Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period
covered by the annual report:
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[ ] No [X]
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934.
Yes [
] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [ ] No [X]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act (Check one):
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
If Other has been checked in response to the previous
question indicate by check mark which financial statement item the registrant
has elected to follow.
Item 17 [ ] Item 18
[ ]
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Unless otherwise specified,
information provided in this annual report on Form 20-F (this
Form
20-F
) is as of December 31, 2017.
Unless the context requires
otherwise, when used in this annual report on Form 20-F, the terms Chelsea,
we, us our the Corporation and the Company refer to Chelsea Oil and
Gas Ltd. All dollar amounts contained in this Form 20-FA are expressed in U.S.
dollars and references to dollars, $, US$ or USD are to U.S. dollars,
and all references to A$ or AUD are to Australian dollars and C$ are to
Canadian dollars. In addition, unless the context suggests otherwise, references
to:
Statements made in this Form 20-FA that are not historical or current facts are forward looking statements made
pursuant to the safe harbor provisions of Section 27A of the Securities Act of
1933, as amended (the
Act
), and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements often can be identified by the use of
terms such as may, will, expect, believe, anticipate, estimate,
approximate, or continue, or the negative thereof. We intend that such
forward-looking statements be subject to the safe harbors for such statements.
We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent managements best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events. See Item 3.D Risk Factors
for additional information relating to our risk factors.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3.
A
|
SELECTED FINANCIAL DATA
|
|
|
|
The following table presents financial data for Chelsea
as of and for the periods indicated:
|
|
|
As at December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Total assets
|
$
|
1,964,989
|
|
$
|
10,532,948
|
|
$
|
10,786,357
|
|
$
|
12,305,046
|
|
$
|
13,845,019
|
|
Current liabilities
|
$
|
5,370,079
|
|
$
|
4,876,262
|
|
$
|
4,457,722
|
|
$
|
4,310,779
|
|
$
|
4,418,783
|
|
Shareholders equity /
(deficiency)
|
$
|
(3,807,490
|
)
|
$
|
5,290,169
|
|
$
|
5,968,352
|
|
$
|
7,603,365
|
|
$
|
9,010,936
|
|
Weighted-average
shares
outstanding
|
|
64,056,876
|
|
|
64,056,876
|
|
|
64,056,876
|
|
|
64,056,876
|
|
|
56,027,645
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Revenue
|
$
|
19,899
|
|
$
|
36,701
|
|
$
|
68,974
|
|
$
|
361,990
|
|
$
|
98,805
|
|
Net loss for the year
|
$
|
9,923,195
|
|
$
|
542,938
|
|
$
|
467,693
|
|
$
|
335,221
|
|
$
|
1,005,632
|
|
Basic and diluted loss
per share
|
$
|
(0.015
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
3.B
|
CAPITALIZATION AND INDEBTEDNESS
|
|
|
|
Not applicable.
|
|
|
3.C
|
REASONS FOR THE OFFER AND USE OF
PROCEEDS
|
|
|
|
Not applicable.
|
|
|
3.D
|
RISK FACTORS
|
|
|
|
Overview
|
You should carefully consider the
following factors in addition to the other information set forth in this Form
20-FA. If any of the following risks actually occur, our business, financial
condition and results of operations and the value of our shareholders common
shares would likely suffer.
The Companys primary business
consists of the exploration and, if successful, the development of oil and gas
properties. There are a number of inherent risks associated with the
exploration, development and production of oil and gas reserves, many of these
risks are beyond the control of the Company.
Success in the junior oil and gas
sector is measured by a companys ability to raise funds and the ability to
secure properties of merit. Not all of these factors are within managements
control. The ability to raise funds is in part dependent on the state of the
junior resource stock market, which in turn is dependent on the economic
climate, oil and gas prices and perceptions as to which way the market is
headed. The ability to secure properties of merit is in large part dependent on
managements contacts and the vitality of the sector.
The risks and uncertainties below
are not the only issues facing Chelsea. Additional risks and uncertainties not
presently known to Chelsea or that Chelsea currently considers immaterial may
also impair the business and operations of Chelsea and cause the price of the
Chelsea Common Shares to decline.
Exploration,
Development and Production Risks
Oil and natural gas operations
involve many risks that even a combination of experience, knowledge and careful
evaluation may not be able to overcome. The long-term commercial success of
Chelsea depends on its ability to find, acquire, develop and commercially
produce oil and natural gas reserves. The future value of Chelsea is therefore
dependent on the success of Chelseas activities, which are principally directed
toward the exploration, appraisal and development of its properties in
Australia. Exploration, appraisal and development of oil and natural gas
properties is highly speculative and involves a significant degree of risk.
Without the continual addition of new reserves, any existing reserves that
Chelsea may discover or acquire at any particular time and the production
therefrom will decline over time as such existing reserves are exploited. Any
discovery of or future increase in Chelseas reserves will depend not only on
its ability to explore and develop any properties it may have from time to time,
but also on its ability to select and acquire suitable producing properties or
prospects. No assurance can be given that Chelsea will be able to continue to
locate satisfactory properties for acquisition or participation. Moreover, if
such acquisitions or participations are identified, Chelsea may determine that
current markets, terms of acquisition and participation or pricing conditions
make such acquisitions or participations uneconomical. There is no assurance
that commercial quantities of oil and natural gas will be discovered or acquired
by Chelsea.
Oil and natural gas exploration
may involve unprofitable efforts, not only from dry wells, but from wells that
are productive but do not produce sufficient revenues to return a profit after
drilling, operating and other costs. Completion of a well does not assure a
profit on the investment or recovery of drilling, completion and operating
costs. In addition, fixing drilling hazards or environmental damage caused by
operations could greatly increase the cost of those operations, and various
field operating conditions may adversely affect the production from successful
wells. These conditions include delays in obtaining governmental and other
approvals or consents, insufficient storage or transportation capacity or other
geological and mechanical conditions. While diligent well supervision and
effective maintenance operations can contribute to maximizing production rates
over time, production delays and declines from normal field operating conditions
cannot be eliminated and can be expected to adversely affect revenue and cash
flow levels to varying degrees.
Additional Funding
Requirements
Chelsea will have limited
financial resources and limited cash flow from operations, and therefore will
likely require additional financing in order to carry out its oil and natural
gas exploration, acquisition and development activities. There can be no
assurance that additional funding will be available, or available under terms
favourable to Chelsea. Failure to obtain such financing on a timely basis could
cause Chelsea to have limited ability to expend the capital necessary to
undertake or complete future drilling programs, forfeit its interest in certain
properties, miss certain acquisition opportunities and reduce or terminate its
operations. There can be no assurance that debt or equity financing or cash
generated by operations will be available or sufficient to meet these
requirements or for other corporate purposes or, if debt or equity financing is
available, that it will be on terms acceptable to Chelsea. Moreover, future
activities may require Chelsea to alter its capitalization significantly.
Financing by issuing additional securities from the Chelseas treasury may
result in a change of control of Chelsea and dilution to holders of Chelsea
Shares.
History of Losses
Chelsea has historically incurred
losses from operations. There can be no assurance that Chelsea will achieve
profitability in the future. In addition, should Chelsea be unable to continue
as a going concern, realization of assets and settlement of liabilities other
than in the normal course of business may be at amounts significantly different
from those in the financial statements.
- 7 -
Investment Risks
Revenues may not occur for some
time, if at all. The timing and extent of these is variable and uncertain and
accordingly the Corporation is unable to predict when, if at all, profitability
will be achieved. An investment in the Common Shares is highly speculative and
should only be made by persons who can afford a significant or total loss of
their investment.
Commodity Prices
Chelseas future revenue,
profitability, growth and the carrying value of its oil and natural gas
properties will be substantially dependent on prevailing prices of oil and
natural gas. Chelseas ability to borrow and to obtain additional capital on
attractive terms will also be substantially dependent upon oil and natural gas
prices. Prices for oil and natural gas are subject to large fluctuations in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of additional factors beyond the
control of Chelsea. These factors include economic conditions in Australia and
elsewhere in the world, the actions of the Organization of the Petroleum
Exporting Countries (
OPEC
), governmental regulation, political
stability in the Middle East and elsewhere, the foreign supply of oil and
natural gas, the price of foreign imports and the availability of alternative
fuel sources. Any substantial and extended decline in the price of oil and
natural gas could have an adverse effect in the future on Chelseas carrying
value of its proved reserves, borrowing capacity, revenues, profitability and
cash flows from operations, as applicable. There can be no assurance that recent
commodity prices will be sustained if and when Chelsea commences production or
over the life of the Chelseas operations. There is risk that commodity prices
may decline in the future, although it is not possible to predict the time or
extent of such decline.
Early Stage of
Development, Limited Operating and Earnings History
Chelseas business plan requires
significant expenditure, particularly capital expenditure, in its oil and gas
exploration phase. Any future profitability from Chelseas business will be
dependent upon the successful exploration and development of its petroleum
properties, and there can be no assurance that Chelsea will achieve
profitability in the future. Revenues may not occur for some time, if at all.
The timing and extent of these is variable and uncertain and accordingly Chelsea
is unable to predict when, if at all, profitability will be achieved.
Ability to Execute
Exploration and Development Program
It may not always be possible for
Chelsea to execute its exploration and development strategies in the manner in
which Chelsea considers optimal. Chelseas exploration and development programs
in onshore Australia involve the need to obtain approvals from the relevant
authorities, which may require conditions to be satisfied or the exercise of
discretion by the relevant authorities. It may not be possible for such
conditions to be satisfied.
Operational
Experience
The management and directors of
Chelsea have significant international experience in the oil and gas industry;
however, given the fact that the team was constituted recently, the team has, as
a group, limited direct experience operating in onshore Australia, aside from
its consultants and advisors.
Assessments of
Value of Acquisitions
Acquisitions of oil and natural
gas issuers and oil and natural gas assets are typically based on engineering
and economic assessments made by independent engineers and Chelseas own
assessments. These assessments will include a series of assumptions regarding
such factors as recoverability and marketability of oil and natural gas, future
prices of oil and natural gas and operating costs, future capital expenditures
and royalties and other government levies which will be imposed over the
producing life of the reserves. Many of these factors are subject to change and
are beyond Chelseas control. In particular, the prices of, and markets for, oil
and natural gas products may change from those anticipated at the time of making
such assessment. In addition, all such assessments involve a measure of geologic
and engineering uncertainty which could result in lower production and reserves
than anticipated. Initial assessments of acquisitions may be based on reports by
a firm of independent engineers that are not the same as the firm that
Chelsea may use for its year-end reserve evaluations. Because each of these
firms may have different evaluation methods and approaches, these initial
assessments may differ significantly from the assessments of the firm used by
Chelsea. Any such instance may offset the return on and value of the securities
of Chelsea.
- 8 -
Availability of
Drilling Equipment
Oil and natural gas exploration
and development activities are dependent on the availability of drilling and
related equipment in the particular areas where such activities will be
conducted. Demand for such limited equipment or access restrictions may affect
the availability of such equipment to Chelsea and may delay exploration and
development activities. Recent industry conditions have led to shortages of
drilling equipment in certain areas. To the extent that Chelsea is not the
operator of its oil and gas properties, Chelsea will be dependent on such
operators for the timing of activities related to such properties and will be
largely unable to direct or control the activities of the operators.
Cash Outflow Used
In Operations
The inability of Chelsea to
generate positive operating cash inflow in the future could have a material
adverse impact on Chelseas business, financial condition, results of operations
and prospects.
Project Risks
Chelsea will manage a variety of
projects in the conduct of its business. Project delays may delay expected
revenues from operations. Significant project cost over runs could make a
project uneconomic. Chelseas ability to execute projects and market oil and
natural gas depends upon numerous factors beyond Chelseas control, including:
|
the effects of inclement weather;
|
|
|
|
the availability of drilling and related
equipment;
|
|
|
|
unexpected cost increases;
|
|
|
|
accidental events;
|
|
|
|
currency fluctuations;
|
|
|
|
changes in regulations;
|
|
|
|
the availability and productivity of skilled
labour;
|
|
|
|
the regulation of the oil and natural gas
industry by various levels of government and
|
|
|
|
governmental agencies.
|
Because of these factors, Chelsea could be unable to execute
projects on time, on budget or at all.
Access to
Infrastructure
Chelseas ability to market
production from any potential oil and natural gas discoveries may depend on its
ability to secure transportation. Chelsea may also be affected by deliverability
uncertainties related to the proximity of its potential production to pipelines
and processing facilities and operational problems affecting such pipelines and
facilities.
- 9 -
Delays in Business
Operations
In addition to the usual delays
in payments by purchasers of oil and natural gas to Chelsea or to the operators,
and the delays by operators in remitting payment to Chelsea, payments between
these parties may be delayed due to restrictions imposed by lenders, accounting
delays, delays in the sale or delivery of products, delays in the connection of
wells to a gathering system, adjustment for prior periods, or recovery by the
operator of expenses incurred in the operation of the properties. Any of these
delays could reduce the amount of cash flow available for the business of
Chelsea in a given period and expose Chelsea to additional third party credit
risks.
Hedging
From time to time, Chelsea may
enter into agreements to receive fixed prices on any future oil and natural gas
production to offset the risk of revenue losses if commodity prices decline;
however, if commodity prices increase beyond the levels set in such agreements,
Chelsea would not benefit from such increases. Similarly, from time to time,
Chelsea may enter into agreements to fix the exchange rate of various currencies
used in its business in order to offset the risk of revenue or cost related
losses in the event of currency fluctuations. There is no certainty that any
such currency hedges which may be entered into will benefit Chelsea.
Expiration of
Permits, Applications and Authorities
Chelseas properties are and will
continue to be held in the form of permits, applications, authorities and
Working Interests in permits, applications and authorities. If Chelsea or the
holder of the permits, applications and authorities fails to meet the specific
requirement of the permits, applications or authorities (including any
requirements as to their renewal where renewal is available), the permits,
applications or authorities may terminate or expire. There can be no assurance
that the obligations required to maintain each of the permits, applications and
authorities will be met. The termination or expiration of Chelseas permits,
applications and authorities or the Working Interests relating to the permits,
applications and authorities could have a material adverse effect on Chelseas
business, financial condition, results of operations and prospects.
Operational
Dependence
In the future other companies may
operate some of the assets in which Chelsea has an interest. As a result,
Chelsea may have limited ability to exercise influence over the operation of
such assets or their associated costs, which could have a material adverse
effect on Chelseas business, financial condition, results of operations and
prospects. Therefore, Chelseas return on the assets operated by others will
depend upon a number of factors that may be outside of Chelseas control,
including the timing and amount of capital expenditures, the operators
expertise and financial resources, the approval of other participants, the
selection of technology and risk management practices.
