UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2022.
Commission File Number: 000-56354
Alpine Summit Energy Partners, Inc.
(Exact Name of Registrant as Specified in Charter)
2200 HSBC Building
885 West Georgia Street
Vancouver, BC V6C 3E8
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F □ Form 40-F ⊠
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant's "home country"), or under the rules of the home country exchange on which the registrant's securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant's security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALPINE SUMMIT ENERGY PARTNERS, INC. | ||
| (Registrant) | ||
| Date: August 24, 2022 | By: | /s/ Darren Moulds |
| Name: | Darren Moulds | |
| Title: | Chief Financial Officer |
|
EXHIBIT INDEX
ALPINE SUMMIT ENERGY PARTNERS ANNOUNCES
SECOND QUARTER 2022 FINANCIAL AND OPERATING RESULTS
Nashville, Tennessee and Vancouver, British Columbia - August 24, 2022 (Newsfile Corp.) - Alpine Summit Energy Partners, Inc. ("Alpine Summit" or the "Company") (TSXV: ALPS.U) (OTCQX: ASEPF) is pleased to announce its financial and operating results for the three and six months ended June 30, 2022 ("Q2 2022"). All amounts expressed in U.S. dollars unless otherwise stated.
Craig Perry, Chief Executive Officer, remarked: "The second quarter's strong results reflect increased production levels as a result of capital investments we have made over the past year. Based on planned drilling activity through the final quarter, we anticipate achieving another significant increase in production by the close of 2022."
Q2 2022 Highlights
• Maintained average gross production of approximately 14,631 Boe/day for the three months ended June 30, 2022 (Net 13,195 Boe/day), an increase of 48% quarter over quarter and 227% year over year.
• Reported Net Income before Non-Controlling Interest of approximately $9.2 million for the three months ended June 30, 2022 (June 30, 2021 - $24.8 million loss). Adjusted EBITDA1 of approximately $40.9 million for the same period (June 30, 2021 - $3.9 million).
• Successful repayment and reversion of the third development partnership ("DP3") that was formed during the fourth quarter of 2021, along with the concurrent closing of its fifth development partnership ("DP5") in April 2022.
• Closed a new asset backed securitization of certain producing oil and gas wells (the "ABS Facility") with an initial size of $80 million. The ABS Facility charges interest at one-month LIBOR (with a 1.00% floor) plus 6%. As at June 30, 2022, approximately $75.8 million was outstanding on the ABS Facility.
• Paid monthly dividend of $0.03 per Subordinate Voting Share ($3.00 per Multiple Voting Share and $0.03 per Proportionate Voting Share) during each month of the second quarter of 2022.
The following table provides a reconciliation of Net Income/(Loss) before Non-Controlling Interest to Adjusted EBITDA:
| Three Months ended June 30, 2022 |
Three Months ended June 30, 2021 |
Six Months ended June 30, 2022 |
Six Months ended June 30, 2021 |
|||||||||
| Net income/(loss) before non-controlling interest: | $ | 9,221,988 | $ | (24,751,922 | ) | $ | (3,050,990 | ) | $ | (32,978,534 | ) | |
| (+) Depletion and depreciation expense | 9,782,846 | 2,861,427 | 14,381,822 | 6,706,427 | ||||||||
| (+) Finance and interest expense | 15,487,958 | 4,224,249 | 26,036,921 | 5,760,290 | ||||||||
| (+) Stock based compensation expense | 4,229,527 | 9,073,228 | 5,519,670 | 9,073,228 | ||||||||
| (+) Unrealized and realized (gains)/losses on commodity contracts | 2,224,256 | 12,518,507 | 24,375,377 | 25,409,478 | ||||||||
| Adjusted EBITDA | $ | 40,946,575 | $ | 3,925,489 | $ | 67,262,800 | $ | 13,970,889 |
1 This is a non-GAAP financial measure. Refer to the "Non-GAAP Financial Measures" section of this news release for further information and the detailed reconciliation to the most directly comparable measure under IFRS set out above.
2022 Objectives
Based on the current development plan, the Company anticipates bringing an additional 14 to 18 wells online during the second half of 2022. With the significant level of investment activity, the Company is on pace to realize a meaningful increase in its production profile from Q2 2022 levels throughout the balance of the year.
Q2 2022 was the Company's first full quarter of production from wells developed within its Webb County asset base. The well results in the Webb County acreage have exceeded expectations and development of those assets are expected to take increasing priority as the Company moves into 2023.
As previously announced, the Company is in the process of applying for a dual listing on the NASDAQ exchange. While not in its control, the Company continues to work toward completing this process by the end of Q3 2022. In the meantime, the Company anticipates resuming purchases under the approved Normal Course Issuer Bid, as the Board of the Company believes that the current share price fails to reflect the business's underlying value.
Alpine Summit's unaudited condensed interim consolidated financial statements and notes, as well as management's discussion and analysis for the three and six months ended June 30, 2022 will be available under the Company's issuer profile at "www.sedar.com" and "www.sec.gov/edgar", as well as on the Company's website at "www.alpinesummitenergy.com".
About Alpine Summit Energy Partners, Inc.
Alpine Summit is a U.S. based company that operates and develops oil and gas assets. For additional information on the Company, please visit www.alpinesummitenergy.com.
Further Information
For further information, please contact:
Alec Sheaff, Director, Business Development and Investor Relations
Phone: 615.475.8320
Email: asheaff@alpsummit.com
Darren Moulds, Chief Financial Officer
Phone: 403.390.9260
Email: dmoulds@alpsummit.com
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Forward-Looking Information and Statements
This news release contains certain "forward-looking information" within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only Alpine Summit's beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of Alpine Summit's control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates", "believes", or the negative or variations of such words and phrases or may contain statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "will continue", "will occur" or "will be achieved". The forward-looking information and forward-looking statements contained herein may include, but are not limited to, statements related to increased production, including the number of wells anticipated being brought online, the increased production profile and priority of the wells in the Webb County acreage, the NASDAQ listing, and resuming purchases under the NCIB.
By identifying such information and statements in this manner, Alpine Summit is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Alpine Summit to be materially different from those expressed or implied by such information and statements. In addition, in connection with the forward-looking information and forward-looking statements contained in this news release, Alpine Summit has made certain assumptions. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information and statements are the following: the impact of the potential listing on the NASDAQ on relationships, including with regulatory bodies, employees, suppliers, contractors and competitors, as well as the potential for Alpine Summit to fail to either meet the NASDAQ listing standards or ultimately be approved for listing by the NASDAQ; changes in general economic, business and political conditions, including changes in the financial markets; changes in applicable laws; and compliance with extensive government regulation. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although Alpine Summit believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. The forward-looking information and forward-looking statements contained in this news release are made as of the date of this news release, and Alpine Summit does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws.
Non-GAAP Financial Measures
Certain financial measures referred to in this news release are not measures recognized under IFRS and are referred to as non-GAAP financial measures. These non-GAAP measures do not have a standardized meaning and therefore may not be comparable with the calculation of similar measures by other companies. The non-GAAP financial measure included in this news release is "Adjusted EBITDA". This measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. Non-GAAP financial measures are considered to be important factors that assist investors in assessing the Company's performance.
Adjusted EBITDA
Management uses Adjusted EBITDA to measure and track the underlying operating performance of the Company. Presenting these measures from period to period helps management and investors evaluate earnings trends more readily in comparison with results from prior periods. This measure includes net income/(loss) before non-controlling interest with the removal of commodity contract gains/losses and excludes other items which the Company views as "one-time" in nature in order to track the operating performance of the core business and non-cash income or expense items.
Oil and Gas Advisories
The term "boe" means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. "Boe/d" and "boepd" mean barrel of oil equivalent per day.
Alpine Summit Energy Partners, Inc.
(formerly Red Pine Petroleum Ltd.)
Condensed Interim Consolidated Financial Statements
For the three and six months ended June 30, 2022 and 2021
(Unaudited)
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.)
Condensed Consolidated Statements of Financial Position
(amounts in US dollars)(Unaudited)
As at
| June 30, | December 31, | ||||||
| Notes | 2022 | 2021 | |||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash | $ | 23,440,802 | $ | 8,622,815 | |||
| Restricted cash | 1,323,725 | - | |||||
| Accounts receivable | 23,826,378 | 18,797,635 | |||||
| Prepaid expenses | 732,333 | 535,474 | |||||
| 49,323,238 | 27,955,924 | ||||||
| Non-current assets | |||||||
| Right-of-use-assets | 357,254 | 414,076 | |||||
| Exploration and evaluation assets | 5 | 29,566,789 | 24,987,312 | ||||
| Property, plant and equipment (net) | 6 | 168,175,986 | 92,270,130 | ||||
| Total assets | $ | 247,423,267 | $ | 145,627,442 | |||
| LIABILITIES | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued liabilities | $ | 56,990,432 | $ | 48,245,677 | |||
| Current lease obligations | 129,594 | 115,095 | |||||
| Current portion of long-term debt (net) | 8 | 33,255,624 | 7,059,834 | ||||
| Development partnership liabilities | 7 | 94,923,358 | 44,694,643 | ||||
| Corporate credit facility | 9 | 17,000,000 | 2,200,000 | ||||
| Commodity contracts | 23(c) | 12,451,328 | 6,479,508 | ||||
| 214,750,336 | 108,794,757 | ||||||
| Non-current liabilities | |||||||
| Long-term debt (net) | 8 | 40,266,709 | 16,139,307 | ||||
| Asset backed preferred instrument | 11 | - | 18,687,351 | ||||
| Commodity contracts | 23(c) | 2,233,580 | 13,901,672 | ||||
| Long-term lease obligations | 333,198 | 374,848 | |||||
| Deferred tax liability | 19 | 2,832,215 | 2,832,215 | ||||
| Decommissioning liabilities | 10 | 2,842,269 | 1,946,306 | ||||
| 48,507,971 | 53,881,699 | ||||||
| Total liabilities | 263,258,307 | 162,676,456 | |||||
| SHAREHOLDERS' (DEFICIENCY) | |||||||
| Share capital | 12 | $ | 47,765,866 | $ | 43,414,147 | ||
| Capital reserve | 14 | 41,273,020 | 34,459,432 | ||||
| Contributed surplus | 6,291,321 | 5,405,548 | |||||
| Accumulated deficit | (89,501,774 | ) | (81,314,105 | ) | |||
| Equity/(deficiency) attributable to Alpine | |||||||
| Summit Energy Partners, Inc. Shareholders | 5,828,433 | 1,965,022 | |||||
| Non-controlling interest | 14 | (21,663,473 | ) | (19,014,036 | ) | ||
| Total Shareholders' deficiency | (15,835,040 | ) | (17,049,014 | ) | |||
| Total liabilities and Shareholders' equity/(deficiency) | $ | 247,423,267 | $ | 145,627,442 |
Going concern (Note 3(b))
Subsequent events (Note 24)
Approved by the Board:
| "signed" Craig Perry | "signed" Stephen Schaefer |
| Director | Director |
See accompanying notes to the condensed interim consolidated financial statements.
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.)
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
For the three and six months ended June 30, 2022 and 2021
(unaudited)(amounts in US dollars)
| Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
||||||||||
| Notes | |||||||||||||
| Revenue | |||||||||||||
| Revenue from petroleum and natural gas sales | 17 | $ | 77,412,882 | $ | 12,836,239 | $ | 124,452,167 | $ | 32,462,152 | ||||
| Royalties | (21,918,895 | ) | (3,587,815 | ) | (34,940,865 | ) | (8,921,851 | ) | |||||
| 55,493,987 | 9,248,424 | 89,511,302 | 23,540,301 | ||||||||||
| Unrealized gains/(losses) on derivative commodity contracts | 23(c) | 8,064,051 | (8,389,077 | ) | (5,751,522 | ) | (17,570,964 | ) | |||||
| Realized losses on derivative commodity contracts | 23(c) | (10,288,307 | ) | (4,129,430 | ) | (18,623,855 | ) | (7,838,514 | ) | ||||
| Total revenue, net of royalties and derivative commodity contracts | $ | 53,269,731 | $ | (3,270,083 | ) | $ | 65,135,925 | $ | (1,869,177 | ) | |||
| Expenses | |||||||||||||
| Operating and transportation | 9,780,292 | 1,830,431 | 14,339,168 | 3,580,579 | |||||||||
| General and administrative expense | 20 | 4,767,120 | 3,492,504 | 7,909,334 | 5,988,833 | ||||||||
| Stock-based compensation | 15 | 4,229,527 | 9,073,228 | 5,519,670 | 9,073,228 | ||||||||
| Depletion and depreciation expense | 9,782,846 | 2,861,427 | 14,381,822 | 6,706,427 | |||||||||
| Finance income and expense (net) | 18 | 15,487,958 | 4,224,249 | 26,036,921 | 5,760,290 | ||||||||
| Total expenses | 44,047,743 | 21,481,839 | 68,186,915 | 31,109,357 | |||||||||
| Income/(loss) before taxes and non-controlling interest: | $ | 9,221,988 | $ | (24,751,922 | ) | $ | (3,050,990 | ) | $ | (32,978,534 | ) | ||
| Deferred taxes | 19 | - | - | - | - | ||||||||
| Net income/(loss) and comprehensive loss for the period before non-controlling interest | $ | 9,221,988 | $ | (24,751,922 | ) | $ | (3,050,990 | ) | $ | (32,978,534 | ) | ||
| Net income/(loss) and comprehensive loss attributable to non- controlling interest | 2,348,171 | - | (975,842 | ) | - | ||||||||
| Net income/(loss) and comprehensive loss for the period attributable to Alpine Summit Energy Inc. Shareholders | $ | 6,873,817 | $ | (24,751,922 | ) | $ | (2,075,148 | ) | $ | (32,978,534 | ) | ||
| Income/(loss) per share attributable to Alpine Shareholders | |||||||||||||
| Income/(loss) and comprehensive loss per share - basic | 12 | $ | 0.20 | $ | (1.68 | ) | $ | (0.06 | ) | $ | (2.13 | ) | |
| Weighted average number of shares outstanding basic | 12 | 34,084,148 | 14,775,021 | 33,947,937 | 15,514,266 | ||||||||
| Income/(loss) and comprehensive loss per share - diluted | 12 | $ | 0.19 | $ | (1.68 | ) | $ | (0.06 | ) | $ | (2.13 | ) | |
| Weighted average number of shares outstanding diluted | 12 | 35,405,337 | 14,775,021 | 33,947,937 | 15,514,266 |
See accompanying notes to the condensed interim consolidated financial statements.
