Credit Facility, including the risk that the Company could be required under the terms of the Credit Facility to prepay the outstanding principal amount and other amounts owing under the Credit Facility in certain circumstances, some of which are out of the Company’s control, including failure to comply with financial ratio tests, borrowing base redeterminations, Mr. Wolf Regener ceasing to be the President of Kolibri Global Energy Inc., certain changes to the board of directors of the Company and the acquisition by any person or persons acting jointly or in concert of 25% or more of the Company’s shares. There can be no assurance that the Company will be able to obtain sufficient capital to repay the Credit Facility. A failure by the Company to perform its obligations under the Credit Facility could result in, among other adverse effects, the loss of the Company’s Tishomingo Field assets. A copy of the Amended and Restated Credit Agreement was filed on SEDAR on May 26, 2022. See “Liquidity and Capital Resources” and “Contractual Obligations” above and the “Risk Factors” section in the Company’s most recent Annual Information Form.
  ● the other risks identified in the Company’s most recent Annual Information Form under the “Risk Factors” section and the Company’s other public disclosure, available under the Company’s profile on SEDAR at www.sedar.com.

 

Kolibri Global Energy Inc. | 15 | First Quarter 2023

 

 

The Company seeks to mitigate these risks by:

 

  ● maintaining product mix to manage exposure to commodity price risk
  ● monitoring production trends to maximize the potential of its capital spending program
  ● from time to time, entering into financial commodity contracts to hedge against commodity price risk
  ● ensuring strong third-party operators for non-operated properties
  ● transacting with creditworthy counterparties
  ● monitoring commodity prices and capital programs to manage cash flow
  ● reviewing proposed changes in applicable government regulations and laws to assess the impact on the Company’s operations

 

DISCLOSURE CONTROLS AND PROCEDURES

 

The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) have designed, or caused to be designed under their supervision, disclosure controls and procedures (“DC&P”) and internal controls over financial reporting (“ICOFR”) as defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with IFRS.

 

The DC&P have been designed to provide reasonable assurance that material information relating to KEI is made known to the CEO and CFO by others and that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by KEI under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. The Company’s CEO and CFO have concluded, based on their evaluation that the Company’s DC&P and ICOFR are effective at March 31, 2023 to provide reasonable assurance that material information related to the Company is made known to them by others within the Company.

 

The CEO and CFO are required to cause the Company to disclose any change in the Company’s ICOFR and DC&P that occurred during the most recent interim period that has materially affected, or is reasonably likely to materially affect, the Company’s ICOFR. No changes in ICOFR and DC&P were identified during such period that have materially affected, or are reasonably likely to materially affect, the Company’s ICOFR during the quarter ended March 31, 2023.

 

It should be noted that a control system, including the Company’s DC&P and ICOFR, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objective of the control system will be met and it should not be expected that DC&P and ICOFR will prevent all errors or fraud.

 

OUTLOOK

 

In the United States, the Company intends to drill and complete additional wells in the Caney/Sycamore formations on its Oklahoma lands as financing becomes available and the economic environment changes. In addition, the Company continues to utilize its technical and operational expertise to identify and acquire additional oil, gas and clean energy projects. The Company expects to continue drilling additional wells utilizing cash flows from operating activities and potentially its available borrowing capacity under its credit facility.

 

NON-GAAP MEASURES

 

The Company’s Non-GAAP Measures are not measures or ratios recognized under IFRS and do not have any standardized meanings prescribed by IFRS. Management of the Company believes that such measures and ratios are relevant for evaluating returns on each of the Company’s projects as well as the performance of the enterprise as a whole. The Company’s Non-GAAP Measures may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable to similar non-GAAP measures and ratios as reported by such organizations. The Company’s Non-GAAP Measures should not be construed as alternatives to net income, cash flows from operating activities, working capital or other financial measures and ratios determined in accordance with IFRS, as an indicator of the Company’s performance.

 

Kolibri Global Energy Inc. | 16 | First Quarter 2023

 

 

Netback from operations per barrel and its components are calculated by dividing revenue, less royalties and operating expenses by the Company’s sales volume during the period. Netback including commodity contracts is calculated by adjusting netback from operations by the realized gains or losses received from commodity contracts during the period. Netback is a non-GAAP ratio but it is commonly used by oil and gas companies to illustrate the unit contribution of each barrel produced. The Company believes that the netback is a useful supplemental measure of the cash flow generated on each barrel of oil equivalent that is produced in its operations. However, non-GAAP measures and non-GAAP ratios do not have any standardized meaning prescribed by IFRS and therefore, may not be comparable to similar measures or ratios used by other companies and should not be used to make comparisons.