Markets and
Marketing
The marketability and price of
oil and natural gas that may be discovered or acquired by Chelsea will be
affected by numerous factors beyond its control. Chelseas ability to market oil
and natural gas in the future, may depend upon its ability to acquire space on
pipelines that deliver natural gas to commercial markets including availability
of processing and refining facilities and transportation infrastructure,
including access to facilities, pipelines and pipeline capacity and economic
tariff rates over which Chelsea may have limited or no control. Chelsea may also
be affected by deliverability uncertainties related to the proximity of its
reserves to pipelines and processing facilities, and related to operational and
maintenance problems with such pipelines and facilities as well as extensive
government regulation relating to price, taxes, royalties, land tenure,
allowable production, the export of oil and natural gas and many other aspects
of the oil and natural gas business. Any delay or failure to acquire access to,
or improper operation or maintenance of, such pipelines and facilities could
have a material adverse effect on Chelseas business, financial condition,
results of operations and prospects.
Competition
Oil and gas exploration is
intensely competitive in all phases and involves a high degree of risk. Chelsea
competes with numerous other participants in the search for, and the acquisition
of, oil and natural gas properties.
- 10 -
Chelseas competitors include oil and natural gas companies
that have substantially greater financial resources, staff and facilities than
those of Chelsea. Currently Chelsea is insulated from competition on the lands
which it currently holds due to the nature of the proprietary exploration rights
granted by the governing bodies under the various licenses and permits, however
Chelsea may face competition on surrounding lands if it seeks to increase its
land position to acquire other prospective properties. Chelsea may also face
competition from competitors on lands which it currently holds a license or
permit for in the event that, as a condition of the license or permit, it is
required to partially relinquish certain of the lands. In this circumstance, if
Chelsea elects to re-apply for such permits or licenses, there are no assurances
that Chelsea will be successful. Chelseas ability to add reserves in the future
will depend not only on its ability to explore and develop its present
properties, but also on its ability to select and acquire suitable producing
properties or prospects for exploratory drilling. Competitive factors in the
distribution and marketing of oil and natural gas include price and methods and
reliability of delivery. Competition may also be presented by alternate fuel
sources.
Reliance on Key
Personnel
Chelseas success will depend in
large measure on the performance of its management and other key personnel. The
loss of the services of any of such persons could have a material adverse effect
on the Chelseas business, financial condition, results of operations and
prospects. Chelsea does not have key person insurance in effect for management.
The contributions of these individuals to the immediate operations of Chelsea
are likely to be of central importance. In addition, the competition for
qualified personnel in the oil and natural gas industry is intense and there can
be no assurance that Chelsea will be able to continue to attract and retain all
personnel necessary for the development and operation of its business. Investors
must rely upon the ability, expertise, judgment, discretion, integrity and good
faith of the management of Chelsea.
Estimate of
Resources
The Corporations historical
resource estimates, available in the Corporations disclosure documents filed on
SEDAR and on EDGAR, have been classified as undiscovered petroleum initially in
place and prospective resources. Any such resource estimates are estimates only.
There is no certainty that any portion of the resources will be discovered. If
discovered, there is no certainty that it will be commercially viable to produce
any portion of the resources. Readers are cautioned that the volumes presented
are estimates only and should not be construed as being exact quantities.
Chelseas proposed drilling and seismic program must be considered as a high
risk exploration play.
Estimate of Fair
Market Value
There are numerous uncertainties
inherent in an estimate of fair market value including many factors beyond the
Corporations control. The valuations herein represent estimates only. In
general, estimates are based upon a number of variable factors and assumptions,
such as engineering and geophysical information pertaining to hydrocarbon
potential, current material contracts of the Corporation, production history of
competitors on similar land positions, access to lands, availability, timing and
amount of capital expenditures, marketability of oil and natural gas, royalty
rates, the assumed effects of regulation by governmental agencies, and future
operating costs, all of which may vary from actual results. All such estimates
are to some degree speculative, and are only attempts to define the degree of
speculation involved.
Third Party Credit
Risk
Chelsea is or may be exposed to
third party credit risk through its contractual arrangements with its current or
future joint venture partners, marketers of its petroleum and natural gas
production and other parties. In the event such entities fail to meet their
contractual obligations to Chelsea, such failures could have a material adverse
effect on Chelseas business, financial condition, results of operations and
prospects.
Management of
Growth
Chelsea may be subject to
growth-related risks including capacity constraints and pressure on its internal
systems and controls. The ability of Chelsea to manage growth effectively will
require it to continue to implement and improve its operational and financial
systems and to expand, train and manage its employee base. The inability of Chelsea to deal with this growth could have a
material adverse effect on Chelseas business, financial condition, results of
operations and prospects.
- 11 -
Market Price of
the Corporation s Securities
The trading price of securities
of oil and natural gas companies is subject to substantial volatility, and such
trading prices have been particularly volatile in recent months. This volatility
is often based on factors both related and unrelated to the financial
performance or prospects of the companies involved. The market price of the
Common Shares could be subject to significant fluctuations in response to
variations in Chelseas operating results, financial condition, liquidity and
other internal factors. Factors that could affect the market price of the Common
Shares that are unrelated to Chelseas performance include domestic and global
commodity prices and market perceptions of the attractiveness of particular
industries. The price at which the Common Shares will trade cannot be accurately
predicted.
Insurance
Oil and natural gas exploration,
development and production operations are subject to all the risks and hazards
typically associated with such operations, including hazards such as fire,
explosion, blowouts, cratering, sour gas releases and spills, each of which
could result in substantial damage to oil and natural gas wells, production
facilities, other property and the environment or in personal injury. In
accordance with industry practice, Chelsea is not fully insured against all of
these risks, nor are all such risks insurable. Prior to drilling, Chelsea will
obtain insurance in accordance with industry standards to address certain of
these risks. However, such insurance has limitations on liability that may not
be sufficient to cover the full extent of such liabilities. In addition, such
risks may not be insurable in all circumstances or, in certain circumstances,
Chelsea may elect not to obtain insurance to deal with specific risks due to the
high premiums associated with such insurance or other reasons. The payment of
any such uninsured liabilities would reduce the funds available to Chelsea. The
occurrence of a significant event that Chelsea is not fully insured against, or
the insolvency of the insurer of such event, could have a material adverse
effect on Chelseas business, financial condition, results of operations and
prospects.
Dividends
Chelsea has not paid any
dividends on the Common Shares and it is not anticipated that Chelsea will pay
any dividends on the Common Shares for the foreseeable future.
Conflicts of
Interest
The directors or officers of
Chelsea may also be directors or officers of other oil and gas companies or
otherwise involved in natural resource exploration and development and
situations may arise where they are in a conflict of interest with Chelsea.
Conflicts of interest, if any, which arise will be subject to and governed by
procedures prescribed by the ABCA which require a director or officer of a
company who is a party to, or is a director or an officer of, or has some
material interest in any person who is a party to, a material contract or
proposed material contract with Chelsea to disclose his or her interest and, in
the case of directors, to refrain from voting on any matter in respect of such
contract unless otherwise permitted under the ABCA.
Title to
Properties
Title to oil and natural gas
interests is often not capable of conclusive determination without incurring
substantial expense. Although title reviews will be done according to industry
standards prior to the purchase of most oil and natural gas producing properties
or the commencement of drilling wells, such reviews do not guarantee or certify
that an unforeseen defect in the chain of title will not arise to defeat the
claim of Chelsea. To the extent title defects do exist, it is possible Chelsea
may lose all or a portion of its right, title, estate and interest in and to the
properties to which the title relates.
Issuance of Debt
From time to time, Chelsea may
enter into transactions to acquire assets or the shares of other corporations.
These transactions may be financed partially or wholly with debt, which may
increase Chelseas debt levels above industry standards. Depending on future
exploration and development plans, Chelsea may require additional equity and/or
debt financing that may not be available or, if available, may not be available
on favourable terms. Neither Chelseas articles nor its by-laws limit the amount
of indebtedness that Chelsea may incur. The level of Chelseas indebtedness from
time to time could impair Chelseas ability to obtain additional financing in
the future on a timely basis to take advantage of business opportunities that
may arise. If Chelsea becomes unable to pay its debt service charges or
otherwise commits an event of default, such as bankruptcy, lenders may foreclose
on or sell Chelseas properties.
- 12 -
Currency
Many of the operational, capital
and other expenses incurred by Chelsea are paid in Australian dollars or US
dollars. If Chelsea achieves commercial production, the revenue from its
products will likely be denominated in US dollars or Australian dollars. The
assets and liabilities of Chelsea are recorded in Canadian dollars. As a result,
fluctuations in the Australian dollars or the US dollars against the Canadian
dollar could result in unanticipated and material fluctuations in the financial
results of Chelsea. Chelsea does not currently use derivative instruments to
hedge exposure to foreign exchange risks.
Dilution
Chelsea may make future
acquisitions or enter into financing or other transactions involving the
issuance of securities of Chelsea which may be dilutive to existing
securityholders.
Regulatory
Oil and natural gas operations
(exploration, production, pricing, marketing and transportation) are subject to
extensive controls and regulations imposed by various levels of government that
may be amended from time to time. Chelseas operations require licenses and
permits from various governmental authorities. There can be no assurance that
Chelsea will be able to obtain all necessary licenses and permits that may be
required to carry out exploration and development of its projects.
In Australia, while government
policies and regulations in relation to exploration, production and marketing
are similar in many respects, they ultimately vary between different states and
between different governing bodies. Chelseas activities will require compliance
with various laws, both state and those of the Commonwealth of Australia,
relating to, among other things, the protection of the environment, Aboriginal
cultural heritage, native title rights, the protection of workers and the
public. Changes in government, government policies and legislation could have a
material adverse effect on Chelseas business, financial condition, results of
operations and prospects.
In particular, in order to pursue
its exploration programs in Australia, Chelsea may require approval from
government and non-government bodies to facilitate access to any blocks and
tenements in which it has an interest. Any tenements residing within reserves,
including national parks and conservation reserves, which are subject to state
and Commonwealth legislation could be subject to a change in legislation that
could have a material adverse effect on Chelseas business, financial condition,
results of operations and prospects. In addition, any tenements residing in
areas which are subject to government policies regarding national defence or of
any other particular national interest to Australia may be subject to access
requirements that could result in a material adverse effect on Chelsea if they
are particularly onerous to Chelsea.
Chelseas licenses, permits and
authorizations will be subject to applications for renewal in accordance with
their terms. Where a licensee has not complied with the conditions to which an
exploration permit is subject, or any directions given by the relevant Minister
and the Minister is not satisfied that special circumstances exist that justify
the granting of the renewal of the permit, the Minister may refuse to grant a
renewal of a permit. Where a Minister is satisfied that a commercially
exploitable accumulation of petroleum may occur in an exploration permit area,
the Minister may require the licensee to apply for a production license or risk
losing the exploration permit. A Minister may also refuse to grant a production
license, or may grant a production license subject to such conditions as the
Minister sees fit but which are unfavourable or particularly onerous to Chelsea.
If a permit is not renewed or a production license is not granted or granted
subject to unfavourable conditions, Chelsea may suffer significant damage through loss of the opportunity to develop
and discover that tenement and this could have an adverse effect on Chelseas
business plan.
- 13 -
Rights to licenses, permits and
authorities held by Chelsea carry with them various obligations in regard to
minimum expenditure levels, work commitments and responsibilities in respect of
the environment and safety generally. Failure to observe such requirements could
prejudice the right to maintain title to a given area.
Environmental
Risks and Regulations
All phases of the oil and natural
gas business present potential environmental risks and hazards and are therefore
subject to environmental regulation pursuant to a variety of federal, state and
local laws and regulations. Environmental legislation provides for, among other
things, restrictions and prohibitions on spills, releases or emissions of
various substances produced in association with oil and natural gas operations.
The legislation also requires that wells and facility sites be operated,
maintained, abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. Compliance with such legislation can require significant
expenditures and a breach may result in the imposition of fines and penalties,
some of which may be material. Environmental legislation is evolving in a manner
expected to result in stricter standards and enforcement, larger fines and
liability and the potential for increased capital expenditures and operating
costs. The discharge of oil, natural gas or other pollutants into the air, soil
or water may give rise to liabilities to governments and third parties and may
require Chelsea to incur costs to remedy such discharge. Generally, Australian
state and territory legislation and associated regulations include provisions
for the regulation of activities on petroleum tenement lands. Statutory
provisions require petroleum tenement lands to be protected and rehabilitated to
ensure that environmental damage is avoidable or minimal where authorized. These
provisions may require approvals and consents to be obtained before certain
lands may be accessed and explored. In addition, each state and territory
government may impose a wide range of obligations on tenement holders to ensure
that petroleum operations comply with various environmental standards and
requirements.
No assurance can be given that
environmental laws will not result in a curtailment of future production (if
any) or a material increase in the costs of production, development or
exploration activities or otherwise adversely affect the Corporations financial
condition, results of operations or prospects.
Changes in
Legislation
The return on an investment in
securities of Chelsea is subject to changes in Canadian and Australian tax laws
and government incentive programs and there can be no assurance that such laws
or programs will not be changed in a manner that adversely affects Chelsea or
the holding and disposing of the securities of Chelsea. Legislation, regulations
and policies continue to be introduced by government and government agencies
concerning the security of industrial facilities, including oil and natural gas
facilities. Chelseas operations may be subject to such laws and regulations.
Presently, it is not possible to accurately estimate the costs Chelsea could
incur to comply with any such laws or regulations, but such expenditures could
be substantial.
Income Taxes
Chelsea, and all of its
subsidiaries will file all required income tax returns and believes that it will
be in full compliance with the provisions of the Income Tax Act (Canada), United
States taxation laws and Australian taxation laws and all other applicable tax
legislation. However, such returns are subject to reassessment by applicable
taxation authorities. In the event of a successful reassessment of Chelsea, or
its subsidiaries, as the case may be, whether by re- characterization of
exploration and development expenditures or otherwise, such reassessment may
have an impact on current and future taxes payable. In Australia, Chelsea Oil
Australia pty will file any annual income tax returns required pursuant to the
Australian taxation laws. It will be assessed while in exploration and
production phases of its operation. While in exploration it will be assessed as
having no or negative income and will be able to retain a credit towards future
income in the event that it has an income from production in the future. In
other words, losses for the Australian subsidiaries will be able to be set-off
against future profits. The Corporations subsidiaries will still be required to
file annual income tax returns.
- 14 -
Climate Change
Australia is a signatory to the
United Nations Framework Convention on Climate Change and has ratified the Kyoto
Protocol established thereunder to set legally binding targets to reduce
nationwide emissions of carbon dioxide, methane, nitrous oxide and other so
called greenhouse gases. Subsequently, representatives from approximately 170
countries met in Copenhagen, Denmark to attempt to negotiate a successor to the
Kyoto Protocol. The result of such meeting was the Copenhagen Accord, a
non-binding political consensus rather than a binding international treaty such
as the Kyoto Protocol.