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.)
Condensed Interim Consolidated Statements of Changes in Members' Equity/(Deficiency)
(amounts in US dollars)
(Unaudited)
| HB2 Member | SVS Shares | MVS Shares | PVS Shares | Contributed | Accumulated | Non-controlling | Total shareholders' | ||||||||||||||||||||||||
| Note | Units | Number | Number | Number | Share Capital | surplus | Capital Reserve | deficit | interest | equity/(deficiency) | |||||||||||||||||||||
| Opening Balance January 1, 2021 | 17,083,501 | - | - | - | $ | 37,097,376 | - | $ | 5,023,375 | $ | (39,757,844 | ) | $ | - | $ | 2,362,907 | |||||||||||||||
| Issuance of member units for cash | 12 | 819,215 | - | - | - | 8,044,700 | - | - | - | - | 8,044,700 | ||||||||||||||||||||
| Issuance of member units exchanged for promissory notes | 12 | 353,870 | - | - | - | 3,475,000 | - | - | - | 3,475,000 | |||||||||||||||||||||
| assets | 356,415 | - | - | - | 3,499,995 | - | - | - | 3,499,995 | ||||||||||||||||||||||
| Issuance of member units to contractors | 12 | 923,954 | - | - | - | 9,073,228 | - | - | - | 9,073,228 | |||||||||||||||||||||
| Redemption of member units | 12 | (3,992,629 | ) | - | - | - | (8,680,786 | ) | - | (11,884,914 | ) | - | (20,565,700 | ) | |||||||||||||||||
| Net loss and comprehensive loss for the period | - | - | - | - | - | - | - | (32,978,534 | ) | - | (32,978,534 | ) | |||||||||||||||||||
| Ending Balance June 30, 2021 | 15,544,326 | - | - | - | $ | 52,509,513 | - | $ | 5,023,375 | $ | (84,621,292 | ) | $ | - | $ | (27,088,404 | ) | ||||||||||||||
| Opening Balance January 1, 2022 | - | 32,535,731 | 10,335.330 | 15,947.292 | $ | 43,414,147 | $ | 5,405,548 | $ | 34,459,432 | $ | (81,314,105 | ) | $ | (19,014,036 | ) | $ | (17,049,014 | ) | ||||||||||||
| Exchange of units for SVS and MVS | 12 | - | 158,686 | (1,586.860 | ) | - | - | - | - | - | - | - | |||||||||||||||||||
| Stock based compensation | 15 | - | - | - | - | - | 5,519,670 | - | - | - | 5,519,670 | ||||||||||||||||||||
| Settlement of RSUs | 12, 14 | - | 1,114,430 | - | - | 4,633,897 | (4,633,897 | ) | 6,813,588 | - | (6,813,588 | ) | - | ||||||||||||||||||
| Repurchase of SVS for cancellation | 12 | - | (44,900 | ) | - | - | (282,178 | ) | - | - | - | - | (282,178 | ) | |||||||||||||||||
| Development partnership redemption for HB2 Origination LL Units | 7, 14 | - | - | - | - | - | - | - | - | 8,286,935 | 8,286,935 | ||||||||||||||||||||
| Dividends declared | 13 | - | - | - | - | - | - | - | (6,112,521 | ) | (3,146,942 | ) | (9,259,463 | ) | |||||||||||||||||
| Net income and comprehensive loss for the period | - | - | - | - | - | - | - | (2,075,148 | ) | (975,842 | ) | (3,050,990 | ) | ||||||||||||||||||
| Ending Balance June 30, 2022 | - | 33,763,947 | 8,748.470 | 15,947.292 | $ | 47,765,866 | $ | 6,291,321 | $ | 41,273,020 | $ | (89,501,774 | ) | $ | (21,663,473 | ) | $ | (15,835,040 | ) |
See accompanying notes to the condensed interim consolidated financial statements.
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.)
Condensed Interim Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2022 and 2021
(unaudited)(amounts in US dollars)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||
| Note | 2022 | 2021 | 2022 | 2021 | |||||||||
| Operating Activities | |||||||||||||
| Net income/(loss) for the period before non-controlling interest |
$ | 9,221,988 | $ | (24,751,922 | ) | $ | (3,050,990 | ) | $ | (32,978,534 | ) | ||
| Items not affecting cash: | |||||||||||||
| Depletion and depreciation expense | 6 | 9,782,846 | 2,861,427 | 14,381,822 | 6,706,427 | ||||||||
| Stock-based compensation | 15 | 4,229,527 | 9,073,228 | 5,519,670 | 9,073,228 | ||||||||
| Deferred taxes | 19 | - | - | - | - | ||||||||
| Accretion expense | 10 | 19,381 | 3,738 | 28,735 | 8,943 | ||||||||
| Interest on lease liability | 3,930 | 1,302 | 7,922 | 1,302 | |||||||||
| Amortization of debt issuance costs | 8 | 1,850,275 | 274,558 | 2,038,268 | 596,299 | ||||||||
| Asset back preferred instrument interest | 11 | 139,293 | 620,443 | 658,047 | 778,382 | ||||||||
| Fair value change on development partnership | 7 | 12,003,751 | 2,654,065 | 20,992,255 | 2,671,972 | ||||||||
| Non cash development partnership exchange | - | - | 84,300 | - | |||||||||
| Unrealized loss on commodity contracts | 23(c) | (8,064,051 | ) | 8,389,077 | 5,751,522 | 17,570,964 | |||||||
| Net change in non-cash working capital | 21 | 24,493,126 | 3,328,536 | (5,107,192 | ) | 4,355,106 | |||||||
| Cash flows from operating activities | 53,680,066 | 2,454,452 | 41,304,359 | 8,784,089 | |||||||||
| Investing Activities | |||||||||||||
| Expenditures on property, plant and equipment | 6 | (28,383,860 | ) | (9,836,725 | ) | (70,657,974 | ) | (14,883,119 | ) | ||||
| Expenditures of exploration and evaluation assets | 5 | (20,034,058 | ) | (3,374,327 | ) | (23,369,431 | ) | (3,469,396 | ) | ||||
| Right of use payments | (35,073 | ) | - | (35,073 | ) | - | |||||||
| Deposits on commodity contract | 23(c) | (6,105,137 | ) | - | (11,447,794 | ) | - | ||||||
| Net change in non cash working capital | 21 | (19,066,196 | ) | 10,278,627 | 8,626,345 | 9,766,389 | |||||||
| Cash flows used in investing activities | (73,624,324 | ) | (2,932,425 | ) | (96,883,927 | ) | (8,586,126 | ) | |||||
| Financing Activities | |||||||||||||
| Issuance of shares for cash | 12 | - | - | - | 8,044,700 | ||||||||
| Dividends paid | 13, 14 | (4,659,842 | ) | 20,231,836 | (9,259,463 | ) | 29,931,836 | ||||||
| Proceeds from development partnerships | 7 | 3,936,375 | (1,875,000 | ) | 41,795,665 | (1,875,000 | ) | ||||||
| Distributions to development partnerships | 7 | (4,272,270 | ) | - | (4,272,270 | ) | - | ||||||
| Proceeds from promissory notes | - | 2,395,000 | - | 3,375,000 | |||||||||
| Proceeds from corporate credit facility | 9 | 4,070,661 | - | 14,800,000 | - | ||||||||
| Proceeds from long-term debt | 8 | 80,000,000 | - | 80,000,000 | - | ||||||||
| Repayment of long-term debt | 8 | (29,275,845 | ) | (5,062,903 | ) | (31,715,076 | ) | (11,417,167 | ) | ||||
| Repayment of asset backed preferred instruments | 11 | (16,284,815 | ) | (4,735,700 | ) | (19,345,398 | ) | (4,735,700 | ) | ||||
| Cash used for share repurchase | 12 | (282,178 | ) | - | (282,178 | ) | - | ||||||
| Net change in non-cash working capital | 21 | - | - | - | (2,881,549 | ) | |||||||
| Cash flows from financing activities | 33,232,086 | 10,953,233 | 71,721,280 | 20,442,120 | |||||||||
| Increase in cash | 13,287,828 | 10,475,260 | 16,141,712 | 20,640,083 | |||||||||
| Cash and restricted cash, beginning of period | 11,476,699 | 13,054,381 | 8,622,815 | 2,889,558 | |||||||||
| Cash and restricted cash, end of period | $ | 24,764,527 | $ | 23,529,641 | $ | 24,764,527 | $ | 23,529,641 | |||||
See accompanying notes to the condensed interim consolidated financial statements.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
1. General business description
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd. ("Red Pine") (the "Company" or "Alpine") was incorporated on July 30, 2008 under the Business Corporations Act (British Columbia) ("BCBCA"). On April 8, 2021, the Company entered into a Business Combination Agreement ("BCA") pursuant to which the Company agreed to complete the BCA with HB2 Origination LLC ("Origination") and change its name to "Alpine Summit Energy Partners, Inc." upon completion of the BCA (refer to Note 2 for a complete description of the BCA).
The Company's registered office is located at 2200 HSBC Building, 885 West Georgia Street Vancouver BC V6C 3E8 and its principal office is located at 3322 West End Ave. Suite 450 Nashville TN, 37203.
These condensed interim consolidated financial statements were approved and authorized for issuance by the Board of Directors of the Company on August 22, 2022.
2. Business Combination Agreement and Finco Financing
On April 8, 2021, Alpine, Origination, Alpine Summit Energy Partners Finco, Inc ("Finco"), Red Pine Petroleum Subco Ltd. ("Subco") and Alpine Summit Energy Investors, Inc. ("Blocker") entered into the BCA pursuant to which the parties agreed to complete a series of transactions to effect a business combination between Alpine and Origination and that resulted in a reverse take-over of Alpine by the members of Origination.
(1) Finco issued subscription receipts for gross proceeds of approximately CDN$7.5 million (Note 12) and "The Finco Financing" later in Note 2;
(2) immediately prior to the closing of the BCA:
(a) Alpine amended its articles to (i) reclassify its common shares as Subordinate Voting Shares ("SVS"), (ii) create a new class of Multiple Voting Shares ("MVS") and a new class of Proportionate Voting Shares ("PVS"), and (iii) change its name from "Red Pine Petroleum Ltd." to "Alpine Summit Energy Partners, Inc.";
(b) each outstanding membership unit of Origination ("Origination Member Unit") would be converted into three membership units of Origination;
(c) the Subscription Receipts converted into Finco Shares, with each holder of a Subordinate Voting Subscription Receipt receiving one Class A Finco Share in exchange therefor and each holder of a Multiple Voting Subscription Receipt receiving one Class B Finco Share in exchange therefor; and
(3) on closing of the BCA:
(a) the Company, Finco and Subco completed a three-cornered amalgamation under the BCBCA pursuant to which all Finco shareholders (including former holders of the Subscription Receipts) exchanged their Class A Finco shares held for SVS or their Class B Finco Shares held for Multiple Voting Shares, as applicable, in each case on a one-for-one basis, and Finco and Subco amalgamated, with the resulting entity ("Amalco") to continue as a wholly-owned subsidiary of Alpine;
(b) Amalco wound up into Alpine, and the assets of Amalco (which consist of the funds invested by the holders of the Subscription Receipts, net of expenses) transferred to the Company by operation of law;
(c) certain U.S. holders of Origination Member Units (other than Blocker) contributed their Origination Member Units to the Company in exchange for MVS on a one-hundred membership units for one MVS basis;
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
(d) certain non-U.S. holders of Origination Member Units contributed their Origination Member Units to the Company in exchange for SVS on a one membership unit for one SVS basis subject to adjustment for any applicable withholding taxes;
(e) each holder of Blocker Shares contributed their Blocker Shares to the Company in exchange for SVS on a one Blocker Share for three SVS basis;
(f) A related party, being an officer, director and shareholder of Origination pre-closing of the BCA, and of Alpine post closing of the BCA, subscribed for 15,947.292 PVS carrying voting rights that would, in the aggregate, represent approximately 32.2% (Note 13 and 14) of the voting rights of the Company upon completion of the BCA on a fully diluted basis for a purchase price equivalent to their estimated fair market value of USD$128,213;
(g) the Company used certain proceeds of the Finco Financing and the membership units of Origination received by it to subscribe for Blocker Shares, following which the proceeds of Finco Financing received by Blocker were contributed to Origination in exchange for membership units of Origination; and
(h) Origination Member Units held by Blocker were re-designated as Class A Voting Units of Origination and Origination Member Units held by other remaining members of Origination were re-designated as Class B Non-Voting Units of Origination.