 

The following is the reconciliation of the non-GAAP ratio netback from operations to net income from continuing operations:

 

(US $000)  For the three months ended March 31, 
   2023   2022 
Net income (loss)   7,896    (2,456)
           
Adjustments:          
Finance income   (1,390)   (12)
Finance expense   949    5,159 
Share based compensation   18    125 
General and administrative expenses   930    686 
Depletion and depreciation   4,338    1,139 
Other income   (1)   (1)
Operating netback   12,740    4,640 
           
Netback from operations  $43.67   $48.91 

 

Net operating income is similarly a non-GAAP measure that represents revenue net of royalties and operating expenses. The Company believes that net operating income is a useful supplemental measure to analyze operating performance and provides an indication of the results generated by the Company’s principal business activities prior to the consideration of other income and expenses.

 


The following is the reconciliation of the non-GAAP measure net operating income:

 

(US $000)  For the three months ended
March 31,		 
   2023   2022 
Oil and gas revenue, net of royalties   14,293    5,547 
Less: production and operating expenses   1,553    907 
Net operating income   12,740    4,640 

 

Adjusted EBITDA is calculated as net income before interest, taxes, depletion and depreciation and other non-cash and non-operating gains and losses. The Company considers this a key measure as it demonstrates its ability to generate cash from operations necessary for future growth excluding non-cash items, gains and losses that are not part of the normal operations of the Company and financing costs. The following is the reconciliation of the non-GAAP measure adjusted EBITDA:

 

Kolibri Global Energy Inc. | 17 | First Quarter 2023

 

 

(US $000)  Three months ended March 31, 
   2023   2022 
Net income (loss)   7,896    (2,456)
Depletion and depreciation   4,338    1,139 
Accretion   45    6 
Interest expense   485    225 
Unrealized (gain) loss on commodity contracts   (1,390)   3,786 
Share based compensation   18    125 
Interest income   -    (2)
Other income   (1)   (1)
Foreign currency loss (gain)   5    (10)
           
Adjusted EBITDA   11,396    2,812 

 

Cautionary Statements

 

  (a) The Company’s natural gas production is reported in thousands of cubic feet (“Mcfs”). The Company also uses references to barrels (“Bbls”) and barrels of oil equivalent (“BOEs”) to reflect natural gas liquids and oil production and sales. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
     
  (b) Discounted and undiscounted net present value of future net revenues attributable to reserves do not represent fair market value.
     
  (c) Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.
     
  (d) This MD&A and the Company’s other public disclosure contains peak and 30-day initial production rates and other short-term production rates. Readers are cautioned that initial production rates are preliminary in nature and are not necessarily indicative of long-term performance or of ultimate recovery.

 

CAUTION REGARDING FORWARD-LOOKING INFORMATION

 

This MD&A contains forward-looking information including expectations regarding proposed timing and expected results of development work in the Company’s Tishomingo Field, expected productivity from current and future wells, planned capital expenditure programs and cost estimates, the effect of design and performance improvements on future productivity, planned use and sufficiency of proceeds from the Company’s debt and equity financings, compliance with debt covenants under the Company’s credit facility, cash on hand and cash flows from operating activities and the Company’s strategy and objectives. The use of any of the words “target”, “plans”, “anticipate”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “should”, “believe”, “intend” and similar expressions are intended to identify forward-looking statements.

 

Kolibri Global Energy Inc. | 18 | First Quarter 2023

 

 

Such forward-looking information is based on management’s expectations and assumptions, including that the Company’s geologic and reservoir models and analysis will be validated, that indications of early results are reasonably accurate predictors of the prospectiveness of the shale intervals, that previous exploration results are indicative of future results and success, that expected production from future wells can be achieved as modeled, declines will match the modeling, future well production rates will be improved over existing wells, that rates of return as modeled can be achieved, that recoveries are consistent with management’s expectations, that additional wells are actually drilled and completed, that design and performance improvements will reduce development time and expense and improve productivity, that discoveries will prove to be economic, that well shut-ins will not materially reduce production or adversely affect future productivity, that anticipated results and estimated costs will be consistent with managements’ expectations, that all required permits and approvals and the necessary labor and equipment will be obtained, provided or available, as applicable, on terms that are acceptable to the Company, when required, that no unforeseen delays, unexpected geological or other effects, equipment failures, permitting delays or labor or contract disputes are encountered, that the development plans of the Company and its co-venturers will not change, that the demand for oil and gas will be sustained, that the combination of cash on hand and cash flows from operating activities will be sufficient to finance the Company’s cash requirements through 2023, that the Company will continue to be able to access sufficient capital through financings, credit facilities, farm-ins or other participation arrangements to maintain its projects, that the Company will continue in compliance with the covenants under its reserve-based loan facility and that the borrowing base will not be reduced, that the Company will not be adversely affected by changing government policies and regulations, social instability or other political, economic or diplomatic developments in the countries in which it operates and that global economic conditions will not deteriorate in a manner that has an adverse impact on the Company’s business and its ability to advance its business strategy.