Chelseas exploration and
production facilities and other operations and activities emit greenhouse gases
and Chelsea may therefore be required to comply with various laws under the
jurisdiction in which its activities are being carried out. For example, for its
Australian activities, it will be required to report its greenhouse gas
emissions to the Australian government where those emissions exceed the
thresholds prescribed under the National Greenhouse and Energy Reporting Act
2007 (Cwth). In addition, the Australian Energy Efficiency Opportunities Act
2006 (Cwth) requires persons using more than certain amounts of energy per year
to identify and implement opportunities for energy efficiency and to publicly
report the results of those measures. Additionally, the Australian government
also is proposing to set a national greenhouse emissions cap and introduce an
associated national greenhouse emissions trading scheme from 2011. Under such a
scheme, companies may face potentially significant costs to pay for the
greenhouse emissions associated with their operations and activities, as well as
face significant increases in energy costs generally.
The direct or indirect costs of
these laws and regulations could have a material adverse effect on Chelseas
business, financial condition, results of operations and prospects. The future
implementation or modification of greenhouse gases regulations, whether to meet
the limits required by the Kyoto Protocol, the Copenhagen Accord or as otherwise
determined, could have a material impact on the nature of oil and natural gas
operations, including those of Chelsea. Given the evolving nature of the debate
related to climate change and the control of greenhouse gases and resulting
requirements, it is not possible to predict the impact on Chelsea and its
operations and financial condition.
Geo-Political
Risks
The marketability and price of
oil and natural gas that may be acquired or discovered by Chelsea is and will
continue to be affected by political events throughout the world that cause
disruptions in the supply of oil. Conflicts, or conversely peaceful
developments, arising in the Middle East, and other areas of the world, have a
significant impact on the price of oil and natural gas. Any particular event
could result in a material decline in prices and therefore result in a reduction
of Chelseas net production revenue (if any).
In addition, Chelseas properties
and facilities could be subject to a terrorist attack. If any of Chelseas
properties, wells or facilities are the subject of terrorist attack it could
have a material adverse effect on Chelseas business, financial condition,
results of operations and prospects. Chelsea will not have insurance to protect
against the risk from terrorism.
Native Title
The requirement to comply with
the procedures provided for under the Native Title Act where native title has
not been extinguished is likely to be affected by exploration or production
activities have the potential to significantly delay the grant of petroleum
tenements in Australian jurisdictions. To the extent such requirements delay or
restrict the granting of any petroleum tenements to Chelsea, or petroleum
tenements are not granted to Chelsea, it could have a material adverse effect on
Chelsea. Indigenous Land Access Agreements with the relevant aboriginal have
been entered into and therefore, at present there are no further negotiations
currently required under the Native Title Act.
Alternatives to
and Changing Demand for Hydrocarbon Products
Fuel conservation measures,
alternative fuel requirements, increasing consumer demand for alternatives to
oil and natural gas, and technological advances in fuel economy and energy
generation devices could reduce the demand for crude oil and other liquid
hydrocarbons. The Corporation cannot predict the impact of changing demand for oil and natural gas products, and any major changes
may have a material adverse effect on the Corporations business, financial
condition, results of operations and cash flows and therefore on the dividends
declared on the Common Shares.
- 15 -
Forward-looking
Information May Prove Inaccurate
Numerous statements containing
forward-looking information are found in this Form 20-FA, documents incorporated
by reference herein and other documents forming part of the Corporations public
disclosure record. Such statements and information are subject to risks and
uncertainties and involve certain assumptions, some, but not all, of which are
discussed elsewhere in this document. The occurrence or non-occurrence, as the
case may be, of any of the events described in such risks could cause actual
results to differ materially from those expressed in the forward-looking
information.
Government
Approval for Share Acquisitions
There are circumstances in which
the acquisition of shares by a foreign person or corporation in a foreign
corporation which has an Australian subsidiary (such as Chelsea) may activate
the Australian Treasurers powers and, in order to avoid an adverse order by the
Australian Treasurer, require the foreign person or company to provide prior
notification of the proposed acquisition and seek a statement of no objections
in respect of that proposal. In such case, the associated risks include the
Australian Treasurer objecting to the acquisition, the Australian Treasurer
imposing conditions on a statement of no objection which are onerous,
prohibitive or uncommercial, having regard to the individual circumstances of
the foreign person or company and the time period for assessing the acquisition
being extended and unduly delaying the foreign persons or companys ability to
purchase the shares.
Aboriginal
Heritage
The procedures and regulatory
powers set forth in applicable laws relating to the protection of Aboriginal
cultural heritage in Australia may delay, limit or prevent oil and gas
exploration activities in Australia. Such procedures and powers, to the extent
they affect Chelsea, could have an adverse effect on Chelseas business,
financial condition, results of operations and prospects.
Other Risks
Chelsea also faces a number of
risk factors that are outside of its control, generally, including, without
limitation, terrorist activities, natural disasters, general economic and other
conditions.
ITEM 4. INFORMATION ON THE COMPANY
4.
A
|
THREE YEAR HISTORY AND DEVELOPMENT OF CHELSEA
|
Business
Development
ACOR was incorporated April 28,
1997 in British Columbia, Canada. On October 1, 2013, ACOR amalgamated with
International TME Resources Inc. and was renamed Chelsea Oil and Gas Ltd. and
continued into the province of Alberta, Canada. The address of the Companys
head office is 127, 10
th
Ave NW, Calgary, AB Canada.
The Companys business plan is
the exploration and development of the Companys working interest properties in
Australia. The Company also holds and acquires and sells overriding royalty
interests in Australia. Current primary income sources are royalties earned on
overriding royalty interests held by the Company.
Our website address is
www.chelseaoilandgas.com. The information contained on, or that can be accessed
through, our website is not part of, and is not incorporated into, this Form
20-FA.
- 16 -
The Company has continued to be
active with its Working Interest and Overriding Royalty interests held in
Australia. The business of Chelsea during 2014 was to work on its existing
Working Interest projects as well as study the oil and gas exploration acreage
available in Australia in basins that demonstrate a high probability of success
with the maximum rate of return for dollars invested. For additional information
on our working and overriding royalty interests, see Item 4.D Property, Plant
and Equipment.
Three Year History
2015
On June 1, 2015, the Corporation
announced that the BCSC granted a full revocation of the cease trade order
issued by the BCSC on February 18, 1999 in respect of ITME, a predecessor
company to Chelsea.
2016 and 2017
Since 2016, the Companys efforts
were focused on obtaining financing through the issuance of equity or debt
instruments to existing and new investors, and monetizing assets held within the
portfolio.
Current Business
Operations
Throughout 2017 and to the date
of this AIF, the Corporation has continued to advance discussions with
investors, which if successful, is expected to enable the Corporation to fund
its operations and maintain its debt obligations for 2018 and 2019. There is no
certainty that any additional funding will be completed.
In tandem, the Corporation has
initiated discussions with multiple parties regarding the full or partial sale
of some of its assets. The proceeds of any sale would be used by the Corporation
to fund its operations and maintain its debt obligations for 2018 and 2019.
There is no certainty that any asset sale will be completed.
For further information on each
of the Companys interests, see Item 4.D Property, Plant and Equipment.
Proposed Future
Business Operations
The Companys strategy is three
fold: 1) to seek Overriding Royalty Interests in oil and gas concessions within
sedimentary basins in Australia, 2) to explore and develop the oil and gas
concessions in Queensland, Australia in which it holds a Working Interest and 3)
to seek other Working Interests in oil and gas concessions within other
sedimentary basins of Australia to promote oil and gas exploration through
seismic programs and drilling operations.
The Companys ability to explore
other oil and gas opportunities is dependent on adequate capital resources being
available and equity being obtained, and/or finding partners to fund the
exploration and drilling programs on the areas in which the Company holds
Working Interests.
For further information on each
of the Companys interests, see Item 4.D Property, Plant and Equipment.
Competition
The Company is competing with
other oil companies for oil and gas leases and concessions. The oil and gas
industry is highly competitive in all of its phases, with competition for
favorable producing royalties, overriding royalties, and good oil and gas leases
being particularly intense. The Company believes that the exploration program,
promised expenditures, geological and geophysical skill, and familiarity with an
area of operations are the primary competitive factors in the identification,
selection, and acquisition of desirable leases. When attempting to purchase
interests in such properties, the Company competes with independent operators
and major oil companies.
- 17 -
Foreign Taxes and
United States Tax Credits
As a result of its Overriding
Royalty Interests attributable to properties outside the United States, the
Company is subject to the imposition of taxes by foreign governments upon the
Companys income derived from such foreign jurisdictions. These taxes are of
various types, with differing tax rates, and are subject to change. Generally,
the Companys income from a foreign jurisdiction will be taxed in the same
manner as that for other companies operating in the jurisdiction, but
discriminatory taxation by a particular jurisdiction may occur. The current
non-resident corporate income tax rate in Australia, for Overriding Royalty
Interests, is 30%.
As a Canadian corporation, the
Company is liable for income taxes under the laws of Canada. Under Canadian law
the Companys Australian-source income is subject to a 25% tax (on Canadian
income). We believe the 30% Australian tax should be a partial credit toward the
payment of the 25% Canadian tax under double taxation treaties between the
countries.
The Company is taxable in the
U.S. on U.S. source income. Because there has been neither U.S. source net
income nor any income effectively connected with a U.S. trade or business, there
have been no U.S. taxes incurred to date.
Governmental
Regulation
Oil and gas operations are
subject to federal, state and local laws and regulations governing waste,
environmental quality, pollution control, conservation and other measures
regarding environmental and ecological matters. It is impossible to predict the
impact of environmental legislation and regulations on the Companys operations
and earnings in the future.
The domestic production and sale
of oil and gas are subject to federal regulation by the Department of Energy and
the Federal Energy Regulation Commission. Rates of production of oil and gas
have for many years been subject to federal and state conservation laws and
regulations. In addition, oil and gas operations are subject to extensive
federal and state regulations concerning exploration, development, production,
transportation, and pricing, and even to interruption or termination by
governmental authorities.
In foreign countries, the Company
may be subject to governmental restrictions on production, pricing and export
controls. Regulations existing or imposed upon the Company or its properties at
the time of their acquisition may change to an unpredictable extent. The Company
will have little or no control over the change of regulations or imposition of
new regulations and restrictions, expropriation or nationalization by foreign
governments or the imposition of additional foreign taxes. Management believes
that these actions are unlikely to be undertaken by the state governments of
South Australia, Queensland or Victoria, where all of the foreign oil and gas
properties from which the Company receives royalty income are currently located.
Foreign Currency
Due to the nature of the
Companys activities in Australia, portions of the Companys operating capital
may at times be held in various foreign currencies. This subjects the Company to
the risk of currency fluctuations and changes in rates of conversion for
different currencies. The Company does not engage or expect to engage in any
hedging or other transactions, which are intended to manage risks relating to
foreign currency fluctuations. Additionally, revenues generated in foreign
countries in which the Company has or may acquire interests may be subject to
governmental regulations, which restrict the free convertibility of such funds,
and all remittances of funds out of these countries might require the approval
of the applicable governments exchange control agency. Presently, the Company
experiences no difficulties with the free convertibility of funds from
Australia. In the Companys opinion, the foreign exchange control laws currently
in effect in Australia, do not unreasonably delay the remittance of funds
generated in Australia to the United States and Canada. The exchange rate on
April 29, 2015 was $0.76201 Australian = $1.00 United States dollar and 0.79561
Canadian = $1.00 United States dollar
Regulation of Oil
and Natural Gas Production
Our oil and natural gas
exploration, production and related operations are subject to extensive rules
and regulations promulgated by federal, state and local authorities and
agencies. Failure to comply with such rules and regulations can result in substantial penalties. The
regulatory burden on the oil and natural gas industry increases our cost of
doing business and affects our profitability. Although we believe we are in
substantial compliance with all applicable laws and regulations, because such
rules and regulations are frequently amended or reinterpreted, we are unable to
predict the future cost or impact of complying with such laws.
- 18 -
Many states require permits for
drilling operations, drilling bonds and reports concerning operations, and
impose other requirements relating to the exploration and production of oil and
natural gas. Such states also have statutes or regulations addressing
conservation matters, including provisions for the unitization or pooling of oil
and natural gas properties, the establishment of maximum rates of production
from wells, and the regulation of spacing, plugging and abandonment of such
wells.
Environmental
Matters
Our operations and properties
will be subject to extensive and changing federal, state and local laws and
regulations relating to environmental protection, including the generation,
storage, handling, emission, transportation and discharge of materials into the
environment, and relating to safety and health. The recent trend in
environmental legislation and regulation generally is toward stricter standards,
and this trend will likely continue. These laws and regulations may: (i) require
the acquisition of a permit or other authorization before construction or
drilling commences and for certain other activities; (ii) limit or prohibit
construction, drilling and other activities on certain lands lying within
wilderness and other protected areas; and (iii) impose substantial liabilities
for pollution resulting from our operations. The permits required for several of
our operations are subject to revocation, modification and renewal by issuing
authorities. Governmental authorities have the power to enforce their
regulations, and violations are subject to fines or injunctions, or both. In the
opinion of management, we are in substantial compliance with current applicable
environmental law and regulations, and we have no material commitments for
capital expenditures to comply with existing environmental requirements.
Nevertheless, changes in existing environmental laws and regulations or in
interpretations thereof could have a significant impact on our business
operations, as well as the oil and natural gas industry in general.
The Companys principal
activities are the exploration, development and production of oil, natural gas,
and natural gas liquids in Australia. In addition, the Company has acquired and
sold ORRIs on production in Australia. The Company previously held ORRI on
natural gas production in the United States, however it has not received any
material revenues from these ORRIs since 2009.
For the past three years, all of
the Companys revenues were earned from ORRIs on Australian oil, natural gas
and natural gas liquids production.
The Company has WI operations and
ORRI interests in the States of Queensland, South Australia and Victoria in
Australia, and is subject to the laws and regulations of both the States and the
federal laws of Australia, where applicable.
The Company has ORRIs in Texas
and Kentucky, however it has not earned any revenues on these interests in
several years. The Company is subject to applicable State and federal laws of
the United States.
4.
C
|
ORGANIZATIONAL STRUCTURE
|
Significant
Subsidiaries
The following table sets forth
each of our significant subsidiaries, the jurisdiction of organization and the
percentage ownership held by us:
- 19 -
|
Jurisdiction of
|
Percentage
|
|
Organization
|
Ownership
|
Cooper-Eromanga Oil Inc.
|
Texas, USA
|
100%
|
Chelsea Oil Australia Pty Ltd.
|
Queensland, Australia
|
100%
|
1629518 Alberta Ltd.
|
Alberta, Canada
|
100%
|
Cooper Basin Oil & Gas Inc.
|
Texas, USA
|
20%
|
Organizational Charts
The chart below presents a
summary of our ownership and organizational structure. Each subsidiary companies
Country or State of domicile is represented in parenthesis, and the ownership of
each subsidiary is represented as a percentage.