The reclassification of the common shares of the Company into SVS and the creation of the MVS in connection with the BCA is for the purpose of allowing the Company to maintain its status as a "foreign private issuer" as determined in accordance with Rule 3b-4(c) under the U.S. Exchange Act.
The Finco Financing
On August 18, 2021, Finco completed a brokered private placement of an aggregate of 161,976 subordinate voting subscription receipts at a subscription price of CDN$4.01 per subordinate voting subscription receipt and 17,057 multiple voting subscription receipts at a subscription price of CDN$401.29 per multiple voting subscription receipt for aggregate gross proceeds of approximately CDN$7.5 million (USD$5,995,461). Finco is a special purpose British Columbia company incorporated solely for the purpose of the Finco Financing.
The Finco Financing was completed pursuant to the terms of an agency agreement dated August 18, 2021 among Finco, the Company and Eight Capital ("Agent"), as lead agent and sole bookrunner (the "Agency Agreement"). The subscription receipts are governed by the terms of a subscription receipt agreement (the "Subscription Receipt Agreement") dated August 18, 2021 among Finco, the Agent and Odyssey Trust Company in its capacity as subscription receipt agent.
Each subordinate voting subscription receipt and each multiple voting subscription receipt entitled the holder thereof to receive, upon automatic exchange in accordance with the terms of the Subscription Receipt Agreement, without payment of additional consideration or further act or formality on the part of the holder thereof, one Class A Finco share and one Class B Finco share, respectively, upon the satisfaction or waiver of the escrow release conditions at or before the escrow release deadline. Each Class A Finco share would then be exchanged for one SVS and each Class B Finco share would be exchanged for one MVS upon completion of the BCA.
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
In connection with the Finco financing, the Agent was entitled to receive a cash commission of CDN$26,525 and an advisory fee of CDN$197,500 (collectively, the "Agent's Fees"). On closing of the Finco Financing, the Agent received payment of 50% of the Agent's Fees. The remaining 50% of the Agent's Fees were paid to the Agent upon the satisfaction of the escrow release conditions.
Reverse Takeover
On September 7, 2021, the Company completed the BCA (as described above). As a result of the transaction, the former shareholders of Origination acquired control of the combined Company and, thereby constitutes a reverse takeover of Red Pine by Origination. The BCA is considered a purchase of the Red Pine's net assets by Origination. The transaction is accounted for in accordance with guidance provided in International Financial Reporting Standards 2 ("IFRS") Share-Based Payments.
As Red Pine did not qualify as a business according to the definitions in IFRS 3 - Business Combination, the BCA does not constitute a business combination; rather, it is treated as an issuance of Alpine shares for the net assets of Red Pine and Red Pine's listing status with Alpine as the continuing entity. The resulting condensed interim consolidated financial statements are presented as a continuation of Origination and comparatives figures presented in the condensed interim consolidated financial statements of are those of Origination.
As a part of the reverse takeover, the Company issued 534,384 SVS on September 7, 2021, for total consideration of US$1,697,865 based on the Finco Financing value of CDN$4.01/SVS or US$3.18/SVS, for the Red Pine net assets, which are made up primarily of cash valued at US$396,173. The excess of purchase consideration over net assets acquired resulted in a listing expense of US$1,301,692 and is presented in the consolidated statements of loss and comprehensive loss.
Acquisition related costs totalling $1,567,967 have been excluded from consideration paid and were recognized as transaction costs on the consolidated statements of loss and comprehensive loss for the year ended December 31, 2021, when the costs were incurred.
3. Basis of preparation
(a) Statement of compliance
These condensed interim consolidated financial statements of the Company have been prepared in accordance with International Accounting Standards (IAS) 34, "Interim Financial Reporting", using accounting policies consistent with IFRS as issued by the International Accounting Standards Board (IASB). Certain information and disclosures normally included in the annual financial statements prepared in accordance with IFRS have been condensed or omitted.
The condensed interim consolidated financial statements should be read in conjunction with the Company's audited annual consolidated financial statements as at and for the year ended December 31, 2021, and the notes thereto.
The condensed interim consolidated financial statements have been prepared on a historical cost basis, except as detailed in the accounting policies disclosed in Note 4 of the Company's audited consolidated financial statements for the year ended December 31, 2021. All accounting policies and methods of computation followed in the preparation of these condensed interim consolidated financial statements are consistent with those of the previous financial year.
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
(b) Going concern
These consolidated financial statements have been prepared in accordance with IFRS applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business.
During the six months ended June 30, 2022, the Company generated a net loss and comprehensive loss before non-controlling interest of $3,050,990 (six months ended June 30, 2021 - $32,978,534), and as at that date, the Company had a working capital deficiency of $165,427,098 (December 31, 2021 - working capital deficiency of $80,838,833) and accumulated deficit of $89,501,774 (December 31, 2021 - $81,314,105).
In order to continue operating as a going concern the Company will need to achieve profitable operations and/or secure additional sources of financing in order to satisfy its obligations, including scheduled repayments of long-term debt, as they become due. During the six months ended June 30, 2022, the Company formed three development partnerships to fund a portion of 2022 capital activity which raised approximately $41.8 million (Note 7) and entry into a new debt facility, raising $80 million, which repaid existing debt and the asset backed preferred instrument (Note 8 and 11). Subsequent to June 30, 2022, the Company closed on one additional development partnerships resulting in cash inflows of approximately $7.9 million. Although the Company has been successful in its financing activities to date, additional financing may be required to continue operations and such funding may not be available on terms that are acceptable to the Company.
Due to the factors mentioned above, there is a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern. These interim condensed consolidated financial statements do not include necessary adjustments to reflect the recoverability and classification of recorded assets and liabilities and related expenses that might be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and such adjustments could be material.
(c) Basis of measurement
The condensed interim consolidated financial statements have been prepared on the historical cost basis except as otherwise stated and allowed for in accordance with IFRS.
(d) Functional and presentation currency
These condensed interim consolidated financial statements are presented in US dollars ("$"). The Company's functional currency is Canadian dollars, however, all of the Company's individual subsidiaries have functional currencies in US$ which represents the primary economic environment in which the entities operate.
(e) Management's significant accounting judgements, estimates and assumptions
The preparation of condensed interim financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Judgments made by management in the application of IFRSs that have significant effect on the consolidated financial statements and major sources of assumptions and estimation uncertainty are discussed in the Company's consolidated financial statements for the year ended December 31, 2021.
The global spread of the COVID-19 virus during 2022 and 2021 had a negative impact on the global demand for oil and natural gas and caused significant commodity market volatility. While the increase in domestic vaccination programs and reduced spread of COVID-19 virus has contributed to an improvement in the economy and higher realized prices for commodities, the current price environment remains uncertain as responses to the COVID-19 pandemic and newly emerging variants of the virus continue to evolve. Given the dynamic nature of these events, the Company cannot reasonably estimate the period of time that the COVID-19 pandemic and related market conditions will persist. While the Company uses derivative and risk management instruments to partially mitigate the impact of commodity price volatility, revenues and operating results depend significantly on the prevailing prices for oil and natural gas.
More specifically, assumptions may change that are involved in the estimates of valuation of exploration and
evaluation assets and property, plant and equipment cash generating units, the timing of decommissioning obligations, the fair value of commodity contracts, fair value of development partnerships, the expected credit loss provisions related to accounts receivable as well as liquidity and going concern assessments.
4. Significant accounting policies
All significant accounting policies used in the preparation of these condensed interim consolidated financial statements are described in the Company's consolidated financial statements for the year ended December 31, 2021.
5. Exploration and evaluation ("E&E") assets
| June 30, 2022 | December 31, 2021 | |||||
| Balance, beginning of period | $ | 24,987,312 | $ | 1,243,615 | ||
| Additions | 23,369,431 | 20,243,702 | ||||
| Acquisition for members units (Note 12) | - | 3,499,995 | ||||
| Transfers (Note 6) | (18,789,954 | ) | - | |||
| Balance, end of period | $ | 29,566,789 | $ | 24,987,312 |
E&E assets consist of undeveloped lands, unevaluated seismic data and unevaluated drilling and completion costs and associated decommissioning costs on the Company's exploration projects which are pending the determination of proved reserves. Transfers are made to property, plant and equipment ("PP&E") as proved reserves are determined and technical feasibility and commercial viability is established. E&E assets are expensed due to uneconomic drilling and completion activities and lease expiries.
Additions during the six months ended June 30, 2022, and year ended December 31, 2021, mainly relate to undeveloped lands and drilling costs on wells without assigned proved reserves prior to their transfer to property, plant and equipment.
The Company reviews many factors when determining if an impairment test should be performed. As at June 30, 2022 and December 31, 2021, the Company conducted an assessment of impairment indicators for the Company's exploration and evaluation assets and noted no impairment indicators were present.
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
6. Property, plant and equipment
| Cost | June 30, 2022 | December 31, 2021 | ||||
| Balance, beginning of period | 110,205,126 | 56,955,325 | ||||
| Additions | 70,657,974 | 52,187,091 | ||||
| Acquisitions | - | - | ||||
| Transfers from E&E assets (Note 5) | 18,789,954 | - | ||||
| Decommissioning obligations (Note 9) | 867,228 | 1,062,710 | ||||
| Disposal | (84,300 | ) | - | |||
| Balance, end of period | 200,435,982 | 110,205,126 | ||||
| Accumulated depletion and impairment | June 30, 2022 | December 31, 2021 | ||||
| Balance, beginning of period | (17,934,996 | ) | (1,292,996 | ) | ||
| Depletion | (14,325,000 | ) | (16,642,000 | ) | ||
| Balance, end of period | (32,259,996 | ) | (17,934,996 | ) | ||
| Carrying amount | 168,175,986 | 92,270,130 |
Depletion
The depletion calculation for the six months ended June 30, 2022, includes estimated future development costs of $264,995,000 (year ended December 31, 2021 - $324,295,000) associated with the development of the Company's proved plus probable reserves included in property, plant and equipment.
Impairment
The Company assesses many factors when determining if an impairment test should be performed. For the six months ended June 30, 2022 and year ended December 31, 2021, the Company assessed impairment indicators for the Company's cash generating unit and noted no indicators of impairment were present.
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
7. Development Partnership liabilities
The Company, through its subsidiary, Origination, sponsors and manages development programs to participate in its drilling initiatives and accelerate its growth. Most of Origination's drilling programs are limited partnerships structured to minimize drilling risks on repeatable prospects and optimize tax advantages for private investors. At the commencement of operations, Origination assigns drilling rights for specified wells to an operating partnership.
i) Development Partnership 1
During the first quarter of 2021, the Company formed Development Partnership 1 ("DP1") with 13 external limited partners and Origination as a limited partner and the general partner. The intention of the DP1 was to finance the drilling and completion of 5 wells, with the external partners funding approximately 60% and the Company funding 40%. The Company raised $13,140,240 from external limited partners of which $1,366,709 was raised from officers and directors of the Company. Investors chose to receive DP Units that distribute profits either based on a Flat payout option or an IRR based payout option. Investors participated as to $3,243,728 in Flat Payout units and $9,896,512 in IRR based payout units. Flat Payout Units participated in 75% of the income of the DP (along with IRR based Payout Units) until that income equaled their invested capital and thereafter participated in 20% of the income of the DP1 (along with IRR based Payout Units). IRR Based Payout Units participated in 75% of the income of the DP1 (along with Flat Payout Units) until that income equaled their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever was greater and thereafter participated in 6% of the income of the DP1 (along with Flat Payout Units). The Company would receive 25% of the income of the DP1 before payout and received 80% and 94% of the income related to Flat and IRR based payout Units respectively after payout. During the year ended December 31, 2021, the Company distributed $1,853,127 to external partners.
After payout, the external limited partners had a put right to effectively put their DP1 units (with ongoing rights to 20% and 6% of the income generated by the DP1) back to the Company for either i) Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company) or ii) cash, subject to certain restrictions, and with the number of shares or cash to be distributed to be calculated based on future net present values of the oil and gas reserves of the DP.
On October 7, 2021, the Company repaid and paid out the reversion of DP1. As part of the completion of the DP1 program, the Company retired liabilities of $15,288,594.
One of the DP1 partners exercised the put right provided to such partners by DP1 regarding residual interests in their associated investment and, elected to exchange the remaining interest in DP1 for 339,372 Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company, having a deemed value of US$3.515 per unit, or a total of $1,192,893 (Note 12)).
Fair value was determined by present valuing the expected cash flows to be received by the unit holders at a discount rate of 15%.
ii) Development Partnership 2
During the third quarter of 2021, the Company formed Development Partnership 2 ("DP2") with 25 external limited partners and Origination as a limited partner and the general partner. The intention of the DP2 was to finance the drilling and completion of 5 wells, with the external partners funding approximately 60% and the Company funding 40%. The Company raised $20,815,329 from external limited partners of which $1,724,967 was raised from officers and directors of the Company. Investors chose to receive DP Units that distribute profits either based on a Flat payout option or an IRR based payout option. Investors had participated as to $7,390,362 in Flat Payout units and $13,424,967 in IRR based payout units. Flat Payout Units participated in 75% of the income of the DP2 (along with IRR based Payout Units) until that income equaled their invested capital and thereafter participated in 20% of the income of the DP2 (along with IRR based Payout Units). IRR Based Payout Units participated in 75% of the income of the DP2 (along with Flat Payout Units) until that income equaled their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever was greater and thereafter participated in 6% of the income of the DP2 (along with Flat Payout Units). The Company received 25% of the income of the DP2 before payout and received 80% and 94% of the income related to Flat and IRR based payout Units respectively after payout. During the year ended December 31, 2021, the Company distributed $4,535,743 to external partners.