 

Forward looking information involves significant known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated. These risks include, but are not limited to: any of the assumptions on which such forward looking information is based vary or prove to be invalid, including that the Company’s geologic and reservoir models or analysis are not validated, anticipated results and estimated costs will not be consistent with managements’ expectations, that the Company will not achieve a comparable level of hedging going forward in respect of its existing production, that the Company will not achieve the results anticipated by management from the Company’s cost reduction measures, the risks associated with the oil and gas industry (e.g. operational risks in development, exploration and production; delays or changes in plans with respect to exploration and development projects or capital expenditures; the uncertainty of reserve and resource estimates and projections relating to production, costs and expenses, and health, safety and environmental risks, including flooding and extended interruptions due to inclement or hazardous weather conditions), well shut-ins and the potential for damage to the affected wells, the risk of commodity price and foreign exchange rate fluctuations, risks and uncertainties associated with securing the necessary regulatory approvals and financing to proceed with continued development of the Tishomingo Field, the Company or its subsidiaries is not able for any reason to obtain and provide the information necessary to secure required approvals or that required regulatory approvals are otherwise not available when required, that unexpected geological results are encountered, that completion techniques require further optimization, that production rates do not match the Company’s assumptions, that very low or no production rates are achieved, that the Company will cease to be in compliance with the covenants under its reserve-based loan facility and be required to repay outstanding amounts or that the borrowing base will be reduced pursuant to a borrowing base redetermination and the Company will be required to repay the resulting shortfall, that the Company is unable to access required capital, that occurrences such as those that are assumed will not occur, do in fact occur, and those conditions that are assumed will continue or improve, do not continue or improve and the other risks identified in the Company’s most recent Annual Information Form under the “Risk Factors” section and the Company’s other public disclosure, available under the Company’s profile on SEDAR at www.sedar.com.

 

Although the Company has attempted to take into account important factors that could cause actual costs or results to differ materially, there may be other factors that cause actual results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. The forward-looking information included in this MD&A is expressly qualified in its entirety by this cautionary statement. Accordingly, readers should not place undue reliance on forward-looking information. The Company undertakes no obligation to update these forward-looking statements, other than as required by applicable law.

 

Kolibri Global Energy Inc. | 19 | First Quarter 2023

 

 

CORPORATE INFORMATION

 

DIRECTORS AND OFFICERS   AUDITORS
    KPMG LLP
David Neuhauser 1,2,3,5   Calgary, AB
Director, Chairman of the Board    
    BANKERS
Eric Brown 1,2,4,5   Amegy Bank National Association
Director   Denver, CO, USA
     
Leslie O’Connor 2,3,4,5   HSBC Bank Canada
Director   Calgary, AB
     
Evan Templeton1,3   BOK Financial
Director   Tulsa, OK
     
Wolf Regener 4    
Director, President and Chief Executive Officer    
     
Gary Johnson    
Chief Financial Officer and Vice President   CONSULTING ENGINEERS
    Netherland, Sewell & Associates, Inc.
1 Member of the Audit Committee   Houston, TX, USA
2 Member of the Corporate Governance Committee    
3 Member of the Compensation Committee   TRANSFER AGENT AND REGISTRAR
4 Member of the HS&E Committee   Computershare Trust Company
5 Member of the Reserves Committee   Calgary, AB
     
STOCK EXCHANGE LISTING   HEAD OFFICE
The Toronto Stock Exchange   Suite 220, 925 Broadbeck Drive
Trading Symbol: KEI   Thousand Oaks, CA, USA 91320
(Over the Counter OTC) QX   Telephone: (805) 484-3613
Trading Symbol: KGEIF   Fax: (805) 484-9649
     
LEGAL COUNSEL   CANADIAN OFFICE
DuMoulin Black LLP   10th Floor, 595 Howe Street
Vancouver, BC   Vancouver, BC, Canada V6C 2T5
    Telephone (604) 687-1224
    Fax: (604) 687-3635

 

Kolibri Global Energy Inc. | 20 | First Quarter 2023