Chelsea
is the parent and holding company for each of
its wholly-owned subsidiaries and minority interest in Cooper Basin Oil and Gas
Inc. Chelsea also directly holds all of the Corporations ORRIs.
Cooper-Eromanga Oil Inc.
holds ATP 582 as its sole
asset.
Chelsea Oil Australia Pty Ltd.
holds the Surat Basin
Petroleum Leases: PL 18, PL 40 and PL 280.
Cooper Basin Oil and Gas Inc.
has no assets and is not
currently active. Chelsea has a 20% minority interest in this company.
1629518 Alberta Ltd.
has no assets and is not currently
active.
4.
D
|
PROPERTY, PLANT AND
EQUIPMENT
|
The Companys principal office is
located at 127, 10
th
Ave NW, Calgary, Alberta, Canada, T2M 0B4.
The Company holds Working
Interests and ORRIs in Queensland, Victoria and South Australia. See Item 4.D
Property, Plant and Equipment Working Interest Holdings, Item 4.D Property,
Plant and Equipment Producing Overriding Royalty Interests and Item 4.D
Property, Plant and Equipment Non-Producing Overriding Royalty Interests
below for an itemised listing of the Companys interests and associated
geographic region. Chelsea is an Australian focused exploration, development and
production company with approximately 5.2 million net Working Interest acres of
land onshore Australia. The Corporation has a portfolio of assets, as follows:
|
Surat-Bowen
Basin:
Six existing oil discoveries and one gas pool with
independently evaluated reserves.
|
- 20 -
|
Georgina and Simpson Basins:
multi-billion barrel
potential in two emerging unconventional resource plays.
|
|
|
|
Overriding Royalty Interests:
In addition to its
Working Interest lands, the Corporation also holds an ORRI in more than
approximately 11.1 million gross acres (60,000 net acres) in both onshore
and offshore basins in Australia.
|
During 2017 and 2016, the Company
received revenues from six of its ORRIs: PEL 111, PEL 115, ATP 267, ATP 299, ATP
560, and VIC/P54. For further information, see Item 5. Operating and Financial
Review and Prospects Managements Discussion and Analysis of Financial
Condition and Results of Operation.
WORKING INTEREST HOLDINGS
License
|
|
|
Basin
|
|
|
Operator
|
|
|
Gross Acres
|
|
|
WI
|
|
|
Net WI Acres
|
|
PL 18
|
|
|
Surat
|
|
|
Chelsea
Oil
(1)
|
|
|
46,482
|
|
|
100%
|
|
|
46,482
|
|
PL 40
|
|
|
Surat
|
|
|
Chelsea Oil
(1)
|
|
|
18,744
|
|
|
100%
|
|
|
18,744
|
|
PL 280
|
|
|
Surat
|
|
|
Chelsea
Oil
(1)
|
|
|
23,308
|
|
|
50%
|
|
|
11,654
|
|
ATP 582
|
|
|
Georgina / Simpson
|
|
|
Cooper-Eromanga Oil
(1)
|
|
|
5,022,000
|
|
|
100%
|
|
|
5,022,000
|
|
PEL 100
|
|
|
Cooper / Eromanga
|
|
|
Cooper Energy
|
|
|
73,143
|
|
|
1.00%
|
|
|
731
|
|
Total
|
|
|
|
|
|
|
|
|
5,183,677
|
|
|
|
|
|
5,099,611
|
|
Note:
1.
|
Wholly owned subsidiary of Chelsea Oil and
Gas
|
PRODUCING OVERRIDING ROYALTY INTERESTS
License
|
|
|
Basin
|
|
|
Operator
|
|
|
Gross Acres
|
|
|
ORR Interest
|
|
|
Net Royalty Acres
|
|
VIC P54
|
|
|
Gippsland
|
|
|
Nexus Energy
|
|
|
155,676
|
|
|
0.05%
|
|
|
78
|
|
PEL 111
(1)
|
|
|
Cooper
|
|
|
Senex Energy
|
|
|
290,101
|
|
|
0.60%
|
|
|
1,741
|
|
PEL 115
|
|
|
Cooper
|
|
|
Senex Energy
|
|
|
65,730
|
|
|
0.175%
|
|
|
115
|
|
ATP 267
|
|
|
Cooper
|
|
|
Santos
|
|
|
220,800
|
|
|
0.17%
|
|
|
379
|
|
ATP 299
|
|
|
Cooper
|
|
|
Santos
|
|
|
441,600
|
|
|
0.06%
|
|
|
254
|
|
ATP 560
|
|
|
Cooper
|
|
|
First Source
|
|
|
625,600
|
|
|
0.25%
|
|
|
1,564
|
|
Total
|
|
|
|
|
|
|
|
|
1,799,507
|
|
|
|
|
|
4,131
|
|
Note:
1.
|
1.0% Working Interest only in the Cleansweep field in
addition to the ORRI held.
|
NON-PRODUCING OVERRIDING ROYALTY INTERESTS
License
|
|
|
Basin
|
|
|
Operator
|
|
|
Gross Acres
|
|
|
ORR Interest
|
|
|
Net Royalty Acres
|
|
PEL 88
|
|
|
Cooper
|
|
|
Senex Energy
|
|
|
816,436
|
|
|
0.30%
|
|
|
4,899
|
|
PEL 424
|
|
|
Cooper
|
|
|
Senex Energy
|
|
|
1,516,733
|
|
|
0.10%
|
|
|
1,517
|
|
PEL 444
|
|
|
Cooper
|
|
|
Terra Nova
|
|
|
582,674
|
|
|
0.67%
|
|
|
3,886
|
|
ATP 544
|
|
|
Cooper
|
|
|
Australia Pete
|
|
|
901,600
|
|
|
0.81%
|
|
|
7,285
|
|
ATP 550
|
|
|
Cooper
|
|
|
Discovery Geo
|
|
|
276,000
|
|
|
0.25%
|
|
|
690
|
|
ATP 582
|
|
|
Georgina
|
|
|
Cooper-Eromanga Oil
(1)
|
|
|
5,022,000
|
|
|
0.67%
|
|
|
33,698
|
|
ATP 616
|
|
|
Cooper
|
|
|
Sundance
Resources
|
|
|
147,200
|
|
|
3.33%
|
|
|
4,907
|
|
ATP 636
|
|
|
Cooper
|
|
|
Santos
|
|
|
640,000
|
|
|
0.50%
|
|
|
3,200
|
|
Total
|
|
|
|
|
|
|
|
|
9,319,969
|
|
|
|
|
|
56,195
|
|
Note:
1.
|
Wholly-owned subsidiary of
Chelsea.
|
TOTAL OVERRIDING ROYALTY INTERESTS
|
|
Gross Acres
|
|
|
Avg. ORR Interest
|
|
|
Net Royalty Acres
|
|
Producing Overriding Royalty
Interests
|
|
1,799,507
|
|
|
0.22%
|
|
|
4,131
|
|
Non-Producing Overriding Royalty interests
|
|
9,319,969
|
|
|
0.60%
|
|
|
56,195
|
|
Total Overriding Royalty
Interests
|
|
11,119,476
|
|
|
0.55%
|
|
|
60,326
|
|
- 21 -
ASSET SUMMARY
Surat-Bowen Basin
The Surat-Bowen Basin is a
combination of Permian and Triassic age sediments of the deeper Bowen Basin,
overlain by the Jurassic and Cretaceous strata of the Surat Basin. Because
intervals of both sequences are prospective and have produced in close or even
over-lying proximity, operators tend to use the two names inter-changeably.
The Bowen Basin of eastern
Queensland is a foreland basin of Early Permian to Middle Triassic age
sediments. It occupies about 60,000km2, the southern half of which is covered by
the Surat Basin. It has a maximum sediment thickness of about 10,000 metres
concentrated in two north-trending depocentres, the Taroom Trough to the east
and the Denison Trough to the north-west. Deposition in the basin commenced
during an Early Permian extensional phase, with fluvial and lacustrine sediments
and volcanics being deposited in a series of half-grabens in the east while in
the west a thick succession of coals and nonmarine clastics were deposited.
Following rifting, there was a thermal subsidence phase extending from the mid
Early to Late Permian, during which a basin-wide transgression allowed
deposition of deltaic and shallow marine, predominantly clastic sediments as
well as extensive coal measures. Foreland loading of the basin spread from east
to west during the Late Permian, resulting in accelerated subsidence, which
allowed the deposition of a very thick succession of Late Permian marine and
fluvial clastics, again with coal and Early to Middle Triassic fluvial and
lacustrine clastics. Sedimentation in the basin was terminated by a Middle to
Late Triassic contractional event.
Over 100 hydrocarbon
accumulations have been discovered in the Bowen Basin, of which about one third
are producing fields. Accumulations occur throughout the succession, but the
most important reservoirs are in the Early Permian and Middle Triassic. Source
rocks have been identified throughout the Permian and in the Middle Triassic and
are mostly nonmarine. Proven plays comprise mostly anticlinal closures sometimes
enhanced by a stratigraphic component, as well as fault rollovers. Other plays
are largely untested. The Bowen Basin also has vast coal resources, with major
open cut and underground coal mines in the north of the basin. Large volumes of
methane gas are held at shallow depths within Permian coals in the north and
have potential for coal seam methane developments.
The Surat Basin is a large,
mature, intracratonic, Early Jurassic to Cretaceous basin occupying
approximately 300,000km2 of central southern Queensland and central northern New
South Wales. It has a maximum sediment thickness of 2500 metres and deposition
was relatively continuous and widespread. Deposition in the basin commenced with
the onset of a period of passive thermal subsidence of much of eastern
Australia. During the Early Jurassic, deposition was mostly fluviolacustrine,
while by the Middle Jurassic coal swamp environments predominated over much of
the basin, except in the north where fluvial sedimentation continued.
Towards the end of the Middle
Jurassic, fluvial deposition again predominated and continued until the earliest
Cretaceous. A marine transgression followed, depositing paralic and marine
sediments and reaching its peak in the Aptian. The subsequent regression caused
a fairly abrupt return to fluvial, lacustrine and paludal environments before
sedimentation ceased in the Aptian. About 100 hydrocarbon accumulations have
been discovered in the Surat Basin, of which about half are producing fields.
Most accumulations are reservoired in Early Jurassic sands, with occasional gas
occurrences in the Middle and Late Jurassic, but all are sourced from the
Permian nonmarine sediments of the underlying Bowen Basin. Proven plays comprise
mostly low amplitude anticlinal closures occasionally associated with thrust
faulting and drapes over basement highs. Because the basin is largely flat-lying
and sedimentation widespread and relatively uniform, other types of traps are
unlikely to be important. The upper part of the Surat Basin sequence comprises
the Great Artesian Basin of Australia, an enormous fresh water resource.
Chelsea holds a 100% Working
Interest in PL 18 and PL 40 as well as a 50% Working Interest in PL 280. The
Corporation is in the process of completing the transfer of the EA for PL 280.
The Corporations Surat-Bowen
Basin oil assets comprise six existing oil pools with 14 million barrels of
light, high quality (51°), high mobility DPIIP, of which, to date, only 6%, or
770,000 barrels has been recovered. As the oil is 51°, it exhibits high
mobility. There is no certainty that it will be commercially viable to produce
any portion of the resources. To date, exploration has been
directed at finding and drilling structural highs, usually the first phase of
exploration before more subtle stratigraphic prospects are tested. All
production has been primary, meaning that no secondary enhancements such as
pressure maintenance, water flooding, etc., have been implemented. Oil is
produced to single well batteries and trucked about 30 kilometres to Fairymount
where it enters the Santos pipeline carrying oil from the Cooper Basin to
Brisbane. The last production from the area was from the Yellowbank Creek pool
in 2010.
- 22 -
Given the low overall recovery to
date (0.770 mmbo or 6% of DPIIP) under primary production methods, there is an
opportunity for a relatively low risk redevelopment of the proven productive oil
pools. There are numerous water-flood projects in Western Canada, including some
that recover as high as 40% OOIP. Good reservoir qualities of porosity and
permeability, together with the high quality and mobility of the oil suggest
that reservoir response should be similar to those observed when similar
procedures have been implemented in Western Canada.
On the PL 40 permit, also in the
Surat-Bowen Basin, bypassed gas has been identified in three wells on Chelseas
lands.
Georgina and Simpson Basins
The Georgina Basin is a large
(ca. 330,000 km², 5.0mm acres) intracratonic sedimentary basin in central and
northern Australia, lying mostly within the Northern Territory and partly within
Queensland. It is named after the Georgina River which drains part of the basin.
Deposition of locally up to ca. 4 km of marine and non-marine sedimentary rocks
took place from the Neoproterozoic to the late Paleozoic (ca. 850-350 Ma). Along
with other nearby sedimentary basins of similar age (Amadeus Basin, Officer
Basin); the Georgina Basin is believed to have once been part of the
hypothetical Centralian Superbasin that was fragmented during episodes of
tectonic activity.
More recently, the Georgina Basin
has been recognized as having considerable potential for unconventional
hydrocarbons within the Arthur Creek Formation of Middle Cambrian age. This has
led to all the prospective parts of the basin now being held under exploration
permits and a new phase of exploration is under way. The deepest part of the
basin, known as the Toko Syncline, lies within Queensland and is considered by
many to have the most hydrocarbon potential.
The Simpson Basin extends over
100 000 km2 in South Australia, southeast part of Northern Territory, and
southwest part of Queensland. Approximately half lies in South Australia. It is
a circular, poorly defined depression with one major depo centre, the Poolowanna
Trough. The Simpson Basin has a known petroleum system within the Permian and
Triassic sequence and recently an operator in the adjacent Northern Territory
announced an in-house estimate of 12 to 25 Tcf of prospective unconventional gas
resource within its permit. Chelsea does not know if such estimate was prepared
by a qualified reserves evaluator or auditor or in accordance with the COGE
Handbook. There is no certainty that any portion of the resources will be
discovered. If discovered, there is no certainty that it will be commercially
viable to produce any portion of the resources. Validation of this resource is
likely to increase exploration activity in this area. The basin overlies older
Pedirka Basin strata, also considered prospective, and is overlain by the
younger Eromanga Basin sediments.
In the Georgina Basin, more
specifically the Toko Syncline, three vertical wells have been drilled to
basement and one other was abandoned before reaching total depth for mechanical
reasons. This well did, however, encounter natural gas which flowed against a
full column of drilling fluid at an estimated 200 Mcf per day. This well is
important in that it confirms the presence of movable hydrocarbons in the basin.