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
After payout, the external limited partners also had a put right to effectively put their DP2 units (with ongoing rights to 20% and 6% of the income generated by the DP2) back to the Company for either i) Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company) or ii) cash, subject to certain restrictions, and with the number of shares or cash to be distributed to be calculated based on future net present values of the oil and gas reserves of the DP.
In January 2022, the Company repaid and paid out the reversion of DP2. As part of the completion of the DP2 program, the Company retired liabilities of $23,511,818.
Ten of the DP2 partners exercised the put right provided to such partners by DP2 regarding residual interests in their associated investment and, elected to exchange the remaining interest in DP2 for 826,063 Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company, having a deemed value of US$3.825 per unit, or a total of $3,159,706 (Note 12)). Two of the DP2 partners elected to retain their ongoing rights of working interest in the DP2 wells and as a result, the fair value of their liability related to working interest was settled with an offset a disposition from PP&E (Note 6).
Fair value was determined by present valuing the expected cash flows to be received by the unit holders at a discount rate of 15%.
iii) Development Partnership 3
During the fourth quarter of 2021, the Company formed Development Partnership 3 ("DP3") with 23 external limited partners and Origination as a limited partner and the general partner. The intention of the DP3 was to finance the drilling and completion of 5 wells, with the external partners funding approximately 60% and the Company funding 40%. The Company raised $21,182,826 from external limited partners of which $4,032,612 was raised from officers and directors of the Company. Investors chose to receive DP Units that distributed profits either based on a Flat payout option or an IRR based payout option. Investors participated as to $10,413,322 in Flat Payout units and $10,769,504 in IRR based payout units. Flat Payout Units participated in 75% of the income of the DP3 (along with IRR based Payout Units) until that income equaled their invested capital and thereafter participated in 20% of the income of the DP3 (along with IRR based Payout Units). IRR Based Payout Units participated in 75% of the income of the DP3 (along with Flat Payout Units) until that income equaled their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever was greater and thereafter participated in 6% of the income of the DP3 (along with Flat Payout Units). The Company received 25% of the income of the DP3 before payout and received 80% and 94% of the income related to Flat and IRR based payout Units respectively after payout.
After payout, the external limited partners also had a put right to effectively put their DP3 units (with ongoing rights to 20% and 6% of the income generated by the DP3) back to the Company for either i) Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company) or ii) cash, subject to certain restrictions, and with the number of shares or cash to be distributed to be calculated based on future net present values of the oil and gas reserves of the DP3.
In April 2022, the Company repaid and paid out the reversion of DP3. As part of the completion of the DP3 program, the Company retired liabilities of $30,171,337.
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
Twelve of the DP3 partners exercised the put right provided to such partners by DP3 regarding residual interests in their associated investment and, elected to exchange the remaining interest in DP3 for 894,929 Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company, having a deemed value of US$5.70 per unit, or a total of $5,127,229 (Note 12)).
Fair value was determined by present valuing the expected cash flows to be received by the unit holders at a discount rate of 15%.
iv) Development Partnership 4
During the first quarter of 2022, the Company formed Development Partnership 4 ("DP4") with 29 external limited partners and Origination as a limited partner and the general partner. The intention of DP4 is to finance the drilling and completion of 5 wells, with the external partners funding approximately 60% and the Company funding 40%. The Company has raised $25,225,079 from external limited partners of which $1,484,256 was raised from officers and directors of the Company. Investors can choose to receive DP Units that distribute profits either based on a Flat payout option or an IRR based payout option. Investors have participated as to $11,638,948 in Flat Payout units and $13,586,130 in IRR based payout units. Flat Payout Units will participate in 75% of the income of the DP4 (along with IRR based Payout Units) until that income equals their invested capital and thereafter will participate in 20% of the income of the DP4 (along with IRR based Payout Units). IRR Based Payout Units will participate in 75% of the income of the DP4 (along with Flat Payout Units) until that income equals their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever is greater and thereafter will participate in 6% of the income of the DP4 (along with Flat Payout Units). The Company will receive 25% of the income of the DP4 before payout and will receive 80% and 94% of the income related to Flat and IRR based payout Units respectively after payout.
After payout, the external limited partners will also have a put right to effectively put their DP4 units (with ongoing rights to 20% and 6% of the income generated by the DP4) back to the Company for either i) Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company) or ii) cash, subject to certain restrictions, and with the number of shares or cash to be distributed to be calculated based on future net present values of the oil and gas reserves of the DP4.
The Company, through the structure of the DP4, will maintain control of the DP4 and will continue to consolidate 100% of the operations of the DP4.
The Company has categorized the development partnership liability as current based on the anticipated timing of repayments. For the three and six months ended June 30, 2022, an increase in the DP4 liability of $12,003,751 was recorded related to the change in fair value of the liability, with a corresponding increase to finance expense (Note 18).
Refer to Note 24 for Subsequent Events.
v) Development Partnership Red Dawn 1
During the first quarter of 2022, the Company formed Development Partnership Red Dawn ("Red Dawn 1") with 37 external limited partners and Origination as a limited partner and the general partner. The intention of Red Dawn 1 is to finance the drilling and completion of 5 wells, with the external partners funding approximately 60% and the Company funding 40%. The Company has raised $30,269,097 from external limited partners of which $778,836 was raised from officers and directors of the Company. Investors can choose to receive Red Dawn 1 Units that distribute profits either based on a Flat payout option or an IRR based payout option. Investors have participated as to $16,692,201 in Flat Payout units and $13,576,896 in IRR based payout units. Flat Payout Units will participate in 75% of the income of Red Dawn 1 (along with IRR based Payout Units) until that income equals their invested capital and thereafter will participate in 20% of the income of Red Dawn 1 (along with IRR based Payout Units). IRR Based Payout Units will participate in 75% of the income of Red Dawn 1 (along with Flat Payout Units) until that income equals their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever is greater and thereafter will participate in 6% of the income of Red Dawn 1 (along with Flat Payout Units). The Company will receive 25% of the income of Red Dawn 1 before payout and will receive 80% and 94% of the income related to Flat and IRR based payout Units respectively after payout.
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
After payout, the external limited partners will also have a put right to effectively put their Red Dawn 1 units (with ongoing rights to 20% and 6% of the income generated by Red Dawn 1) back to the Company for either i) Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company) or ii) cash, subject to certain restrictions, and with the number of shares or cash to be distributed to be calculated based on future net present values of the oil and gas reserves of Red Dawn 1.
The Company, through the structure of Red Dawn 1, will maintain control of Red Dawn 1 and will continue to consolidate 100% of the operations of Red Dawn 1.
The Company has categorized the development partnership liability as current based on the anticipated timing of repayments. For the three and six months ended June 30, 2022, there was no increase in the liability related to the change in fair value of the liability as no associated drilling or reserve results were completed.
vi) Development Partnership 5
During the second quarter of 2022, the Company formed Development Partnership 5 ("DP5") with 25 external limited partners and Origination as a limited partner and the general partner. The intention of DP5 is to finance the drilling and completion of 5 wells, with the external partners funding approximately 60% and the Company funding 40%. The Company has raised $30,171,337 from external limited partners of which $4,308,462 was raised from officers and directors of the Company. Investors can choose to receive DP5 Units that distribute profits either based on a Flat payout option or an IRR based payout option. Investors have participated as to $19,657,923 in Flat Payout units and $10,513,413 in IRR based payout units. Flat Payout Units will participate in 75% of the income of DP5 (along with IRR based Payout Units) until that income equals their invested capital and thereafter will participate in 20% of the income of DP5 (along with IRR based Payout Units). IRR Based Payout Units will participate in 75% of the income of DP5 (along with Flat Payout Units) until that income equals their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever is greater and thereafter will participate in 6% of the income of DP5 (along with Flat Payout Units). The Company will receive 25% of the income of DP5 before payout and will receive 80% and 94% of the income related to Flat and IRR based payout Units respectively after payout.
After payout, the external limited partners will also have a put right to effectively put their DP5 units (with ongoing rights to 20% and 6% of the income generated by DP5) back to the Company for either i) Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company) or ii) cash, subject to certain restrictions, and with the number of shares or cash to be distributed to be calculated based on future net present values of the oil and gas reserves of DP5.
The Company, through the structure of DP5, will maintain control of DP5 and will continue to consolidate 100% of the operations of DP5.
The Company has categorized the development partnership liability as current based on the anticipated timing of repayments. For the six months ended June 30, 2022, there was no increase in the liability related to the change in fair value of the liability as no associated drilling or reserve results were completed.
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Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
8. Long-term debt
a. Asset backed securitization facility
On April 27, 2022 the Company entered into an asset backed securitization of certain producing oil and gas wells (the "ABS Facility"). The ABS Facility is led by an insurance company and has an initial size of $80 million with additional capacity to expand up to $150 million in total.
All borrowings under the facility are secured by working interests in a subset of the Company's producing assets, which are held by a subsidiary of its operating subsidiary, HB2 Origination, LLC. The ABS Facility carries an interest rate of LIBOR+6% (with a 1% LIBOR floor) for the initial year, LIBOR +12% for the second year and an ultimate maturity date of May 2024. Interest payments are required monthly. As at June 30, 2022, the Company had $75,883,970 outstanding under the ABS Facility.
The Company's subsidiaries have certain financial covenants under the ABS Facility, including maintaining a debt service coverage ratio of no less that 1.1 to 1.0.
Under the terms of the ABS Facility, the Company is also required to;
i) As at the initial borrowing date, enter into certain forward commodity swap contracts included in Note 23 (c)(i) which it has done.
ii) Maintain an interest reserve account that will hold a cash balance sufficient to cover three months of scheduled interest payments.
Repayments of principal required under the ABS Facility are as follows:
| June 30, 2022 | |||
| 2022 | $19,158,643 | ||
| 2023 | 27,403,454 | ||
| 2024 | 29,321,873 | ||
| 2025 | - | ||
| Thereafter | - | ||
| $ | 75,883,970 |
In addition to the required principal repayments outlined above, the Company's subsidiaries could also be required to make additional payments if:
i) if the debt service coverage ratio is less than 1.20 to 1.00, the Company must make an additional principal prepayment equal to net income/(loss) adjusted for all non-cash charges, plus/(minus) working capital not including the current portion of debt under this facility and other adjustments required under the terms of the agreement.
ii) if the production tracking ratio is less than 80%, the Company must make an additional principal prepayment equal to net income/(loss) adjusted for all non-cash charges, plus/(minus) working capital not including the current portion of debt under this facility and other adjustments required under the terms of the agreement.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
iii) if the loan to value is above 85%, the Company must make an additional principal prepayment equal to net income/(loss) adjusted for all non-cash charges, plus/(minus) working capital not including the current portion of debt under this facility and other adjustments required under the terms of the agreement.
At June 30, 2022, the Company was not subject to any other additional principal prepayments.
Details of the loan balances are as follows;
| June 30, 2022 | Current | Long-term | Total | ||||||
| Drawn balance | $ | 34,835,900 | $ | 41,048,070 | $ | 75,883,970 | |||
| Borrowing costs | (1,580,276 | ) | (781,361 | ) | (2,361,637 | ) | |||
| Total | $ | 33,255,624 | $ | 40,266,709 | $ | 73,522,333 |
During the three and six months ended June 30, 2022, the Company recorded amortization of borrowing costs of $179,838 (2021 - $Nil) and interest and finance expense of $1,004,004 (2021 - $Nil) (Note 18).
b. Goldman facility
On December 22, 2020, the Company entered into a credit facility with Goldman Sachs (the "Goldman Facility"). All borrowings under the Goldman Facility were secured by the Company's oil and gas producing wells as well as all assets of three of the Company's subsidiaries. The Goldman Facility carried an interest rate of LIBOR+6% (with a 1% LIBOR floor) and a maturity date of December 22, 2031. Interest payments were required quarterly.
In April 2022, in connection with the ABS Facility (Note 8(a)), the Company repaid the Goldman Facility in full and amortized the remaining unamortized borrowing costs (Note 18).
9. Corporate credit facility
In October 2021, the Company's operating subsidiary Origination closed on a corporate credit facility. The facility had a maximum borrowing capacity of $12.5 million, subject to quarterly borrowing base determinations by the lender. The loan charges interest at prime +2.25% and had a one-year maturity. A subset of certain Company working interests in producing assets have been secured in connection with the corporate credit facility.
During the first quarter of 2022, Origination closed a new corporate credit facility to replace the previous facility. The new corporate credit facility has a total size of $30 million. The corporate credit facility is secured by working interests in a subset of the Company's producing assets and charges interest at the greater of 5.00% and Prime +1.75% and has a one-year maturity.
As at June 30, 2022, the Company had drawn $17,000,000 under the credit facility (December 31, 2021 - $2,200,000), and for the three and six months ended June 30, 2022, incurred $138,070 and $495,834, respectively, of interest and finance expense related to the facility. The borrowing base as at June 30, 2022 was $24,667,080 (December 31, 2021- $6,579,750).