Each of the basement penetrations are on ATP 582 and serve to define the play
model and the thermal maturity windows encountered within the Arthur Creek in
the wells. These wells are Todd-1 (1991), Netting Fence-1 (1964), Mirrica-1
(1980), and Ethabuka-1 (1974), the well that encountered the gas flow but did
not reach what is now the unconventional target. Based on these wells, fairways
have been defined within the Toko Syncline as being prospective for oil, gas and
liquids, and dry natural gas.
All previous seismic and drilling
was for conventional structural traps, particularly near the basin-defining
Toomba Fault. Approximately 200 kilometres of legacy seismic exists on ATP 582
from 1977 through 1981 vintage. This data is of limited value for any possible
defining of hydrocarbon indicators but does serve to define gross structural
features.
- 23 -
At the southern portion of ATP
582, thought to contain Simpson Basin strata, management has identified several
untested four-way dip closed structures on the basis of similar vintage 2D
seismic. No wells have tested this part of ATP 582.
No reserves are attributed to ATP
582.
Overriding Royalty Interests
Chelsea has ORRIs over more than
approximately 9.3 million gross acres (60,000 net acres) in the Cooper,
Gippsland (Offshore) and Victoria (Offshore VIC P54) basins. These interests
have generated small amounts of revenue for the Corporation.
Outlook
Along with a 3D seismic survey of
the productive trend, Chelseas future development plans call for conversion of
Yellowbank Creek 1 to a water injection well, re-pressuring the reservoir at
least partially, and reestablishing production from Yellowbank Creek 2 and 3.
These wells were producing at an approximate 8% oil cut when shut-in, which
should be able to be maintained at higher volumes upon re-pressuring and is in
line with oil cuts experienced in western Canadian pools such as the Dina and
Taber pools in Alberta, Canada.
Concurrent with this, the already
permitted 3D program will further define the existing pools and possibly further
develop additional drilling locations, as well as new pool prospects. This
improved reservoir definition will also greatly aid in the design and
implementation enhanced recovery through additional water-flood and horizontal
drilling of the current pools.
Further, Chelsea believes that
similar opportunities exist for further exploitation of mature pools within the
basin generally, and has one or more in sight at present.
See also the information
contained under Item 3.D Risk Factors and Item 5 Operating and Financial
Review and Prospects.
4.
E
|
UNRESOLVED STAFF COMMENTS
|
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Managements
Discussion and Analysis (MD&A) dated April 30, 2018 is a review of the
results of operations and the liquidity and capital resources of Chelsea Oil and
Gas Ltd. (Chelsea or the Company) for the years ended December 31, 2017,
2016 and 2015.
The audited consolidated
financial statements of the Company and its subsidiaries have been prepared in
accordance with IFRS as issued by the International Accounting Standards Board
(IASB).
Certain information contained
herein is forward-looking and based upon assumptions and anticipated results
that are subject to risks, uncertainties and other factors. Should one or more
of these uncertainties materialize or should the underlying assumptions prove
incorrect, actual results may vary materially from those expected. For
additional information, refer to Forward Looking Statements.
- 24 -
General Discussion
Georgina Basin
In 2012, Total entered into the
Georgina Basin through a farm-in whereby it would spend up to A$190.0 million by
2016 to earn a 68% Working Interest in an offsetting operators Georgina Basin
lands. As well in 2012, Statoil entered into the Georgina Basin through a
farm-in whereby it would spend up to A$210.0 million in separate offsetting
Georgina Basin lands to earn an 80% Working Interest.
In 2014, Statoil terminated its
farm-in, and in 2017 Total terminated its farm-in. The termination of these
farm-ins follows unsuccessful exploration results. Although the Corporation
continues to see significant potential in ATP 582, with the termination of these
farm-ins its ability to fund future exploration on this concession is in doubt.
Surat-Bowen Basin
Chelseas lower risk exploitation
and development assets in the Surat-Bowen Basin will be the focus of our efforts
in the near future as we strive to build cashflow. Our technical team believes
that while the Surat-Bowen basins are considered mature by Australian standards,
much potential remains for not only secondary and enhanced recovery projects as
typically applied in North America, but also for significant low risk
exploration and development in areas and formations previously considered
uneconomic.
Further, the fiscal regime for
oil and, especially natural gas is very attractive to producers. Unlike North
American where natural gas prices have fluctuated wildly the past decade,
Australia and particularly Queensland has a long term demand for natural gas to
supply its existing and planned LNG exports to Asia. This Asian demand and the
under- performance of the coal seam gas sector has resulted in current prices of
$8-$10 per GJ.
The environment for oil is
currently subdued due to world pricing but remains attractive longer term. Plans
for redevelopment of our light oil assets have been deferred in favour of
furthering our natural gas opportunities, as gas markets in Australia remain
highly attractive.
Funding and
Capitalization
While the Companys commitments
are modest considering the scope and potential of its asset base, funding is
required to advance the projects. To this end, Chelsea continues its financing
process in what is and has been a difficult capital market for junior energy
companies. While continuing to assemble an investor group, Chelsea has raised
funds necessary to continue operations through a rationalization of certain
minor assets including the Companys non-operated interests in the Cooper Basin
and deploying those funds to advance our primary high working interest assets.
Response from the investment community continues to be very positive with regard
to the Companys assets and in spite of current challenging market conditions
for small cap energy ventures, we have made significant progress and are
optimistic that a significant financing can be secured in the near term,
sufficient to meet our work obligations and advance our current Surat-Bowen
projects to cash generating status. Particulars of any transaction will be
released immediately in accordance with applicable securities laws.
Summary
Management and the Board continue
to believe strongly in the quality of Chelseas asset base. Ongoing technical
work continues to add value to existing assets and define new opportunities for
growth.
However without access to capital
or a partner to fund the obligations and development of these assets, the
company will be unable to realise this value. To that end, the Companys current
principle focus is securing finance or a funding partner.
- 25 -
Overall Performance
ACOR was incorporated April 28,
1997 in British Columbia, Canada. On September 27, 2013 ACOR was continued into
the province of Alberta. On October 1, 2013, ACOR amalgamated with ITME and was
renamed Chelsea Oil and Gas Ltd.. The address of the Companys head office is
127, 10
th
Ave NW, Calgary, AB Canada.
This MD&A and accompanying
financial statements for the years ended December 31, 2017, 2016 and 2015 are
prepared in accordance with IFRS as the Company is considered a Canadian
Reporting Issuer. Chelsea reported under USGAAP and filed as a US Reporting
Issuer until June 30, 2012, when the Company became a Foreign Private Issuer
under applicable US Securities Laws.
With the completion of the
acquisition of International TME Resources Inc. (ITME) on October 1, 2013, the
Company became a Canadian Reporting Issuer and files its continuing disclosure
obligations required under MI 51-105
Issuers Quoted in the U.S.
Over-The-Counter Markets
.
2017 Highlights
For the year ended December 31,
2017 the Companys main operations were the advancement of the Companys
fundraising and continued technical development of the portfolio. These efforts
have continued through 2018.
Results of Operations
Royalty Income
For the year ended December 31,
2017, the Company received $19,899 (2016 $36,701, 2015 $68,974) in freehold
royalties from its ORRI both onshore and offshore Australia. The decrease over
prior years is attributable to lower commodity prices over the comparative
periods.
General and
administrative
For the year ended December 31,
2017, the Company incurred $133,211 (2016 $186,416, 2015 $242,410) in
general and administrative (G&A) expenses. The decrease over 2016 and 2015
is attributable to reduced travel, professional and shareholder reporting costs
in the current year.
Depletion
For the year ended December 31,
2017, the Company incurred $112,482 in depletion expense (2016 $112,482, 2015
$112,482). Depletion in 2017 is consistent with prior years as there has been
no change in the depleatable base and the Company uses straight-line
amortization as described in Note 3 of the audited consolidated financial
statements.
Impairment
At December 31, 2017, management
identified impairment indicators in its Georgina and Surat assets as a result of
significantly reduced access to debt and equity financings in the Australian
exploration and production sector. The recoverable amounts of the assets was
estimated using fair value less costs of disposal based on comparable market
transactions and multiples. The recoverable amount of the Surat asset was
estimated to be A$1.25 million resulting in an impairment of $6.2 million (A$8.0
million). The recoverable amount of the Georgina asset was estimated to be $Nil
resulting in an impairment of $3.0 million (A$3.9 million).
No impairment was booked for the
years ended December 31, 2016 and 2015.
- 26 -
Finance expense
For the year ended December 31,
2017, the Company incurred $355,401 in finance expense (2016 $327,401, 2015
$302,244). The increase over prior years is attributable to compounding interest
on the shareholder loan balance.
Expense reimbursements
During the year, the Company
received $79,228 (2016 - $87,652, 2015 - $nil) from an arms length party (the
Sponsor. These receipts relate to ongoing travel and general and
administrative expenses the Sponsor has agreed to fund during 2017 and 2016. The
purpose of the reimbursements is for facilitating funding and restructuring
efforts for the Company. There is no obligation to repay these unsecured
advances.
Foreign exchange (gain)
loss
For the year ended December 31,
2017 the Company experienced a foreign exchange loss of $68,588 (2016 loss of
$37,623, 2015 gain of $125,515). The loss in the current year is attributable
to weakness in the US dollar. The gains in the prior year were realized on the
Companys accounts payable as both the Australian and Canadian dollars
depreciated against the US dollar during the period.
Current income tax
expense
For the year ended December 31,
2017, the Company incurred current income tax expenses of $2,142 (2016 $3,369,
2015 $5,046). Current income tax expense is derived from withholding taxes on
the Companys overriding and interest revenue received directly from Australian
sources. The change over the prior years is commensurate with the change in
revenue received from those sources over the same period.
Net loss
For the year ended December 31,
2017, the Company incurred a net loss of $9,923,195 (2016 $542,938, 2015
$467,693). The loss in 2017 is attributable to the $9.3 million impairment
relating to the Companys E&E assets. The loss in 2016 and 2015 was
attributable to interest expenses and general and administrative costs.
Foreign currency
translation adjustment
Both of the Companys
wholly-owned subsidiaries operate exclusively in Australia, and utilize the
Australian dollar as their functional currency. Assets and liabilities of the
Companys Australian operations are translated into US dollars at period end
exchange rates while revenues and expenses are translated using average rates
for the period. Gains and losses from the translation are deferred and included
in accumulated other comprehensive loss on the consolidated statements of
financial position.
For the year ended December 31,
2017, the Companys foreign currency translation adjustment was a gain of
$827,678 (2016 loss of $135,245, 2015 loss of $1,167,320). The adjustment in
2017 is attributable to the appreciation in the Australian dollar compared to
the US dollar over the year. The adjustment in 2015 and 2014 is attributable to
the decline in the Australian dollar compared to the US dollar over each
comparable year.
Liquidity and Capital Resources
At December 31, 2017, the Company
had $15,118 (2016 $15,341, 2015 $121,620) in cash held in the Companys bank
accounts. The Companys total accounts receivable as at December 31, 2017 was
$3,481 (2016 $6,527, 2015 $9,048). The Companys trade accounts payable and
shareholder loans outstanding as at December 31, 2017 was $5.4 million (2016
$4.9 million, 2015 $4.5 million). The Companys net working capital deficiency
as at December 31, 2017 was $5.6 million (2016 $4.9 million, 2015 $4.3
million).
During 2017 the Company received
$79,228 (2016 - $87,652, 2015 - $nil) from an arms length party (the Sponsor.
These receipts relate to ongoing travel and general and administrative expenses
the Sponsor has agreed to fund during 2016 and 2017. The purpose of the
reimbursements is for facilitating funding and restructuring efforts for the
Company. There is no obligation to repay these unsecured advances. Refer to Item
5 for additional disclosures.
- 27 -
The Company has several projects
in development. These include the exploration of the Georgina Basin on ATP 582,
the exploitation of the Surat-Bowen Basin oilfields, and the development of the
Louise gas field. In aggregate, the Companys work commitments for these
projects is estimated at $19.0 million Australian dollars.
The Company has financed its
operations to date through the issuance of common shares to founding directors
and other shareholders. Refer to 2017 Highlights herein and note 2 of the
audited consolidated financial statements for the year ended December 31, 2017
for additional discussion of the Companys liquidity and capital resources. The
following table outlines the timing of the Companys debt and commitments:
Debt /
|
February
|
August
|
August
|
September
|
August
|
|
Commitment
|
2016
|
2020
|
2024
|
2029
|
2031
|
Total
|
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
|
Shareholder loan
|
4,201,120
|
-
|
-
|
-
|
-
|
4,201,120
|
Total US$
|
4,201,120
|
-
|
-
|
-
|
-
|
4,201,120
|
|
|
|
|
|
|
|
A$
|
|
|
|
|
|
|
ATP 582
|
-
|
11,000,000
|
-
|
-
|
-
|
11,000,000
|
PL 18
|
-
|
-
|
5,000,000
|
-
|
-
|
5,000,000
|
PL 40
|
-
|
-
|
-
|
2,000,000
|
-
|
2,000,000
|
PL 280
|
-
|
-
|
-
|
-
|
1,000,000
|
1,000,000
|
Total A$
|
-
|
11,000,000
|
5,000,000
|
2,000,000
|
1,000,000
|
19,000,000
|
Plan of Operation and Funding
The Company plans to seek
additional oil and gas concessions in Australia on a ground level basis and will
seek partners to join in this process. The Company has been successful in
entering into farm-out arrangements to defer the exploration commitments on six
Australian concessions to joint venture partners and is confident of being able
to repeat this process in the event the Company is successful in acquiring other
concessions in Australia.
Material Commitments
The Company has material
financial commitments on several of its working interest properties located in
Australia. PL 18, PL40, PL 280 and ATP 582 have expenditure requirements that
may exceed the Companys Carried Working Interest in each of these
concessions.
ATP 582, PL 18 and PL 40 are
owned 100% by the Company, PL 280 is 50% owned by Chelsea. Expenditures on these
concessions will require additional funding or securing a WI partner. See Item
5. Operating and Financial Review and Prospects Contractual Obligations for
additional information.
Purchase of Significant Equipment
The Company does not intend to
purchase any significant equipment during the next 12 months.
Subsequent Events
No undisclosed subsequent events
from December 31, 2017 to the date of this 20-F.
- 28 -
Recent Accounting Pronouncements
IFRS 15 Revenue from contracts
with customers, replaces International Accounting Standard 11, Construction
Contracts (IAS 11), IAS 18, Revenue (IAS 18), and several revenue-related
interpretations. IFRS 15 establishes a single revenue recognition framework that
applies to contracts with customers. The standard requires an entity to
recognize revenue to reflect the transfer of goods and services for the amount
it expects to receive, when control is transferred to the purchaser. Disclosure
requirements have also been expanded. This IFRS became effective for periods
beginning on or after January 1, 2018 and the Company has evaluated the impact
of the standard on its consolidated financial statements and determined the
impact will not be significant. The Company will adopt the additional disclosure
requirements.
IFRS 9 Financial Instruments,
which is the result of the first phase of the IASBs project to replace IAS 39
Financial Instruments: Recognition and Measurement. The new standard replaces
the current multiple classification and measurement models for financial assets
and liabilities with a single model that has only two classification categories:
amortized cost and fair value. This IFRS became effective for periods beginning
on or after January 1, 2018 and the Company has evaluated the impact of the
standard on its consolidated financial statements and determined the impact will
not be significant. The Company will adopt the additional disclosure
requirements.
In January 2016, the IASB issued
the complete IFRS 16 Leases ("IFRS 16") which replaces IAS 17, Leases. The
effective date of IFRS 16 is for annual periods beginning on or after January 1,
2019 and early adoption is permitted. Under IFRS 16, a single recognition and
measurement model will apply for lessees which will require recognition of
assets and liabilities for most leases. The extent of the impact of adoption of
the standard has not yet been determined.
Dividend Policy
No dividends have ever been
declared by the Board of Directors on our common stock. Our losses do not
currently indicate the ability to pay any cash dividends, and the Company does
not indicate the intention of paying cash dividends on our common stock in the
foreseeable future.
Securities Authorized For Issuance Under Compensation Plans
Share options
The Company has a share option
plan (
Option Plan
) whereby it can issue up to 10% of its common shares
to directors, management and consultants at a price in the context of the market
price of the shares, or such a price as determined by the directors. As at the
date of this 20-F, the Company has not issued any options pursuant to the Option
Plan.
Warrants
On January 9, 2013, the Company
issued 5.0 million warrants to directors, officers and consultants. These
performance warrants have an exercise price of $0.25 per warrant, but are only
exercisable if the share price of the Company exceeds $1.00 per share for ten
consecutive trading days, with a minimum of 100,000 shares traded over the same
period. On January 18, 2015, the Company extended the warrants for two years,
expiring January 18, 2017. All other terms remained the same. On January 18,
2017 all 5.0 million of the warrants expired out of the money.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Overview
The Company's primary business
consists of the exploration and, if successful, the development of oil and gas
properties. There are a number of inherent risks associated with the
exploration, development and production of oil and gas reserves, many of these
risks are beyond the control of the Company.
- 29 -
Success in the junior oil and gas
sector is measured by a Companys ability to raise funds and the ability to
secure properties of merit. Not all of these factors are within managements
control. The ability to raise funds is in part dependent on the state of the
junior resource stock market, which in turn is dependent on the economic
climate, oil and gas prices and perceptions as to which way the market is
headed. The ability to secure properties of merit is in large part dependent on
managements contacts and the vitality of the sector.
For a detailed discussion of the
Companys risk factors, refer to 3.D Risk Factors.
Business Risks and Risk Mitigation
There are a number of risks
facing participants in the upstream oil and gas industry. Some of the risks are
common to all businesses, while others are specific to the sector. The most
important of these risks are set out below, together with the strategies Chelsea
employs to mitigate and minimize these risks.
Inherent Industry Risks
Risks of Failing to Discover Economic Reserves Additions
The Companys strategies include
focusing on oil and gas prone selected areas in Australia, utilizing a team of
highly qualified professionals with expertise and experience in these areas,
expanding operations in core areas, continuously assessing new exploration
opportunities to complement existing activities and striving for a balance
between higher risk exploratory drilling, and lower risk development drilling.
Beyond exploration risk, there is
the potential that the Companys oil and natural gas reserves may not be
economically produced at prevailing prices. Chelsea minimizes this risk by
generating exploration prospects internally, targeting high quality projects and
by attempting to operate the projects and the infrastructure used to access the
sales markets.
Financial Commodity
Price, Capital Expenditure Requirements, Liquidity and Environmental
Risks
Commodity prices are driven by
supply, demand and market conditions outside the Companys influence and
control. Chelsea manages this risk by constantly monitoring the forecasted price
given by aggregators, banks, and third party engineering firms.
Chelsea manages capital
expenditures by two separate tracking systems: a historical accounting system
that records the actual costs and a perpetual forecasting model that is
constantly updated based on real-time information. Chelseas capital investment
process is based on risk analysis to ensure capital expenditures balance the
objectives of immediate cash flow growth in development activities and future
cash flow from the discovery of reserves through exploration.
It is likely that in the future,
Chelsea will be required to raise additional capital through debt and equity
financings in order to fully realize the Companys strategic goals and business
plans. Chelseas ability to raise additional capital will depend on a number of
factors, such as general economic and market conditions that are beyond the
Companys control. If the Company is unable to obtain additional financing or to
obtain it on favourable terms, Chelsea may be required to forego attractive
business opportunities. However, as Chelsea strives to be the operator of
virtually all of its operations at a high working interest position, the Company
should be able to be flexible in the timing of operations to ensure a continued
strong financial position. The Company is committed to maintaining a strong
balance sheet combined with an adaptable capital expenditures program that can
be adjusted to capitalize on or reflect acquisition opportunities or a
tightening of liquidity sources if necessary.
The Company manages operational
risks by employing skilled professionals utilizing leading-edge technology and
conducting regular maintenance and training programs. Chelsea has updated its
operational emergency response plan to address these operational issues. In
addition, a comprehensive insurance program is maintained to mitigate risks and
protect against significant losses where possible. Chelsea operates in
accordance with all applicable environmental legislation and strives to maintain
compliance with such regulations.
- 30 -
CONTRACTUAL OBLIGATIONS
The table below outlines our
contractual obligations as at December 31, 2017 in millions of Australian
dollars:
|
|
|
|
|
Remaining Work
|
|
|
Minimum Work
|
|
|
|
|
|
|
Current
|
|
|
Commitment
|
|
|
Commitment
|
|
|
|
|
License
|
|
Phase Expiry
|
|
|
($ million)
|
|
|
(A$ million)
|
|
|
License Term
|
|
PL 18
|
|
July 2020
|
|
$
|
13.9
|
|
|
AUD 5.0
|
|
|
August 2024
|
|
PL 40
|
|
September 2018
|
|
$
|
1.6
|
|
|
AUD 2.0
|
|
|
September 2029
|
|
PL 280
|
|
August 2015
|
|
$
|
0.8
|
|
|
AUD 1.0
|
|
|
August 2031
|
|
ATP 582
|
|
August 2016
|
|
$
|
8.6
|
|
|
AUD 11.0
|
|
|
August 2020
|
|
|
|
|
|
$
|
14.8
|
|
|
AUD 19.0
|
|
|
|
|
OFF-BALANCE SHEET ARRANGEMENTS
Chelsea does not have any
off-balance sheet arrangements.
RELATED PARTY TRANSACTIONS
Concurrent with the acquisition
of the assets in the Surat Basin in Australia, on March 1, 2012 the Company
agreed to pay certain vendors $3.0 million within 12 months and 8.57 million
shares of the Company. The loan was non-interest bearing and was recorded at net
present value of $2,770,084 and is secured by the Surat assets. On March 25,
2013, the Company agreed to amend the terms of the loan so that interest would
accrue at 8% per annum, with interest accruing from September 1, 2012. On
February 28, 2015, the Company and shareholder agreed to extend the loan to
February 28, 2016. At the date of these consolidated financial statements the
shareholder has the right to demand repayment. The debt continues to accrue
interest on the same terms as previously agreed. The Company is in discussions
with the debtholder to further extend maturity of the debt.
On January 9, 2013, the Company
issued 5.0 million warrants to directors, officers and consultants. These
performance warrants have an exercise price of $0.25 per warrant, but are only
exercisable if the share price of the Company exceeds $1.00 per share for ten
consecutive trading days, with a minimum of 100,000 shares traded over the same
period. On January 18, 2015, the Company extended the warrants for two years,
expiring January 18, 2017. All other terms remained the same.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the
consolidated financial statements in conformity with IFRS requires management to
make estimates and use judgment regarding the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as at the date
of the consolidated financial statements and the reported amounts of revenues,
expenses and impairment during the year. By their nature, estimates are subject
to measurement uncertainty and changes in such estimates in future periods could
require a material change in the financial statements. Accordingly, actual
results may differ from the estimated amounts as future confirming events occur.
Significant estimates and judgments made by management in the preparation of
these consolidated financial statements are as follows:
Recoverability of asset
carrying values
The recoverability of development
and production asset carrying values are assessed at a cash generating unit
(CGU) level. Determination of what constitutes a CGU is subject to management
judgments. The asset composition of a CGU can directly impact the recoverability
of the assets included therein. Judgments are required to assess when impairment
indicators exist and impairment testing is required. The key estimates used in
the determination of cash flows from oil and natural gas reserves include the
following:
Reserves Assumptions that are
valid at the time of reserve estimation may change significantly when new
information becomes available. Changes in forward price estimates, production
costs or recovery rates may change the economic status of reserves and may ultimately
result in reserves being restated. The Company has obtained an independently
evaluated reserves report in respect of certain of its assets which is complaint
with the Canadian Securities Administrators National Instrument 51-101:
Standards for Disclosure for Oil and Gas Activities.
- 31 -
Oil and natural gas prices
Forward price estimates are used in the cash flow model. Commodity prices can
fluctuate for a variety of reasons including supply and demand fundamentals,
inventory levels, exchanges rates, weather, and economic and geopolitical
factors.
Discount rate The discount rate
used to calculate the net present value of cash flows is based on estimates of
an approximate industry peer group weighted average cost of capital. Changes in
the general economic environment could result in significant changes to this
estimate.
Depletion and
depreciation
Amounts recorded for depletion
and depreciation and amounts used for impairment calculations are based on
estimates of total proved and probable petroleum and natural gas reserves and
future development capital. By their nature, the estimates of reserves,
including the estimates of future prices, costs and future cash flows, are
subject to measurement uncertainty. Accordingly, the impact to the consolidated
financial statements in future periods could be material.
Market conditions, discovery and
analysis of site conditions and changes in technology. Other provisions are
recognized in the period when it becomes probable that there will be a future
cash outflow.
Share-based compensation
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 the Black-Scholes model
which is based on significant assumptions such as volatility, dividend yield and
expected term. Several compensation plans are also performance based and are
subject to managements judgment as to whether or not performance criteria will
be met.
Deferred 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.
Financial Instruments
A financial instrument is any
contract that gives rise to a financial asset of one party and a financial
liability or equity instrument of another party. A financial asset is any asset
that is (i) cash; (ii) a contractual right to receive cash or another financial
asset from another party; (iii) a contractual right to exchange financial
instruments with another party under conditions that are potentially favourable
to the entity; or (iv) an equity instrument of another entity. A financial
liability is any liability that is a contractual obligation to (i) deliver cash
or another financial asset to another party; or (ii) exchange financial
instruments with another party under conditions that are potentially
unfavourable to the entity. An equity instrument is any contract that evidences
a residual interest in the assets of an entity after deducting all of its
liabilities.
As at December 31, 2017, the
Companys financial instruments are cash, accounts receivable and accounts
payable and accrued liabilities and shareholder loans. The carrying amounts
reflected in the balance sheet are carrying amounts and approximate their fair
values due to the short-term nature and negligible credit losses.
The Company does not use
derivative instruments or hedges to manage risks because the Companys exposure
to credit risk and interest rate risk is insignificant.
- 32 -
ITEM 6. DIRECTORS AND SENIOR MANAGEMENT
6.
A
|
DIRECTORS AND SENIOR
MANAGEMENT
|
The following table sets out the
names and municipalities of residence of the directors and executive officers of
the Corporation, their present position(s) and offices with the Corporation,
their principal occupations during the last five years and their holdings of
Common Shares as at the date hereof.
The term of office of the
directors expires annually at the time of the Corporations annual shareholder
meeting or when or until their successor is duly appointed or elected. The term
of office of the Corporations executive officers expires at the discretion of
the Corporations directors.
Name, Residence
and Position
|
|
Principal Occupation For The Past Five Years
|
|
Director/Officer Since
|
William H. Petrie Sr.
(1)(2)(3)
Cochrane, Alberta Chairman, and
Chief Executive Officer
|
Executive Chairman and a Director of Chelsea since March 1, 2012 and Director of Chelsea Oil Australia Pty since November 2011. Chief Executive Officer of Chelsea since December 1, 2017. Chief Executive Officer and Director of Birch Lake Energy Inc. since December 5, 2007.
|
March 1, 2012 (Director) October 1, 2013 (Executive Chairman)
December 1, 2017 (Chief Executive Officer)
|
|
|
|
Jesse D. Meidl
(1)(2)(3)
Calgary, Alberta
Director
|
Chief Executive Officer of Chelsea from January 2014 to December 1, 2017. Vice President, Finance and Chief Financial Officer of Caithness Petroleum Limited April 2010. Investment Banker with Westwind Partners and Thomas Weisel Partners International from June 2007.
|
March 1, 2012 (Director)
January 30, 2014 – December 1, 2017 (Chief Executive Officer)
|
|
|
|
William H. Petrie, Jr.
(1)(2)(3)
Calgary, Alberta
Chief Exploration Officer, Director
|
Chief Exploration Officer of Chelsea since 2013, Director of Chelsea since December 1, 2017. Former Vice-President Exploration for Windtalker Energy Corp., Former Technical Manager at ENVOI Ltd., UK based firm providing marketing and A&D services.
|
October 1, 2013
December 1, 2017 (Director)
|
Notes:
|
1.
|
Member of the Audit Committee.
|
2.
|
Member of the Corporate Governance and Compensation
Committee.
|
3.
|
Member of the Reserves Committee.
|
Audit Committee Financial
Expert
Our board of directors has
determined that Jesse Meidl possesses specific accounting and financial
management expertise, that he is the audit committee financial expert as defined
by the U.S. Securities and Exchange Commission, and that he is independent
within the meaning of the rules of the NYSE. Our board of directors has also
determined that other members of our audit committee have sufficient experience
and ability in finance and compliance matters to enable them to adequately
discharge their responsibilities.
Cease Trade Orders
To the knowledge of the
Corporation, other than as disclosed below, no director or executive officer is,
as of the date of this Form 20-FA, or was within 10 years prior to the date of
this Form 20-FA, a director, chief executive officer or chief financial officer
of any company (including the Corporation) that: (i) was subject to a cease
trade order, an order similar to a cease trade order or an order that denied the
Corporation access to any exemption under securities legislation and which order
was in effect for a period of more than 30 consecutive days while he was acting
in the capacity as director, chief executive officer or chief financial officer
of such company; or (ii) was subject to any of the foregoing orders for a period
of more than 30 consecutive days after he ceased to be a director, chief
executive officer or chief financial officer of such company and which resulted
from an event that occurred while he was acting in such capacity.
William Petrie Sr. and Jesse
Meidl were each directors of Birch Lake Energy Inc (
Birch Lake
), which
was subject to cease trade orders in the province of Alberta for failure to file
financial statements for the financial year ended December 30, 2014 and
subsequent periods. The Toronto Stock Exchange (
TSX
) delisted Birch
Lakes common shares for failure to meet the continue disclosure obligations of
the TSX on April 5, 2015.