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
10. Decommissioning liabilities
| June 30, 2022 | December 31, 2021 | |||||
| Balance, beginning of period | $ | 1,946,306 | $ | 864,000 | ||
| Liabilities incurred and acquired | 1,146,390 | 1,081,218 | ||||
| Liabilities settled | - | (29,913 | ) | |||
| Accretion (Note 18) | 28,735 | 19,589 | ||||
| Change in estimates | (279,162 | ) | 11,412 | |||
| Balance, end of period | $ | 2,842,269 | $ | 1,946,306 |
The total future decommissioning obligations were estimated based on the Company's net ownership interest in petroleum and natural gas assets including well sites and gathering systems, the estimated costs to abandon and reclaim the petroleum and natural gas assets and the estimated timing of the costs to be incurred in future periods. As at June 30, 2022, the Company estimated the total undiscounted amount of cash flows required to settle its decommissioning obligations to be approximately $1,990,500 (December 31, 2021 $1,326,500) which will be incurred between 2025 and 2050. As at June 30, 2022, an average risk-free rate of 2.96% (December 31, 2021 - 1.92%) and an inflation rate of 5.0% (December 31, 2021 - 4.5%) were used to calculate the decommissioning obligations.
The risk-free rate used in the calculation of the net present value has a significant impact on the carrying value of
decommissioning liabilities. A 1% increase in the risk-free rate at June 30, 2022 would decrease the decommissioning liability by approximately $351,000.
11. Asset backed preferred instrument
On March 5, 2021, Origination executed a Origination Member Units buy back structure, in which a member exchanged 100% of their holdings (3,992,629 Origination Member Units representing approximately 23.4% of the outstanding Origination Member Units at the time) along with a $1,000,000 promissory note for a preferred instrument (23,500,000 LP units) in a newly created limited partnership controlled by the Company ("the LP Units"). Origination was required to redeem 6,670,000 LP Units on or before May 1, 2021 at $0.71 per LP Unit, or before June 1, 2021 at $0.8809 per LP Unit, or before September 1, 2021 at $1.00 per LP Unit or would be considered in default. The remaining 16,830,000 LP Units must be redeemed at $1.00 per LP Unit no later than March 5, 2024. If the remaining 16,830,000 LP Units are not redeemed by this date, the redemption price increases to $1.35 per LP Unit and the Company is considered to be in default. While outstanding, all LP Units earn a fixed rate of return of 12% per annum, which increases to 17% in any event of default. The 6,670,000 LP units were redeemed at $0.71 per LP unit in the second quarter of 2021 for a total amount of $4,735,700.
As a result of the transaction, the Company recorded a reduction to Origination Member Units of $8,680,786 (weighted average issue price to date of $2.17/unit), a reduction in promissory note liability of $1,000,000, a liability at an initial fair value of $21,565,700 and a reduction to accumulated deficit of $11,884,914. The fair value of the liability was determined by discounting the expected cash flows related to the instrument at a market-based rate of 12% per annum.
During the six months ended June 30, 2022, the Company redeemed all of the LP units for $19,345,398, in connection with the ABS Facility (Note 8(a)).
For the three and six months ended June 30, 2022, the Company recorded finance expense related to the outstanding instrument in the amount of $139,293 and $658,047 (June 30, 2021 - $620,443 and $778,382)(Note 18).
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
12. Share Capital
Authorized share capital:
The Company is authorized to issue an unlimited number of Subordinate Voting, Multiple Voting and Proportionate Voting Shares. Subject to certain restriction set out in the Company's articles, each SVS is entitled to one vote per share, each MVS is convertible, at the option of the holder, into 100 SVS and entitles the holder to 100 votes per share and each PVS is convertible into one SVS and entitles the holder to 1,000 votes per share. Each PVS will automatically convert to one SVS upon the holders equity interest in Origination reducing to less than 75% of the interest held on the date of the closing of the BCA.
Issued:
| Origination Member Units |
SVS | MVS | PVS | Amount | ||||||||||||
| Balance at January 1, 2021 | Note | 17,083,501 | - | - | - | $ | 37,097,376 | |||||||||
| Issuance of member units for cash | 12 | 819,215 | - | - | - | 8,044,700 | ||||||||||
| Issuance of member units exchanged for promissory notes | 12 | 353,870 | - | - | - | 3,475,000 | ||||||||||
| Issuance of member units for exploration and evaluation assets | 12 | 356,415 | - | - | - | 3,499,995 | ||||||||||
| Issuance of member units to contractors | 12 | 923,954 | - | - | - | 9,073,228 | ||||||||||
| Redemption of member units | 12 | (3,992,629 | ) | - | - | - | (8,680,786 | ) | ||||||||
| Issuance of member units exchanged for promissory notes | 12 | 234,216 | - | - | - | 2,300,000 | ||||||||||
| Origination Unit split 1:3 | 2 | 31,557,084 | - | - | - | - | ||||||||||
| Allocation of opening non-controlling interest | 14 | (16,168,422 | ) | - | - | - | (18,721,276 | ) | ||||||||
| Shares issued for cash, net of issuance costs of $247,218 | 2 | - | 161,976.000 | 17,057.000 | - | 5,499,832 | ||||||||||
| Exchange of units for SVS and MVS | 2 | (31,167,204 | ) | 1,427,421.000 | 297,397.830 | - | - | |||||||||
| Proportionate Voting Shares issued for cash | 2 | - | - | - | 15,947.292 | 128,213 | ||||||||||
| Shares issued on reverse takeover | 2 | - | 534,384.000 | - | - | 1,697,865 | ||||||||||
| MVS converted to SVS | 12 | - | 30,411,950.000 | (304,119.500 | ) | - | - | |||||||||
| Balance at December 31, 2021 | - | 32,535,731.000 | 10,335.330 | 15,947.292 | $ | 43,414,147 | ||||||||||
| RSU settlement | 12 | - | 1,114,430.000 | - | - | 4,633,897 | ||||||||||
| Repurchase of SVS | 12 | - | (44,900.000 | ) | - | - | (282,178 | ) | ||||||||
| MVS converted to SVS | 12 | - | 158,686.000 | (1,586.860 | ) | - | - | |||||||||
| Balance at June 30, 2022 | - | 33,763,947.000 | 8,748.470 | 15,947.292 | $ | 47,765,866 |
2022 Activity
In January 2022, 1,586.860 MVS were converted into 158,686 SVS on a 100 to 1 basis.
During the six months ended June 30, 2022, 1,114,430 SVS were issued as a result of settling certain restricted share units ("RSU") (Note 15). Previously stock based compensation of $4,633,897 has been removed from contributed surplus and has been reclassified to share capital to reflect the impact of settlement.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
On June 10, 2022, the TSX Venture Exchange approved the Company's normal course issuer bid ("NCIB"). Under the NCIB, the Company may purchase, for cancellation, up to 1,648,783 SVS of the Company (representing approximately 5% of its issued and outstanding SVS as of June 6, 2022) over a 12-month period commencing on June 10, 2022. The NCIB will expire no later than June 9, 2023. During 2022, the Company purchased and cancelled 44,900 SVS at an average price of $6.28/share for an aggregate value of $282,178.
2021 Activity
The Company entered into an agreement, with a third party, to acquire 16,201 net acres in the Eagle Ford formation, located in the Austin, Fayette, Lee and Washington counties of Texas. In exchange for the acreage, the Company issued 203,666 Origination Member Units valued at $2,000,000 ($9.82/Unit).
In addition, the Company issued 152,749 Origination Member Units, valued at $1,499,995 ($9.82/Unit) in exchange for approximately 630 net mineral acreage in Washington county, Texas.
In May of 2021, the Company issued 923,954 Origination Member Units to officers and consultants of the Company for services at an estimated value of $9.82 per Origination Member Unit for total consideration of $9,073,228 in connection with the listing application.
On July 2, 2021, the Company exercised its option to convert all the existing convertible promissory notes ($2,300,000) into 234,216 units ($9.82/unit) of the Company effective as of July 7, 2021.
During the year ended December 31, 2021, 304,119.500 MVS shares were converted into 30,411,950 SVS. During the year ended December 31, 2021, the Company issued 819,215 Origination Member Units for aggregate cash of $8,044,700 ($9.82/unit). In addition, the Company issued 353,870 Origination Member Units in exchange for the retirement of $3,475,000 in promissory notes ($9.82/Unit).
Income / (Loss) per share:
| Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||||
| Net Loss | Shares | Loss per share | Net Loss | Shares | Loss per share | |||||||||||||
| Loss - basic | $ | (2,075,148 | ) | 33,947,937 | $ | (0.06 | ) | $ | (32,978,534 | ) | 15,514,266 | $ | (2.13 | ) | ||||
| Diliutive effect of outstanding awards | - | - | - | - | - | - | ||||||||||||
| Income - diluted | $ | (2,075,148 | ) | 33,947,937 | $ | (0.06 | ) | $ | (32,978,534 | ) | 15,514,266 | $ | (2.13 | ) | ||||
| Three months ended June 30, 2022 | Three months ended June 30, 2021 | |||||||||||||||||
| Net Income | Shares | Income per share | Net Loss | Shares | Loss per share | |||||||||||||
| Income(loss) - basic | $ | 6,873,817 | 34,084,148 | $ | 0.20 | $ | (24,751,922 | ) | 14,775,021 | $ | (1.68 | ) | ||||||
| Diliutive effect of outstanding awards | - | 1,321,189 | - | - | - | - | ||||||||||||
| Income(loss) - diluted | $ | 6,873,817 | 35,405,337 | $ | 0.19 | $ | (24,751,922 | ) | 14,775,021 | $ | (1.68 | ) | ||||||
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
The Company had share purchase options ("Options"), RSU's and deferred share units ("DSUs") outstanding for the three and six months ended June 30, 2022 (June 30, 2021 - none outstanding) (Note 15). The effect of the conversion or exercise of Options, RSU's and DSU's (three months 1,321,189, six months 1,136,744) are included in the three months ended calculation of diluted income per share and excluded for the six months ended as they are anti-dilutive. The Company used an average market price of $5.84 and $5.51 per share, respectively, to calculate the dilutive effect of stock options, RSUs and DSUs outstanding.
The Company's NCI interest, which can be freely converted SVS on a one for basis, would be anti-dilutive and therefore have not been included in the calculation of diluted loss per share (three months 17,746,901, six months 17,454, 806). There was no NCI interest for the same periods of 2021.
13. Dividends
On December 14, 2021, the Company announced that its Board of Directors had declared a dividend distribution policy, beginning in January 2022. Monthly dividends of $0.03 per SVS and $3.00 per MVS were declared and paid for each month ended during the three and six months ended June 30, 2022, with an aggregate distribution of $3,072,977 and $6,112,521, respectively (2021 - $Nil). See Note 24 for additional information.
14. Non-Controlling Interest
2022 Activity
In connection with the BCA (Note 2), certain Origination equity holders elected not to convert their equity holdings in Origination into SVS/MVS of the Company. The non-converting equity holders amount to a 34.467% economic interest in Origination as at June 30, 2022 (December 31, 2021 - 32.954%).
In January 2022, ten of the DP2 partners exercised the put right provided to such partners by DP2 regarding residual interests in their associated investment and elected to exchange the remaining interest in DP2 for 826,063 Class B non-voting units of Origination (Note 7. ii.). As a result, a credit to NCI for the fair value of the put right for DP2 of $3,159,706 was recorded to settle liabilities.
In January 2022, certain RSUs were settled (Note 15) and as a part of the amended and restated LLC agreement between Origination and the Company, an equivalent number of Origination Units were issued. Based on the fair value of shares issued on the date of settlement ($5.00/share), $1,406,250 has been recorded as a decrease to non-controlling interest and a corresponding offset to capital reserve.
In May 2022, twelve of the DP3 partners exercised the put right provided to such partners by DP3 regarding residual interests in their associated investment and elected to exchange the remaining interest in DP3 for 894,929 Class B non-voting units of Origination (Note 7. iii.). As a result, a credit to NCI for the fair value of the put right for DP3 of $5,127,229 was recorded to settle liabilities.
In June 2022, certain RSUs were settled (Note 15) and as a part of the amended and restated LLC agreement between Origination and the Company, an equivalent number of Origination Units were issued. Based on the fair value of shares issued on the date of settlement ($6.49/share), $5,407,338 has been recorded as a decrease to non-controlling interest and a corresponding offset to capital reserve.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
During the first quarter of 2022, the Company declared and paid dividends (Note 13) to shareholders. In connection with the dividend distributions from Origination, non-converting equity holders received their non-controlling interest share totalling $3,146,942, for the six months ended June 30, 2022, resulting in a decrease of non-controlling interest.
For the six months ended June 30, 2022, $975,842, was recorded to reduce net loss on the condensed interim consolidated statements of loss and comprehensive loss, with an offset to NCI, representing NCI share of net loss (2021 - $Nil).
2021 Activity
On closing the BCA, Origination's consolidated book value of net liabilities was $32,968,557, which results in an opening NCI balance of $10,714,781. This NCI balance along with the weighted average stated capital of the equity interests surrendered by the NCI holder of $18,721,276, for a total of $29,436,057, has been credited to capital reserve.
For the 23 days of September 2021 following the closing of the BCA, $3,355,382 was recorded to decrease net loss on the interim consolidated statements of operations and comprehensive loss, with an offset to NCI, representing NCI share of net loss for the 23 day period.
In October 2021, one of the DP1 partners exercised the put right provided to such partners by DP1 regarding residual interests in their associated investment and elected to exchange the remaining interest in DP1 for 339,372 Class B non-voting units of Origination (Note 7. i.). As a result, a credit to NCI, for the fair value of DP1 liabilities settled has been recorded.
For the fourth quarter of 2021, $6,136,766 was recorded to reduce net loss on the consolidated statements of operations and comprehensive loss, with an offset to NCI, representing NCI share for the three-month period.
15. Stock based compensation
During the three and six months ended June 30, 2022, the Company recorded $4,229,527 and $5,519,670, respectively, in stock-based compensation relating to the various incentive plans (discussed below) (June 30, 2021 - three and six months - $9,073,228).
a. Share purchase options
During 2021, the Company's shareholders approved the share purchase option plan. As at June 30, 2022 and December 31, 2021, the Company's options outstanding are as follows:
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
| Stock options outstanding | Weighted average exercise price | |||||
| December 31, 2021 | 2,384,288 | $ | 3.56 | |||
| Granted | - | - | ||||
| Forfeited | - | - | ||||
| Expired | - | - | ||||
| June 30, 2022 | 2,384,288 | $ | 3.56 |
The fair value of each option granted by the Company were estimated on the grant date using the Black-Scholes options pricing model and expensed over the vesting period of the Options.
| June 30, 2022 | December 31, 2021 | |||||
| Fair value of options granted | $ | 2.21 | $ | 2.21 | ||
| Risk-free interest rate | 1.27% | 1.27% | ||||
| Average forfeiture rate | 0.00% | 0.00% | ||||
| Expected life (years) | 5.72 | 5.72 | ||||
| Expected share price volatility | 71.62% | 71.62% | ||||
| Expected dividend yield | 0.00% | 0.00% |
The Company did not issue any Options during the six months ended June 30, 2022 (December 31, 2021 - 2,834,288). For the three and six months ended June 30, 2022, $523,366 and $1,041,109, respectively, was recorded to stock-based compensation (2021 - $Nil).
b. Restricted Share Units
During 2021, the Company's shareholders approved the RSU plan. As at June 30, 2022, the Company's RSUs outstanding are as follows:
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
| Equity settled RSU | |||
| December 31, 2021 | 1,030,221 | ||
| Granted | 1,303,015 | ||
| Forfeited | - | ||
| Settled/released | (1,114,430 | ) | |
| Expired | - | ||
| June 30, 2022 | 1,218,806 |
The Company's RSU grants are valued using the intrinsic value method, utilizing the closing share price on the day before the grant and are expensed over the vesting period for each grant. For the three and six months ended June 30, 2022, $3,706,160 and $4,478,561, respectively, was recorded to stock-based compensation (June 30, 2021 - $Nil).
During the six months ended June 30, 2022, 1,114,430 RSUs were settled and a corresponding issuance of SVS were issued (2021 - Nil). As a result, $4,633,897 was added to Common Stock with a corresponding decrease to contributed surplus in the consolidated statement of changes in shareholders' equity/(deficiency).
16. Key management compensation
The remuneration of the key management personnel of the Company which includes all executive officers is set out below in aggregate:
| Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
|||||||||
| Salaries and bonuses | $ | 2,668,795 | $ | 2,237,568 | $ | 4,033,674 | $ | 2,237,568 | ||||
| Share based compensation (Note 13) | 4,229,527 | 8,230,054 | 5,519,670 | 8,230,054 | ||||||||
| Balance, end of period | $ | 6,898,322 | $ | 10,467,622 | $ | 9,553,344 | $ | 10,467,622 |
For the three and six months ended June 30, 2022, total personnel expenses for all employees and officers including share-based compensation was $7,427,536 and $11,098,126 (June 30, 2021 - $11,450,127 and $12,084,627), respectively, of which $3,198,009 and $5,578,456 (June 30, 2021 - $2,376,899 and $3,011,399) is included in general and administrative expenses and $4,229,527 and $5,519,670 (June 30, 2021 - $9,073,228 and $9,073,288) is included in stock based compensation (Note 15).
17. Revenue from petroleum and natural gas sales
The amount of each significant category of revenue recognized for the three and six months ended June 30, 2022 and 2021 is as follows:
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
| Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
|||||||||
| Crude oil | $ | 46,680,724 | $ | 9,958,516 | $ | 81,802,677 | $ | 20,538,257 | ||||
| Natural gas | 21,324,555 | 1,658,534 | 26,178,240 | 9,588,841 | ||||||||
| Natural gas liquids | 9,407,603 | 1,219,189 | 16,471,250 | 2,335,054 | ||||||||
| $ | 77,412,882 | $ | 12,836,239 | $ | 124,452,167 | $ | 32,462,152 |
18. Finance expenses
The amount of each significant category of finance expense recognized for the three and six months ended June 30, 2022, and 2021 is as follows:
| Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
|||||||||
| Accretion of decommissioning liabilities (Note 10) | $ | 19,381 | $ | 3,738 | $ | 28,735 | $ | 8,943 | ||||
| Interest on asset back preferred liability (Note 11) | 139,293 | 620,443 | 658,047 | 778,382 | ||||||||
| Fair value change in development partnership liabilities (Note 7) | 12,003,751 | 2,654,065 | 20,992,255 | 2,671,972 | ||||||||
| Amortization of debt issuance costs (Note 8) | 2,030,113 | 274,557 | 2,218,106 | 596,299 | ||||||||
| Interest on promissory notes | - | 15,907 | - | 290,908 | ||||||||
| Accretion on lease liability | 3,930 | 1,302 | 7,922 | 1,302 | ||||||||
| Interest on long-term debt (Note 8) | 1,291,490 | 654,237 | 2,131,856 | 1,412,484 | ||||||||
| $ | 15,487,958 | $ | 4,224,249 | $ | 26,036,921 | $ | 5,760,290 |
19. Taxes
Prior to the RTO, Origination was not subject to U.S. income taxes, because, as a limited liability company classified as a partnership for U.S. federal income tax purposes, it was treated as a pass-through entity for income tax purposes, and the members of Origination were subject to income tax with respect to each such members' allocable share of Origination's taxable income. Subsequent to the RTO, while Origination remains classified as a partnership for U.S. federal income tax purposes, the Company is taxed as a United States corporation and is subject to U.S. federal income tax on its allocable share of pass-through taxable income from Origination, any tax balances related to the Company, together with those of the acquired entity, are therefore part of these consolidated financial statements. Any income attributable to Origination's members outside the Company is not reflected in the Company's consolidated statements of financial position and the consolidated statements of loss and comprehensive loss.
The income tax expense (benefit) for the three and six months ended June 30, 2022 is computed based on our estimated annual effective tax rate for the full calendar year. Our estimated annual effect tax rate is 0% and when applied to pre-tax book income results in zero tax expense (benefit) being recorded for the quarter.
Deferred tax assets are recognized only to the extent that it is probable that the assets can be recovered. As at June 30, 2022 and December 31, 2021, the Company has non‐capital loss carry forwards in Canada of CDN$1.9 million which expire between 2029 and 2040 and which were acquired mainly as part of the BCA, for which no deferred tax asset is recognized.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
During the period ended June 30, 2022, no cash income tax was paid.
20. General and administrative expense
The amount of each significant category of general and administrative expenses recognized for the three and six months ended June 30, 2022 and 2021 is as follows:
| Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
|||||||||
| Employee salaries and benefits | $ | 3,198,009 | $ | 2,376,899 | $ | 5,578,456 | $ | 3,011,399 | ||||
| Travel and accommodation | 78,266 | $ | 80,593 | 119,721 | $ | 80,593 | ||||||
| Professional, legal and advisory | 1,158,248 | $ | 740,066 | 1,929,152 | $ | 2,353,162 | ||||||
| Software | 167,127 | $ | 63,346 | 209,259 | $ | 63,346 | ||||||
| Office and administration | 415,470 | $ | 231,600 | 572,746 | $ | 480,333 | ||||||
| G&A recovery | (250,000 | ) | $ | - | (500,000 | ) | $ | - | ||||
| $ | 4,767,120 | $ | 3,492,504 | $ | 7,909,334 | $ | 5,988,833 |
21. Supplemental cashflow information
a. Change in non-cash working capital
| Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
|||||||||
| Change in non-cash working capital: | ||||||||||||
| Accounts receivable | $ | 5,068,720 | $ | 7,415,360 | $ | (5,028,743 | ) | $ | (2,531,450 | ) | ||
| Prepaid assets | 200,097 | 9,386 | (196,859 | ) | (63,881 | ) | ||||||
| Accounts payable and accrued liabilities | 158,113 | 6,182,417 | 8,744,755 | 13,835,277 | ||||||||
| Change in non-cash working capital operating activities | $ | 5,426,930 | $ | 13,607,163 | $ | 3,519,153 | $ | 11,239,946 |
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
| Changes in non-cash working capital related to | Three months ended June 30, 2022 |
Three months ended June 30, 2021 |
Six months ended June 30, 2022 |
Six months ended June 30, 2021 |
||||||||
| Operating activities | $ | 24,493,126 | $ | 3,328,536 | $ | (5,107,192 | ) | $ | 4,355,106 | |||
| Investing activities | (19,066,196 | ) | 10,278,627 | 8,626,345 | 9,766,389 | |||||||
| Financing activities | - | - | - | (2,881,549 | ) | |||||||
| $ | 5,426,930 | $ | 13,607,163 | $ | 3,519,153 | $ | 11,239,946 | |||||
| Cash interest paid | $ | 1,265,911 | $ | 670,144 | $ | 2,065,329 | $ | 1,703,392 | ||||
| Cash taxes paid | $ | - | $ | - | $ | - | $ | - |
Non-cash transactions
In January, 2022, the Company closed DP2 (Note 7) and ten of the DP2 partners exercised their put right provided to such partners by DP2 regarding residual interests in their associated investment and, elected to exchange the remaining interest in DP2 for 826,064 Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for SVS of the Company, having a deemed value of US$3.825 per unit, or a total of $3,159,695 (Note 12)). Three of the DP2 partners elected to retain their ongoing rights of working interest in the DP2 wells and as a result, the fair value of their liability related to working interest was settled with an offset a disposition from PP&E (Note 6).
In May, 2022, the Company closed DP3 (Note 7) and ten of the DP3 partners exercised their put right provided to such partners by DP3 regarding residual interests in their associated investment and, elected to exchange the remaining interest in DP3 for 894,929 Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for SVS of the Company, having a deemed value of US$5.73 per unit, or a total of $5,127,229 (Note 12)).
During the period ended December 31, 2021, the Company issued 356,415 Origination Member Units in exchange for $3,499,995 of exploration and evaluation assets ($9.82/unit) (Note 12).
During the period ended December 31, 2021, the Company issued 353,870 Origination Member Units in exchange for the retirement of promissory notes (Note 12).
During the period ended December 31, 2021, the Company redeemed 3,992,629 Origination Member Units and converted a $1,000,000 promissory note in exchange for an asset backed preferred instrument valued at $21,565,700 (Note 11 and 12).
On July 2, 2021, the Company exercised its option to convert all the existing convertible promissory notes ($2,300,000) into 234,216 units ($9.82/unit) of the Company effective as of July 7, 2021 (Note 12).
22. Related party transactions and balances not disclosed elsewhere in the financial statements
2022
Related Party Transactions Management Services Agreement
In the second quarter of 2021, the Company entered into a new Letter Agreement (the "Letter") with a company related by virtue of common equity holders, directors, and officers. The Letter requires the Company to hire its own employees, obtain its own office lease, and assume certain management obligations. In exchange, the Company is paid an annual fee of $1,000,000 on a quarterly basis. During the three and six months ended June 30, 2022, the Company has been paid $250,000 and $500,000 in cash.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
2021
Related Party Transactions Management Services Agreement
On December 22, 2020, the Company entered into a Management Services Agreement (the "MSA") with a company related by virtue of common equity holders, directors and officers. Under this Agreement, the related Company provided management, finance, operations and administrative services. The Agreement had an initial period of 11 years with a 90 day cancellation notice. The Company was obligated to pay for these services on a quarterly basis amounting to the lesser of; i) $2.00 per produced barrel of oil equivalent (converting natural gas to BOE equivalent of 6:1), and ii) 0.375% of measured assets as defined in the credit agreement. During the twelve months ended December 31, 2021, the Company incurred and paid fees of $287,126 and is included in general and administrative expenses. In the second quarter of 2021, the MSA was effectively terminated by assigning the MSA to one of the Company's subsidiaries, thereby eliminating the requirement to pay any fees going forward as outlined above. In the second quarter of 2021, the Company entered into a new Letter Agreement (the "Letter") with the same related company by virtue of common equity holders, directors and officers. The Letter requires the Company to hire its own employees, obtain its own office lease and assume certain management obligations. In exchange, the Company is paid an annual fee of $1,000,000 on a quarterly basis. During the twelve months ended December 31, 2021, the Company was paid $215,080 via a payroll credit and $451,587 in cash, with a corresponding decrease to general and administrative expenses in the statement of income and loss. The Company has been paid $250,000 for services provided in the first quarter of 2022.
Related party balances
(i) At June 30, 2022, the accounts payable included $53,716 (December 31, 2021 - accounts payable of $120,501) due from a company related by virtue of common equity holders, officers and directors under normal credit terms.
23. Financial instruments and risk management
Risk management:
The Company has exposure to credit risk, liquidity and market risk from its use of financial instruments. This note presents information about the Company's exposure to each of the risks, the Company's objectives, policies and processes for measuring and managing risk, and the Company's management of capital.
The Company's 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 Company's activities.
There were no changes to the Company's risk management policies or processes during the six months ended June 30, 2022.
(a) Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counter-party to a financial instrument fails to meet its contractual obligations. The maximum exposure to credit risk is as follows:
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
| June 30, 2022 | December 31, 2021 | |||||
| Cash | $ | 23,440,802 | $ | 8,622,815 | ||
| Accounts receivable | 23,826,378 | 18,797,635 | ||||
| $ | 47,267,180 | $ | 27,420,450 |
Accounts receivable
The Company's accounts receivable are subject to normal industry credit risk. The Company is the operator of the oil and gas properties. Petroleum and natural gas sales are normally collected by the Company between 30 and 60 days from deliveries. Joint interest receivables are typically collected within one to three months of the joint interest bill being issued to the partner. However, the receivables are due from participants in the oil and gas industry and collection of outstanding amounts can be impacted by industry factors such as commodity price fluctuations, limited capital availability and success of drilling programs.