A cease trade order was issued by
the British Columbia Securities Commission (
BCSC
) under Section 164 of
the
Securities Act
(British Columbia) against ITME on February 18, 1999
for failure to file certain continuous disclosure documents. Upon completion of the
Arrangement, such cease trade order applies in the province of British Columbia
to Chelsea. On June 1, 2015, the Corporation announced that the BCSC granted a
full revocation of the cease trade order.
- 33 -
Bankruptcies
To the knowledge of the
Corporation, no director, executive officer or shareholder holding a sufficient
number of securities to affect materially the control of the Corporation, is, as
of the date of this Form 20-FA, or was within 10 years prior to the date of this
Form 20-FA, a director or executive officer of any company that, while such
person was acting in that capacity, or within a year of that person ceasing to
act in that capacity, became bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency or was subject to or instituted any
proceedings, arrangement or compromise with creditors or had a receiver,
receiver-manager or trustee appointed to hold its assets.
To the knowledge of the
Corporation, no director or executive officer of the Corporation, or shareholder
holding a sufficient number of securities to affect materially the control of
the Corporation has, within the 10 years before the date of this Form 20-FA, become bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency, or become subject to or instituted any proceedings, arrangement or
compromise with creditors, or had a receiver, receiver manager or trustee
appointed to hold the assets of the director, executive officer or Shareholder.
Penalties or Sanctions
To the knowledge of the
Corporation, no director or executive officer of the Corporation, or shareholder
holding a sufficient number of securities to affect materially the control of
the Corporation has been subject to any penalties or sanctions imposed by a
court relating to securities legislation or by a securities regulatory authority
or has entered into a settlement agreement with a securities regulatory
authority, or has been subject to any other penalties or sanctions imposed by a
court or regulatory body that would likely be considered important to a
reasonable investor in making an investment decision.
Conflicts of Interest
To the knowledge of the
Corporation, there are no conflicts of interest between the Corporation and its
officers, Board of Directors and senior management.
The remuneration of directors and
key executives is determined by the Board of Directors having regard to the
performance of individuals and market trends. During 2017, 2016 and 2015, the
Company did not incur any salaries and no key management or Director received
any salary or consulting fees.
Each director holds office until
the next annual general meeting of the Company unless his or her office is
earlier vacated in accordance with the Articles of the Company (the Articles)
or the ABCA.
During the most recently
completed fiscal year, there were no arrangements (standard or otherwise) under
which directors of the Company were compensated by the Company or its
subsidiaries for services rendered in their capacity as directors, nor were any
amounts paid to the directors for committee participation or special
assignments. There were no arrangements under which the directors of the Company
would receive compensation or benefits in the event of the termination of that
office.
The current members of the Audit
Committee are Messrs. Meidl (Chairman), Petrie Sr. and Petrie Jr., all of whom
are financially literate and each of Messrs. Meidl and Petrie Jr. are
considered to be independent under NI 52-110. Mr. Petrie Sr. is the Chief
Executive Officer of the Corporation and is therefore not considered to be
independent.
- 34 -
The audit committee is
responsible for selecting, evaluating and recommending the Companys auditors to
the Board of Directors for shareholder approval; evaluating the scope and
general extent of the auditors review; overseeing the work of the auditors;
recommending the auditors compensation to the Board of Directors; and assisting
with the resolution of any disputes between management and the auditors
regarding financial reporting. The audit committee is also responsible for
reviewing the Companys annual and interim financial statements and recommending
their approval to the Board of Directors; reviewing the Companys policies and
procedures with respect to internal controls and financial reporting; and
establishing procedures for dealing with complaints regarding accounting,
internal controls or auditing matters.
The Company does not have any
full-time employees. The Company also engages consultants and professionals on
an as needed basis.
As of the date of this Form 20-FA ,
the Corporations directors and executive officers, including the directors and
officers of the Corporations subsidiaries, as a group beneficially own,
directly or indirectly, or exercise control or direction over, an aggregate of
14,171,400 of the issued and outstanding Common Shares representing 22.1% of the
outstanding Common Shares.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
The following table sets forth
information regarding the beneficial ownership of the common stock of the
Company as of the date of this 20-F, by each of the Companys officers and
directors, each person who is known by the Company to own beneficially more than
5% of the outstanding common stock and all officers and directors of the Company
as a group. The title of the class is common stock, no par value.
|
|
# of Shares
|
|
|
|
|
|
|
Beneficially
|
|
|
Percentage of
|
|
Name and
Address of Stockholder
|
|
Owned
|
|
|
Class
|
|
|
|
|
|
|
|
|
Robert Kamon
|
|
5,012,717
|
|
|
7.72%
|
|
PO Box 1629
|
|
|
|
|
|
|
Cisco TX 76437
|
|
|
|
|
|
|
USA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brisbane Petroleum Ltd.
|
|
4,668,319
|
|
|
7.32%
|
|
65 Burswood Road
|
|
|
|
|
|
|
Burswood WA 6100
|
|
|
|
|
|
|
Australia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ely Sakhai
|
|
3,801,571
|
|
|
5.93%
|
|
10 Windsor Drive
|
|
|
|
|
|
|
Old Westbury NY 11568
|
|
|
|
|
|
|
USA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jesse Meidl
|
|
3,783,900
|
|
|
5.90%
|
|
127 10
th
Avenue NW
|
|
|
|
|
|
|
Calgary, Alberta, Canada T2M 0B4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Petrie, Sr.
|
|
3,700,000
|
|
|
5.78%
|
|
P. O. Box 1359
|
|
|
|
|
|
|
Cochrane, Alberta Canada T4C 1B3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Petrie, Jr.
|
|
3,700,000
|
|
|
5.78%
|
|
P. O. Box 1359
|
|
|
|
|
|
|
Cochrane, Alberta Canada T4C 1B3
|
|
|
|
|
|
|
Note: The stockholders identified
in this table have sole voting and investment power with respect to the shares
beneficially owned by them.
- 35 -
The shareholders listed in the
table above (i) have no rights to acquire additional shares through options,
warrants, rights, or conversion privileges within the next sixty days, and (ii)
do not have voting rights different from other holders of our common shares.
As of the date of this 20-F, 31%
shares of the Companys outstanding common stock were held by 339 holders of
record in the United States, not including The Depository Trust Company (DTC).
As of April 30, 2018, DTC was the holder of record of 16.1 million shares.
7.
|
B RELATED PARTY
TRANSACTIONS
|
Shareholder loans
The Companys shareholder loans
are described in note 8 on the audited consolidated financial statements for the
year ended December 31, 2017. The loans were negotiated between the Company and
the shareholders on terms comparable to arms-length transactions of similar
type. The fair value of the shareholder loans approximates their carrying value
at December 31, 2017 and 2016.
For disclosure about common
shares awarded to directors, see Item 5. Operating and Financial Review and
Prospects Related Party Transactions and Item 6.B Compensation.
7.
|
C INTEREST OF EXPERTS AND
COUNSEL
|
No director, officer or employee
of any of the experts referred to herein is or is expected to be elected,
appointed or employed as a director, officer or employee of Chelsea or of any
associate or affiliate of Chelsea.
ITEM 8. FINANCIAL INFORMATION
8.
A
|
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
INFORMATION
|
Please see Item 18. Financial
Statements for additional information required to be disclosed under this Item.
Please see Item 3. Key
Information, Item 4 Information on the Company and Item 5. Operating and
Financial Review and Prospects for additional information.
ITEM 9. THE OFFER AND LISTING
The principal trading market for
the common equity securities of the Company is the National Association of
Securities Dealers OTC Quotation Board (the
OTCQB
) quotation system
under the symbol COGLF. These quotations reflect inter-dealer prices, without
retail mark-up, mark- down or commissions, and may not represent actual
transactions.
The following table summarizes
the annual high and low market prices for the five most recent full financial
years:
|
|
|
US$
|
|
|
|
|
High
|
|
|
Low
|
|
|
2017
|
|
0.025
|
|
|
0.0003
|
|
|
2016
|
|
0.04
|
|
|
0.01
|
|
|
2015
|
|
0.11
|
|
|
0.01
|
|
|
2014
|
|
0.30
|
|
|
0.04
|
|
|
2013
|
|
0.35
|
|
|
0.04
|
|
- 36 -
The following table summarizes
the quarterly high and low market prices for each full financial quarter over
the two most recent full financial years:
|
|
|
2017
|
|
|
2016
|
|
|
US$
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
1st Quarter
|
|
0.0153
|
|
|
0.0052
|
|
|
0.04
|
|
|
0.01
|
|
|
2nd Quarter
|
|
0.019
|
|
|
0.0026
|
|
|
0.02
|
|
|
0.01
|
|
|
3rd Quarter
|
|
0.0089
|
|
|
0.0003
|
|
|
0.02
|
|
|
0.01
|
|
|
4th Quarter
|
|
0.025
|
|
|
0.0015
|
|
|
0.02
|
|
|
0.01
|
|
The following table summarizes
monthly high and low market prices for each of the most recent six months:
|
|
|
US$
|
|
|
|
|
High
|
|
|
Low
|
|
|
April 2018
|
|
0.075
|
|
|
0.0035
|
|
|
March 2018
|
|
0.01
|
|
|
0.005
|
|
|
February 2018
|
|
0.01
|
|
|
0.005
|
|
|
January 2018
|
|
0.015
|
|
|
0.0035
|
|
|
December 2017
|
|
0.025
|
|
|
0.0035
|
|
|
November 2017
|
|
0.075
|
|
|
0.0015
|
|
The approximate number of
securities holders of record of the Company as at the date of this 20-F was 390
of record, which does not include stockholders whose shares are held in street
or nominee names. We have no outstanding stock options. See Item 5. Operating
and Financial Review and Prospects Warrants for additional information.
9.
B
|
PLAN OF DISTRIBUTION
|
|
|
|
Not applicable.
|
|
|
9.
C
|
MARKET
|
|
|
|
Our common shares are listed on the OTCQB under the
symbol COGLF.
|
|
|
9.
D
|
SELLING SHAREHOLDERS
|
|
|
|
Not applicable.
|
|
|
9.
E
|
DILUTION
|
|
|
|
Not applicable.
|
|
|
9.
F
|
EXPENSES OF THE ISSUE
|
|
|
|
Not applicable.
|
ITEM 10. ADDITIONAL INFORMATION
10.
A
|
SHARE CAPITAL
|
|
|
|
Not applicable.
|
- 37 -
10.
B
|
ARTICLES OF AMALGAMATION
|
The Company is registered under
the ABCA. The Articles do not contain any limitations on the Companys objects
or purposes.
With respect to directors, under
the Articles, a director who is in any way, directly or indirectly, interested
in an existing or proposed contract or transaction with the Company or who holds
any office or possesses any property whereby, directly or indirectly, a duty or
interest might be created to conflict with his or her duty or interest as a
director must disclose the nature and extent of his or her interest in such
contract or transaction or of the conflict or potential conflict with his or her
duty and interest as a director, as the case may be. An interested director can
vote on only a limited number of such matters (securing a loan to the Company, a
contract with an affiliate of which a director is a director or officer, a
contract to subscribe for or underwrite debentures to be issued, a contract
where all other directors are also interested in the contract, compensation of
the directors or insurance or indemnity) provided the interest is disclosed.
Otherwise, even with disclosure of the interest, such a director cannot vote on
a material contract or proposed material contract.
Subject to the ABCA, there is no
restriction in the Articles on the power of the board of directors to have the
Company borrow money, issue debt obligations, secure debt or other obligations
of the Company or give financial assistance to any person. The Articles contain
no provision for the retirement or non-retirement of directors under an age
limit requirement. A director is not required to hold any shares of the Company
in order to be a director.
The Articles provide for the
issuance of an unlimited number of common shares, without par value, and an
unlimited number preferred shares, without par value. All holders of common
shares have equal voting rights (one vote per share), equal rights to dividends
when and if declared, and equal rights to share in assets upon liquidation of
the Company. The common shares are not subject to any redemption or sinking fund
provisions or any purchase or pre-emptive rights. All issued and outstanding
shares are fully paid and non-assessable securities.
The Company may alter the
Articles, by special resolution, to create, define and attach special rights or
restrictions to any common shares as well as to vary or abrogate any special
rights and restrictions attached to any common shares.
An annual meeting of shareholders
must be called by the board of directors not later than 15 months after the last
annual meeting. The directors at any time may call an extraordinary general
meeting of shareholders. Notice of any meeting must be sent in accordance with
the ABCA. All shareholders entitled to vote are entitled to be present at a
shareholders meeting. A quorum is the presence in person or by proxy of the
holders of at least 10% of the issued shares entitled to be voted at the
meeting.
Except under the Investment
Canada Act (the ICA), there are no limitations specific to the rights of
non-Canadians to hold or vote our shares under the laws of Canada or our
organizational documents. The ICA requires a non-Canadian making an investment
which would result in the acquisition of control of a Canadian business, the
gross value of the assets of which exceed certain threshold levels or the
business activity of which is related to Canadas cultural heritage or national
identity, to either notify, or file an application for review with, Investment
Canada, the federal agency created by the ICA. The notification procedure
involves a brief statement of information about the investment on a prescribed
form which is required to be filed with Investment Canada by the investor at any
time up to 30 days after implementation of the investment. It is intended that
investments requiring only notification will proceed without intervention by
government unless the investment is in a specific type of business related to
the scope of the ICA. If an investment is reviewable under the ICA, an
application for review in the prescribed form normally is required to be filed
with Investment Canada before the investment is made and it cannot be
implemented until completion of review and Investment Canada has determined that
the investment is likely to be of net benefit to Canada. If the agency is not so
satisfied, the investment cannot be implemented if not made, or if made, it must
be unwound.
- 38 -
Except as set forth below, no
director or executive officer of the Corporation or a person or company that
beneficially owns, or controls or directs, directly or indirectly, more than ten
percent (10%) of any class or series of voting securities of the Corporation, or
any associate or affiliate of any such person, has had any material interest,
direct or indirect, in any transaction within the three (3) most recently
completed financial years or the current financial year that has materially
affected or is reasonable expected to materially affect the Corporation.
Each of Jesse Meidl, William H.
Petrie, Sr. and William H. Petrie, Jr. were directors, officers and significant
shareholders of 1629518 Alberta Ltd., which company was acquired by Chelsea in
exchange for the issuance of an aggregate of 13,278,571 Common Shares on
February 29, 2012. Concurrently with such acquisition, Chelsea acquired a 100%
Working Interest in PL 18 and 40 and a 50% Working Interest in PL 280 and
completed the Non-Brokered Private Placement. Each of Messrs. Meidl and Petrie,
Sr. were also added to the Board of Directors on such date.