As at June 30, 2022 and December 31, 2021, the Company's accounts receivable were comprised of the following:
| June 30, 2022 | December 31, 2021 | |||||
| Trade receivables from sales of crude oil and natural gas | $ | 21,244,552 | $ | 18,110,135 | ||
| Joint interest billing receivables and other | $ | 2,581,826 | 687,500 | |||
| Balance, end of period | $ | 23,826,378 | $ | 18,797,635 |
Accounts receivable aging as at June 30, 2022 and December 31, 2021 are as follows:
| June 30, 2022 | December 31, 2021 | ||||||
| Current | $ | 22,312,106 | $ | 15,420,816 | |||
| 31 - 60 days | 1,514,272 | 3,376,819 | |||||
| 61 - 90 | - | - | |||||
| Greater than 90 days | - | - | |||||
| Balance, end of period | $ | 23,826,378 | $ | 18,797,635 | |||
All amounts shown as current and 31 - 60 days aging have been collected subsequent to period end. Amounts greater than 90 days are being pursued by management and the expected credit loss is believed to be insignificant.
Cash
All of the Company's cash is held at four financial institutions as at June 30, 2022 and December 31, 2021. The Company manages its credit exposure to cash, if any, by selecting institutions with high credit ratings.
(b) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities as they become due. The Company's financial liabilities consist of accounts payable and accrued liabilities and promissory notes, all of which are due within a year, commodity contract liabilities which will all be settled over the life of their contract terms (see below), lease liabilities which will be settled over the life of the lease, asset backed preferred instruments which will be repaid based on available cash flows, development partnership liabilities that will be repaid based on cash flows generated by the wells included in the partnership and a credit facility with portions due in the following year. The Company also maintains and monitors a certain level of cash flow which is used to partially finance all operating and capital expenditures. The Company also attempts to match its payment cycle with collection of oil and natural gas sales which are usually collected within 30 to 60 days.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
At June 30, 2022, the Company had negative working capital of $165,427,098. The Company expects to repay its financial liabilities in the normal course of operations and to fund future operational and capital requirements through operating cash flows and through issuance of debt and/or equity.
The Company may need to conduct asset sales, equity issues or issue debt if liquidity risk increases in a given period. Liquidity risk may increase as a result of a change in the amounts settled monthly from the commodity contracts (Note 23 (c)). The Company believes it has sufficient funds to meet foreseeable obligations by actively monitoring its credit facilities through use of the loans/notes, asset sales, coordinating payment and revenue cycles each month, and an active commodity hedge program to mitigate commodity price risk and secure cash flows.
More specifically, in an attempt to increase liquidity, the Company has during and subsequent to the six months ended June 30, 2022: (i) continued its drilling program to increase cash flows from operating activities, (ii) raised significant funds through development partnerships (Note 7 and 24), (iii) entered into a new revolving corporate credit facility (Note 9), and iv) refinanced indebtedness (Note 8 and 11).
The Company is required to meet certain financial covenants under the ABS Facility (Note 9).
The following table details the Company's financial liabilities and their scheduled maturities as at June 30, 2022;
| Carrying value | Contractual cash flow | Less than one year | 1 - 3 years | Greater than 3 years | |||||||||||
| Accounts payable and accrued liabilities | $ | 56,990,432 | $ | 56,990,432 | $ | 56,990,432 | $ | - | $ | - | |||||
| Commodity contracts | 14,684,908 | 14,684,908 | 12,451,328 | 1,414,660 | 818,920 | ||||||||||
| Lease liability | 462,792 | 482,057 | 129,594 | 352,463 | - | ||||||||||
| Corporate credit facility | 17,000,000 | 17,000,000 | 17,000,000 | - | - | ||||||||||
| Development partnerships liabilities | 94,923,358 | 94,923,358 | 94,923,358 | - | - | ||||||||||
| Long term debt | 73,522,333 | 75,883,970 | 34,835,900 | 41,048,070 | - | ||||||||||
| Total | $ | 257,583,823 | $ | 259,964,725 | $ | 216,330,612 | $ | 42,815,193 | $ | 818,920 |
(c) Market risk
Market risk is the risk that changes in market metrics, such as commodity prices, foreign exchange rates and interest rates that will affect the Company's valuation of financial instruments, as well as its net income (loss) and cash flow from operating activities. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while maximizing returns.
i. Commodity price risk
Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for oil and natural gas are impacted by North American and global economic events that dictate the levels of supply and demand. The nature of the Company's operations results in exposure to fluctuations in commodity prices. The Company's production is sold using "spot" pricing with prices fixed at the time of transfer of custody or on the basis of a monthly average market price.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
As at June 30, 2022, the Company had entered into the following risk management contracts to manage commodity price risk:
|
Commodity |
Expiry |
Type |
Fixed Price |
Remaining Notional |
Index |
|
Ethane (gallons) |
Feb 2024 |
Swap |
$0.13 |
2,794,720 |
NGL-Mont Belvieu |
|
Ethane (gallons) |
May 2025 |
Swap |
$0.37 |
6,999,630 |
NGL-Mont Belvieu |
|
Propane (gallons) |
Feb 2024 |
Swap |
$0.45 |
1,718,277 |
NGL-Mont Belvieu |
|
Propane (gallons) |
May 2025 |
Swap |
$1.02 |
4,251,482 |
NGL-Mont Belvieu |
|
Natural gas (gallons) |
Feb 2024 |
Swap |
$0.88 |
1,100,985 |
NGL-Mont Belvieu |
|
Natural gas (gallons) |
May 2025 |
Swap |
$1.80 |
1,586,620 |
NGL-Mont Belvieu |
|
Isobutane (gallons) |
Feb 2024 |
Swap |
$0.49 |
359,533 |
NGL-Mont Belvieu |
|
Isobutane (gallons) |
May 2025 |
Swap |
$1.22 |
800,247 |
NGL-Mont Belvieu |
|
Norbutane (gallons) |
Feb 2024 |
Swap |
$0.50 |
835,983 |
NGL-Mont Belvieu |
|
Norbutane (gallons) |
May 2025 |
Swap |
$1.20 |
1,620,444 |
NGL-Mont Belvieu |
|
Natural gas (mmbtu) |
Feb 2024 |
Swap |
$2.61 |
1,904,433 |
Henry Hub -Nymex |
|
Natural gas (mmbtu) |
May 2025 |
Swap |
$5.45 |
1,043,576 |
Henry Hub -Nymex |
|
Natural gas (mmbtu) |
Aug 2022-May 2023 |
Short |
$3.91-5.17 |
1,560,000 |
Henry Hub -Nymex |
|
Natural gas (mmbtu) |
May 2025 |
Short |
$5.42 |
110,000 |
Henry Hub -Nymex |
|
Crude oil (bbl) |
Aug -Dec 2022 |
Put |
$65.00 |
215,970 |
WTI-Nymex |
|
Crude oil (bbl) |
Aug -Dec 2022 |
Short |
$72.62-88.50 |
24,000 |
WTI-Nymex |
|
Crude oil (bbl) |
Jan -May 2023 |
Short |
$72.00-89.18 |
16,000 |
WTI-Nymex |
|
Crude oil (bbl) |
Jun 2023 |
Call |
$97.00 |
919,000 |
WTI-Nymex |
|
Crude oil (bbl) |
May 2027 |
Swap |
$87.20 |
456,631 |
WTI-Nymex |
|
Crude oil (bbl) |
Dec 2028 |
Swap |
$43.38 |
618,953 |
WTI-Nymex |
(1) remaining notional volumes decrease on a monthly basis until expiry of the contracts
The commodity contracts had a total negative fair value of $14,684,908 at June 30, 2022 (December 31, 2021 - $20,381,180) comprised of a short term commodity contract liability of $12,451,328 (December 31, 2021 - $6,479,508) and long term commodity contract liability of $2,223,580 (December 31, 2021 - $13,901,672). The corresponding unrealized gain/(loss) for the three and six months ended June 30, 2022, was $8,064,051 and ($5,751,522) (June 30, 2021 - loss $8,389,077 and $17,570,964) and is included in the interim condensed consolidated statements of loss and comprehensive loss. Total realized losses on risk management contracts totalled $10,288,307 and $18,623,855 (June 30, 2021 - $4,129,430 and $7,838,514) for the three and six months ended June 30, 2022, and are also included in the consolidated statements of loss and comprehensive loss.
For the six months ended June 30, 2022, a 10% increase/decrease in commodity prices would have a negative/positive impact on net income of approximately $2.4 million.
ii. Interest rate risk
The Company is exposed to interest rate risk in relation to interest expense on its ABS Facility as future cash flow may fluctuate as a result of market interest rates. If interest rates applicable to the facility were to have increased by 100 basis points (1%) it is estimated that the Company's net less for the six months ended June 30, 2022, would have increased by approximately $192,000 (before effect of income taxes) (2021 - $Nil). A decrease in interest rates by 1% would result in an increase in net income by an equivalent amount.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
iii. Foreign currency risk
The Company mainly trades in US dollars which is also its functional currency hence, there is nominal foreign currency exposure.
(d) Capital management
The Company's objectives when managing its capital are to safeguard its ability to continue as a going concern, to meet its capital expenditures for its continued operations, and to maintain a flexible capital structure which optimizes the cost of capital within a framework of acceptable risk. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets.
There has been no change to management's approach to managing capital during the period ended June 30, 2022, with the exception of the addition of development partnership liabilities and asset back preferred instruments to the definition of managed capital.
The Company considers its capital employed to be long-term debt, affiliate loans (if any), development partnership liabilities and asset back preferred instruments and shareholders' equity/(deficiency):
| June 30, 2022 | December 31, 2021 | |||||
| Long-term debt (Note 8) | $ | 73,522,333 | $ | 23,199,141 | ||
| Corporate credit facility (Note 9) | 17,000,000 | $ | 2,200,000 | |||
| Development partnership liabilities (Note 7) | 94,923,358 | 44,694,643 | ||||
| Asset backed preferred instrument (Note 11) | - | 18,687,351 | ||||
| Shareholder's Equity excluding NCI | 5,828,433 | 1,965,022 | ||||
| Capital Employed | $ | 191,274,124 | $ | 90,746,157 |
24. Subsequent events
Dividends declared
On July 1, 2022, the Company's Board of Directors declared a dividend of $0.03 per SVS and $3.00 per MVS, for a total amount of $1,039,642, payable on July 29, 2022, to shareholders of record on the close of business on July 15, 2022.
On August 1, 2022, the Company's Board of Directors declared a dividend of $0.03 per SVS and $3.00 per MVS, for an estimated total amount of $1,039,642, payable on August 31, 2022, to shareholders of record on the close of business on August 17, 2022.
Completion of DP4 and creation of DP6
On July 15, 2022, the Company successfully completed the repayment and reversion of DP4 that it formed during the first quarter of 2022, along with the concurrent closing of its sixth development partnership ("DP6").
DP4 funded the drilling and completion of a total of five wells: three wells in the Giddings Field near Austin, TX and two wells in Webb County, TX; and comprised a total capital program of approximately $42 million, with 60% funded by external partners. As part of the completion of the DP4 program, the Company has retired liabilities of approximately $34.5 million.
Nine of the DP4 partners exercised the put right provided to such partners by DP4 regarding residual interests in their associated investment and, subject to the approval of the TSX Venture Exchange (the "TSXV"), elected to sell their remaining interest in DP4 for 706,975 Class B non-voting units of HB2 Origination, LLC (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company), having a deemed value of US$5.85 per unit (which was calculated with reference to the trailing 30 day share price and the allowable discounts permitted by the policies of the TSXV), or a total of approximately $4.1 million.
|
Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum Ltd.) |
DP6 has an expanded capital program of approximately $56.9 million, with approximately $34.2.million of external development capital, and is expected to continue to develop assets within the Company's existing operational footprint.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis of financial results ("MD&A") is dated August 24, 2022, and should be read in conjunction with Alpine Summit Energy Partners, Inc.'s ("Alpine Summit" or the "Company") (formerly Red Pine Petroleum Ltd.) unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2022 (the "Consolidated Financial Statements") and the audited consolidated year end financial statements. These documents appear under the SEDAR profile of Alpine Summit Energy Partners, Inc. All amounts expressed in U.S. dollars unless otherwise stated.
BASIS OF PRESENTATION
Throughout this MD&A and in other materials disclosed by the Company, Alpine Summit adheres to generally accepted accounting principles ("GAAP"), however the Company also employs certain non-GAAP and other financial measures to analyze financial performance, financial position, and cash flow including, "field netback", "capital expenditures" and "adjusted EBITDA". These non-GAAP and other financial measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other companies. The non-GAAP and other financial measures should not be considered to be more meaningful than GAAP measures which are determined in accordance with IFRS, such as net earnings (loss), cash flow generated by operating activities, and cash flow used in investing activities, as indicators of the Company's performance.
Readers are cautioned that the MD&A should be read in conjunction with the Company's disclosure in the sections entitled "Non-GAAP Measurements" and "Forward-Looking Statements" included at the end of this MD&A.
Financial data presented below has largely been derived from the Consolidated Financial Statements, which were prepared in accordance with International Financial Reporting Standards ("IFRS"). Accounting policies adopted by the Company are referred to in Note 3 to the audited consolidated financial statements for the years ended December 31, 2021, and 2020. The reporting currency is the United States dollar. Comparative information is provided for the three and six months ended June 30, 2021.