On November 17, 2011, 1629518
Alberta Ltd. (
Newco
), the Company and the registered and beneficial
owners of all the issued and outstanding shares of Newco (the
Newco
Securityholders
) entered into a share exchange agreement (the
Share
Exchange Agreement
). Pursuant to the Share Exchange Agreement, the Company
and the Newco Securityholders exchanged common shares on a one for one basis.
The common shares of the Company that were issued pursuant to the Share Exchange
Agreement were subject to an indefinite hold period in Canada. The Newco
Securityholders were required to surrender the certificates representing their
shares and, in return, were entitled to receive a certificate representing the
Company's common shares. From the date of the Share Exchange Agreement until the
date of closing, the Company had to use its commercially reasonable efforts to
conduct its business in the ordinary course, as well as obtain all necessary
regulatory approvals and financing.
On November 17, 2011, Brisbane
Petroleum Ltd., Delbaere Associates Pty. Limited (both parties together, the
Vendor
), Chelsea Oil Australia Pty Ltd (the
Purchaser
) and the
Company entered into a purchase and sale agreement (the Purchase and Sale
Agreement). Pursuant to the Purchase and Sale Agreement, the Vendor sold and
transferred certain assets to the Purchaser in exchange for the Company issuing
a total of 8,571,429 of its common shares to the Vendor. In order to close the
transaction certain conditions were to be met, including obtaining certain
approvals and consents, passing of certain resolutions and the completing of
financing.
There are currently no
governmental laws, decrees, regulations or other legislation of Canada or the
United States which restrict the import or export of capital or the remittance
of dividends, interest or other payments to non-residents of Canada or the
United States holding our securities, except as otherwise described in this
annual report on Form 20-F under Item 10.E Taxation.
As a result of its Overriding
Royalty Interests attributable to properties outside the United States, the
Company is subject to the imposition of taxes by foreign governments upon the
Companys income derived from such foreign jurisdictions. These taxes are of
various types, with differing tax rates, and are subject to change. Generally,
the Companys income from a foreign jurisdiction will be taxed in the same
manner as that for other companies operating in the jurisdiction, but
discriminatory taxation by a particular jurisdiction may occur. The current
non-resident corporate income tax rate in Australia, for Overriding Royalty
Interests, is 30%.
As a Canadian corporation, the
Company is liable for income taxes under the laws of Canada. Under Canadian law
the Companys Australian-source income is subject to a 25% tax (on Canadian
income). We believe the 30% Australian tax should be a partial credit toward the
payment of the 25% Canadian tax under double taxation treaties between the
countries.
- 39 -
The Company is taxable in the
U.S. on U.S. source income. Because there has been neither U.S. source net
income nor any income effectively connected with a U.S. trade or business, there
have been no U.S. taxes incurred to date.
10.
F
|
DIVIDENDS AND PAYING AGENTS
|
|
|
|
Not applicable.
|
|
|
10.
G
|
STATEMENT BY EXPERTS
|
|
|
|
Not applicable.
|
|
|
10.
H
|
DOCUMENTS ON DISPLAY
|
Any statement in this Form 20-FA about any of our contracts or other documents is not necessarily complete. If
the contract or document is filed as an exhibit to this Form 20-FA, the contract
or document is deemed to modify the description contained in this Form 20-FA. You
must review the exhibits themselves for a complete description of the contract
or document.
We are subject to the information
filing requirements of the Exchange Act, and accordingly are required to file
periodic reports and other information with the SEC. As a foreign private issuer
under the SECs regulations, we file annual reports on Form 20-F and other
reports on Form 6-K. The information disclosed in our reports may be less
extensive than that required to be disclosed in annual and quarterly reports on
Forms 10-K and 10-Q required to be filed with the SEC by U.S. issuers.
Moreover, as a foreign private
issuer, we are not subject to the proxy solicitation or disclosure requirements
under Section 14 of the Exchange Act, and our directors and principal
shareholders are not subject to the insider short swing profit reporting and
recovery rules under Section 16 of the Exchange Act. Our SEC filings are
available at the SECs website at www.sec.gov. You may also read and copy any
document we file with the SEC at the public reference facilities maintained by
the SEC at SEC Headquarters, Public Reference Section, 100 F Street, N.E.,
Washington D.C. 20549. You may obtain information on the operation of the SECs
public reference facilities by calling the SEC at 1-800-SEC-0330.
10.
I
|
SUBSIDIARY INFORMATION
|
|
|
|
Not applicable.
|
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
NON-PRODUCT RELATED MARKET RISK
See Item 5. Operating and
Financial Review and Prospects Quantitative and Qualitative Disclosures About
Market Risks.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
Not applicable.
- 40 -
The notes are an integral part of these consolidated financial
statements.
Amounts recorded for depletion and
depreciation and amounts used for impairment calculations are based on estimates
of total proved and probable petroleum and natural gas reserves and future
development capital. By their nature, the estimates of reserves, including the
estimates of future prices, costs and future cash flows, are subject to
measurement uncertainty. Accordingly, the impact to the consolidated financial
statements in future periods could be material.
Amounts recorded for decommissioning
obligations and the related accretion expense requires the use of estimates with
respect to the amount and timing of decommissioning expenditures. Actual costs
and cash outflows can differ from estimates because of changes in laws and
regulations, public expectations, market conditions, discovery and analysis of
site conditions and changes in technology. Other provisions are recognized in
the period when it becomes probable that there will be a future cash outflow.
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 the Black-Scholes model
which is based on significant assumptions such as volatility, dividend yield and
expected term. Several compensation plans are also performance based and are
subject to managements judgment as to whether or not performance criteria will
be met.
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.
Subsidiaries are entities controlled
by the Company. Control exists when an entity is exposed to, or has rights to
variable returns from its involvement with the entity and has the ability to
affect these returns through its power over the entity. The financial statements
of subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.
Transaction costs that are incurred in
connection with a business combination, other than those costs associated with
the issue of debt or equity securities, or recognized in profit or loss.
The Company conducts many of its oil
and gas production activities through jointly controlled operations and the
consolidated financial statements reflect only the Companys proportionate
interest in such activities. Joint control exists for contractual arrangements
governing the Company's assets whereby the Company has less than 100 per cent
working interest, all of the partners have control of the arrangement
collectively, and spending on the project requires unanimous consent of all
parties that collectively control the arrangement and share the associated
risks. The Company does not have any joint arrangements that are structured
through joint venture arrangements.
Intercompany balances and
transactions, and any unrealized income and expenses arising from intercompany
transactions are eliminated in preparing the consolidated financial statements.
Non-derivative financial instruments
comprise cash and restricted cash, accounts receivable, shareholder loans and
trade and other payables. Non-derivative financial instruments are recognized
initially at fair value. Subsequent to initial recognition non-derivative
financial instruments are measured as described below. Financial assets and
liabilities are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial assets are derecognized when the rights
to receive cash flows from the assets have expired or have been transferred and
the Company has transferred substantially all risks and rewards of ownership.
Financial assets and liabilities are
offset and the net amount is reported when there is a legally enforceable right
to offset the recognized amounts and there is an intention to settle on a net
basis, or realize the asset and settle the liability simultaneously.
Equity instruments including common
shares, options and warrants are classified as equity. Incremental costs
directly attributable to the issue of common shares and share options are
recognized as a deduction from equity, net of any tax effects, if any.
Property, plant and equipment is
stated at cost, less accumulated depletion and depreciation and accumulated
impairment losses. The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing the asset into
operation, the initial estimate of any decommissioning obligation, if any, and,
for qualifying assets, borrowing costs. The purchase price or construction cost
is the aggregate amount paid and the fair value of any other consideration given
to acquire the asset.
Expenditures on major maintenance,
inspections or overhauls are capitalized when the item enhances the life or
performance of an asset above its original standard. Such capitalized oil and
natural gas interests generally represent costs incurred in developing proved
and/or probable reserves and bringing in or enhancing production from such
reserves, and are accumulated on a field or geotechnical area basis. The
carrying amount of any replaced or sold component is derecognized. The costs of
the day-today servicing of property, plant and equipment are recognized in
profit or loss as incurred. Where an asset or part of an asset that was
separately depreciated is replaced and it is probable that future economic
benefits associated with the item will flow to the Company, the expenditure is
capitalized and the carrying amount of the replaced asset is derecognized.
General and administrative costs
associated with property acquisition development activities are capitalized.
The net carrying value of working
interest development and production assets is depleted using the unit of
production method by reference to the ratio of production in the year to the
related proven and probable reserves, taking into account estimated future
development costs necessary to bring those reserves into production. These
estimates are reviewed by independent reserve engineers at least annually.
Natural gas reserves are converted to barrels of oil equivalent based on
relative energy content of 6:1.
For other assets, depreciation is
recognized in profit or loss on a straight-line basis over the estimated useful
lives of each part of an item of property, plant and equipment. Leased assets
are depreciated over the shorter of the lease term and their useful lives unless
it is reasonably certain that the Company will obtain ownership by the end of
the lease term.
The estimated useful lives for other
assets for the current and comparative years are as follows:
Depreciation methods, useful lives and
residual values are reviewed at each reporting date.
Costs incurred subsequent to the
determination of technical feasibility and commercial viability and the costs of
replacing parts of property, plant and equipment are recognized as oil and
natural gas interests only when they increase the future economic benefits
embodied in the specific asset to which they relate. All other expenditures are
recognized in earnings as incurred. Such capitalized oil and natural gas
interests generally represent costs incurred in developing proved and/or
probable reserves and bringing in or enhancing production from such reserves,
and are accumulated on a field or geotechnical area basis. The carrying amount
of any replaced or sold component is derecognized. The costs of the periodic
servicing of property, plant and equipment are recognized in earnings as
incurred.
A financial asset is assessed at each
reporting date to determine whether there is any objective evidence that it is
impaired. A financial asset is considered to be impaired if objective evidence
indicates that one or more events have had a negative effect on the estimated
future cash flows of that asset.
An impairment loss in respect of a
financial asset measured at amortized cost is calculated as the difference
between its carrying amount and the present value of the estimated future cash
flows discounted at the original effective interest rate.
Individually significant financial
assets are tested for impairment on an individual basis. The remaining financial
assets are assessed collectively in groups that share similar credit risk
characteristics.
All impairment losses are recognized
in profit or loss. An impairment loss is reversed when there is a significant
change in the underlying estimates or other objective evidence. For financial
assets measured at amortized cost the reversal is recognized in profit or loss.
Exploration and evaluation assets are
tested for impairment when reclassified to D&P assets or whenever facts and
circumstances indicate potential impairment. Exploration and evaluation assets
are tested separately for impairment or grouped with the associated cash
generating unit. An impairment loss is recognized for the amount by which the
exploration and evaluation expenditures carrying amount exceeds its recoverable
amount.
The carrying amount of D&P assets
are reviewed for impairment when indicators of such impairment exist. If any
indication of impairment exists an estimate of the assets recoverable amount is
calculated. Assets are grouped for impairment assessment purposes at CGU level
at which there are identifiable cash inflows that are largely independent of the
cash inflows of other groups of assets. The recoverable amount of an asset or
CGU is the greater of its fair value less costs of disposal and its value in
use. Where the carrying amount of an asset group exceeds its recoverable amount,
the asset group is considered impaired and is written down to its recoverable
amount. An impairment loss is charged to the statement of comprehensive
loss.
This note presents information about
the Companys exposure to each of the above risks, the Companys objectives,
policies and processes for measuring and managing risk, and the Companys
management of capital. Further quantitative disclosures are included throughout
these consolidated financial statements.
The Board of Directors oversees
managements establishment and execution of the Companys risk management
framework. Management has implemented and monitors compliance with risk
management policies. The Companys risk management policies are established to
identify and analyze the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and adherence to market conditions and
the Companys activities.
The Company's objectives when managing
capital are to safeguard the Company's ability to continue as a going concern
and to maintain a flexible capital structure which will allow it to pursue the
development of its oil and gas properties. Therefore, the Company monitors the
level of risk incurred in its oil and gas property expenditures relative to its
capital structure. The Company considers its capital structure to include
working capital and shareholders' equity. The Company monitors its capital
structure and makes adjustments in light of changes in economic conditions and
the risk characteristics of the underlying assets.
The Company is dependent on external
financing to fund its activities. In order to carry out the planned exploration
and pay for administrative costs, the Company will raise additional amounts to
meet working capital needs. Management reviews its capital management approach
on an ongoing basis and believes that this approach, given the relative size of
the Company, is reasonable. The Company is not subject to any capital
restrictions.
Concurrent with the acquisition of the
assets in the Surat Basin in Australia, on March 1, 2012 the Company agreed to
pay certain vendors $3.0 million within 12 months and 8.57 million shares of the
Company. The loan was non-interest bearing and was recorded at net present value
of $2,770,084 and is secured by the Surat assets.
On March 25, 2013, the Company agreed
to amend the terms of the loan so that interest would accrue at 8% per annum,
with interest accruing from September 1, 2012.
On February 28, 2015, the Company and
shareholder agreed to extend the loan to February 28, 2016. At the date of these
consolidate financial statements the shareholder has the right to demand
repayment. The debt continues to accrue interest on the same terms as previously
agreed. The Company is in discussions with the debtholder to further extend
maturity of the debt.
The Companys property, plant and
equipment is comprised primarily of its overriding royalty interests (Royalty
CGU) in Australia. These interests are currently the Companys only revenue
generating asset.
At December 31, 2017 and 2016, there
were no indicators of impairment identified. As a result no impairment testing
was conducted.
At December 31, 2015, management
identified impairment indicators in its Royalty CGU as a result of a decline in
global commodity prices and significantly reduced access to debt and equity
financings in the exploration and production sector. The recoverable amount of
the CGU was estimated using fair value less costs of disposal based on
comparable market transactions and multiples. It was determined that no
impairment was required as the recoverable amount was higher than the carrying
amount.
Intangible exploration and evaluation
assets consist of the Companys exploration projects which are pending the
determination of proven or probable reserves, or pending the decision by the
Company to elect to proceed with the development of a project.
At December 31, 2017, management
identified impairment indicators in its Georgina and Surat CGUs as a result of
significantly reduced access to debt and equity financings in the Australian
exploration and production sector. The recoverable amounts of the CGUs was
estimated using fair value less costs of disposal based on comparable market
transactions and multiples. The recoverable amount of the Surat CGU was
estimated to be A$1.25 million resulting in an impairment of $6.2 million (A$8.0
million). The recoverable amount of the Georgina CGU was estimated to be $Nil
resulting in an impairment of $3.1 million (A$3.9 million).
The components of the recognized
deferred income tax asset (liability) are as follows:
Deferred tax assets have not been
recognized in respect of the following temporary differences:
Deferred tax assets have not been
recognized in respect of these items because it is not probable that future tax
profit will be available against which the Company can utilize the benefits.