Where applicable, natural gas is converted to a barrel of oil equivalent ("Boe") using six thousand cubic feet ("Mcf") of natural gas equal to one barrel of crude oil unless otherwise stated. Boe may be misleading, particularly if used in isolation. A Boe conversion ratio of six Mcf to one barrel ("Bbl") is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Unless otherwise stated, all production volumes and realized product prices information is presented on a "net" basis (after deduction of royalty obligations and non-operated working interest) consistent with IFRS oil and gas reporting standards and thus, may not be comparable to information provided by other entities.
OPERATIONAL AND FINANCIAL RESULTS
Overview
The Company is a United States energy developer and financial company focused on maximizing growth and return on equity. The Company is continuing its drilling activity in the Austin Chalk and Eagle Ford formations in the Giddings and Hawkville (Webb County) Fields. The Austin Chalk directly overlies the oil-sourcing Eagle Ford formation. Oil and gas migrate into the chalk through microfractures which fill the tectonic fractures and porous matrix.
The Company plans to focus on developing its existing and adjacent footprint over the next several years while also evaluating additional development projects that fit its investment criteria. The Company's capital allocation strategy is designed to optimize return on capital and cash flow available for distribution to the Company's shareholders.
Q2 2022 Highlights
• Maintained average gross production of approximately 14,631 Boe/day for the three months ended June 30, 2022 (Net 13,195 Boe/day) an increase of 48% quarter over quarter and 227% year over year.
• Reported Net Income before Non-Controlling Interest of approximately $9.2 million for the three months ended June 30, 2022 (June 30, 2021 - $24.8 million loss). Adjusted EBITDA1 (defined below) of approximately $40.9 million for the same period (June 30, 2021 - $3.9 million).
• Successful repayment and reversion of the third development partnership ("DP3") that was formed during the fourth quarter of 2021, along with the concurrent closing of its fifth development partnership ("DP5") in April 2022.
• Closed a new asset backed securitization of certain producing oil and gas wells (the "ABS Facility") with an initial size of $80 million. The ABS Facility charges interest at one-month LIBOR (with a 1% floor) +6%. As at June 30, 2022, approximately $75.8 million was outstanding on the ABS Facility.
• Paid monthly dividend of $0.03 per Subordinate Voting Share ("SVS") ($3.00 per Multiple Voting Share ("MVS") and $0.03 per Proportionate Voting Share ("PVS") during each month of the second quarter of 2022.
The following table provides a reconciliation of Net Income/(Loss) before Non-Controlling Interest to Adjusted EBITDA:
| Three Months | Three Months | Six Months | Six Months | |||||||||
| ended June 30, | ended June 30, | ended June 30, | ended June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Net income/(loss) before non-controlling interest: | $ | 9,221,988 | $ | (24,751,922 | ) | $ | (3,050,990 | ) | $ | (32,978,534 | ) | |
| (+) Depletion and depreciation expense | 9,782,846 | 2,861,427 | 14,381,822 | 6,706,427 | ||||||||
| (+) Finance and interest expense | 15,487,958 | 4,224,249 | 26,036,921 | 5,760,290 | ||||||||
| (+) Stock based compensation expense | 4,229,527 | 9,073,228 | 5,519,670 | 9,073,228 | ||||||||
| (+) Unrealized and realized (gains)/losses on commodity contracts | 2,224,256 | 12,518,507 | 24,375,377 | 25,409,478 | ||||||||
| Adjusted EBITDA | $ | 40,946,575 | $ | 3,925,489 | $ | 67,262,800 | $ | 13,970,889 |
2022 Objectives
Based on the current development plan, the Company anticipates bringing an additional 14 to 18 wells online during the second half of 2022. With the significant level of investment activity, the Company is on pace to realize a meaningful increase in its production profile from Q2 2022 levels throughout the balance of the year.
_____________________________________
1 This is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section of this MD&A for further information and a detailed reconciliation to the most directly comparable measure under IFRS.
Q2 2022 was the Company’s first full quarter of production from wells developed within its Webb County asset base. The well results in the Webb County acreage have exceeded expectations and development of those assets are expected to take increasing priority as the Company moves into 2023.
As previously announced, the Company is in the process of applying for a dual listing on the NASDAQ exchange. While not in its control, the Company continues to work toward completing this process by the end of Q3 2022. In the meantime, the Company anticipates resuming purchases under the approved Normal Course Issuer Bid, as the Board of the Company believes that the current share price fails to reflect the business’s underlying value.
Subsequent Event Highlights
Refer to subsequent events section below for further discussion.
Results of Operations
Production and Revenue
Average Daily Production (Net)
| Three Months ended June 30, 2022 |
Three Months ended June 30, 2021 |
Period-over- period change |
Six Months ended June 30, 2022 |
Six Months ended June 30, 2021 |
Period-over- period change |
|||||||||||||
| Crude oil (bbls/d) | 4,739 | 1,724 | 3,014 | 4,467 | 1,944 | 2,524 | ||||||||||||
| Natural gas (Mcf/d) | 35,888 | 6,979 | 28,909 | 25,400 | 8,862 | 16,538 | ||||||||||||
| NGLs (bbls/d) | 2,475 | 917 | 1,558 | 2,309 | 942 | 1,367 | ||||||||||||
| Total (Boe/d) | 13,195 | 3,804 | 3,804 | 11,010 | 4,363 | 6,647 | ||||||||||||
| Crude oil weighting | 35.9% | 45.3% | 40.6% | 44.5% | ||||||||||||||
| Natural gas weighting | 45.3% | 30.6% | 38.4% | 33.9% | ||||||||||||||
| NGL weighting | 18.8% | 24.1% | 21.0% | 21.6% |
Production increased for three and six months ended June 30, 2022, as compared to the comparative periods of 2021 due to the addition of ten new wells through the final six months of 2021, and six new wells through the six months ended June 30, 2022.
Revenue from Product Sales 1
| Three Months | Three Months | Six Months | Six Months | |||||||||
| ended June 30, | ended June 30, | ended June 30, | ended June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Crude oil | $ | 46,680,724 | $ | 9,958,516 | $ | 81,802,677 | $ | 20,538,257 | ||||
| Natural gas | 21,324,555 | 1,658,534 | 26,178,240 | 9,588,841 | ||||||||
| NGLs | 9,407,603 | 1,219,189 | 16,471,250 | 2,335,054 | ||||||||
| Total | $ | 77,412,882 | $ | 12,836,239 | $ | 124,452,167 | $ | 32,462,152 | ||||
| % of Total Revenue by Product Type | ||||||||||||
| Crude oil weighting | 60.30% | 77.58% | 65.73% | 63.27% | ||||||||
| Natural gas weighting | 27.55% | 12.92% | 21.03% | 29.54% | ||||||||
| NGL weighting | 12.15% | 9.50% | 13.24% | 7.19% |
1 - before realized gains and losses on risk management contracts.
Revenue from product sales increased for three and six months ended June 30, 2022, as compared to the comparative periods due to the impact of new wells brought online in late 2021 and early 2022 (see below for impact of average selling prices).
Average Selling Prices 1
| Three Months | Three Months | Six Months | Six Months | |||||||||
| ended June 30, | ended June 30, | ended June 30, | ended June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Crude oil - Bbl | $ | 108.25 | $ | 63.47 | $ | 101.16 | $ | 58.38 | ||||
| Natural gas - Mcf | $ | 6.53 | $ | 2.61 | $ | 5.69 | $ | 5.98 | ||||
| NGL - Bbl | $ | 41.77 | $ | 14.61 | $ | 39.41 | $ | 13.69 | ||||
| Per Boe | $ | 64.47 | $ | 37.08 | $ | 62.45 | $ | 41.10 |
1 - before realized gains and losses on risk management contracts.
On a per-Boe basis, the Company's average realized price for the three and six months ended June 30, 2022, increased compared to the same periods of 2021, due to strengthened worldwide commodity prices.
Royalties
| Three Months | Three Months | Six Months | Six Months | |||||||||
| ended June 30, | ended June 30, | ended June 30, | ended June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Charge for the period | $ | 21,918,895 | $ | 3,587,815 | $ | 34,940,865 | $ | 8,921,851 | ||||
| Percentage of revenue from product sales | 28.3% | 28.0% | 28.1% | 27.5% | ||||||||
| Per Boe | $ | 18.25 | $ | 10.36 | $ | 17.53 | $ | 11.30 |
Royalties, as a percentage of revenue from product sales, increased in the three and six months ended June 30, 2022, compared to the same periods in 2021; this is primarily due to changes to the weighted average production from wells with variable royalty rates. The Company anticipates these rates to remain relatively consistent with current results in future periods.
Production and Transportation Costs
| Three Months | Three Months | Six Months | Six Months | |||||||||
| ended June 30, | ended June 30, | ended June | ended June 30, | |||||||||
| 2022 | 2021 | 30, 2022 | 2021 | |||||||||
| Charge for the period | $ | 9,780,292 | $ | 1,830,431 | $ | 14,339,168 | $ | 3,580,579 | ||||
| Percentage of revenue from product sales | 12.6% | 14.3% | 11.5% | 11.0% | ||||||||
| Per Boe | $ | 8.15 | $ | 5.29 | $ | 7.20 | $ | 4.53 |
Total production and transportation costs for the three and six months ended June 30, 2022, increased when compared to the same periods of 2021 due to overall increased production noted above. The increase in production and transportation costs per Boe is due to higher initial operating costs for wells brought online in 2022 (primarily related to higher water disposal, fuel and trucking costs) and overall market increases for service costs (inflation and market availability).
Field Operating Netbacks 1
| Three Months | Three Months | Six Months | Six Months | |||||||||
| ended June 30, | ended June 30, | ended June 30, | ended June 30, | |||||||||
| ($/Boe) | 2022 | 2021 | 2022 | 2021 | ||||||||
| Revenue from product sales | $ | 64.47 | $ | 37.08 | $ | 62.45 | $ | 41.10 | ||||
| Royalties | (18.25 | ) | (10.36 | ) | (17.53 | ) | (11.30 | ) | ||||
| Production costs | (8.15 | ) | (5.29 | ) | (7.20 | ) | (4.53 | ) | ||||
| Field operating netback | $ | 38.07 | $ | 21.43 | $ | 37.72 | $ | 25.27 |
1 - Field operating netback is a non-GAAP financial measure that is not a standardized measure under the IFRS financial reporting framework.
General and Administrative Costs
| Three Months | Three Months | Six Months | Six Months | |||||||||
| ended June 30, | ended June 30, | ended June 30, | ended June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Charge for the period | 4,767,120 | 3,492,504 | 7,909,334 | 5,988,833 | ||||||||
| Percentage of revenue from product sales | 6.2% | 27.2% | 6.4% | 18.4% | ||||||||
| Per Boe | $ | 3.97 | $ | 10.09 | $ | 3.97 | $ | 7.58 |
General and administrative costs for the three and six months ended June 30, 2022, increased as compared to the same periods of 2021 primarily due to employee salaries and benefits, which began in the second half of 2021, and which had previously been compensated under a management service agreement. Offsetting the increase, was a reduction in professional, legal and advisory costs, which was reduced due to lower transaction and contract costs. The reduction in per BOE costs is the result of increased production levels noted above.
Interest and Finance Costs
| Three Months ended June 30, 2022 |
Three Months ended June 30, 2021 |
Six Months ended June 30, 2022 |
Six Months ended June 30, 2021 |
|||||||||
| Charge for the period | 15,487,958 | 4,224,249 | 26,036,921 | 5,760,290 | ||||||||
| Per Boe | $ | 12.90 | $ | 12.20 | $ | 13.07 | $ | 7.29 |
The increase in interest and financing costs for three and six months ended June 30, 2022, as compared to the same periods of 2021 is mainly due to fair value changes associated with the development partnership liabilities of $20,992,255 (June 30, 2021 - $2,671,972)(discussed below).
Depletion and Depreciation
| Three Months | Three Months | Six Months | Six Months | |||||||||
| ended June 30, | ended June 30, | ended June 30, | ended June 30, | |||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Charge for the period | $ | 9,782,846 | $ | 2,861,427 | $ | 14,381,822 | $ | 6,706,427 | ||||
| Per Boe | $ | 8.15 | $ | 8.26 | $ | 7.22 | $ | 8.49 |
Depletion expense increased for the three and six months ended June 30, 2022, as compared to the same periods of 2021 as a result of an increase in producing wells in 2022, and associated depletion base of property, plant and equipment. The decrease in per BOE cost is a result of increased overall reserve base attributed to proved and probable wells.
Net Income/(Loss) Attributable to Alpine Summit Shareholders
| Three Months | Three Months | Six Months | Six Months | |||||||||
| ended June 30, | ended June 30, | ended June | ended June 30, | |||||||||
| 2022 | 2021 | 30, 2022 | 2021 | |||||||||
| Net income/(loss) | $ | 6,873,817 | $ | (24,751,922 | ) | $ | (2,075,148 | ) | $ | (32,978,534 | ) | |
| Per share - basic | $ | 0.20 | $ | (1.68 | ) | $ | (0.06 | ) | $ | (2.13 | ) | |
| Per share - diluted | $ | 0.19 | $ | (1.68 | ) | $ | (0.06 | ) | $ | (2.13 | ) |
Investments Activity
Capital Expenditures
In the six months ended June 30, 2022, the Company incurred capital expenditures on property, plant and equipment of $70,657,974 compared to $14,883,119 for the six months ended June 30, 2021. The majority of activity for these periods relates to the drilling of horizontal wells in the Giddings and Hawkville Fields.
During the six months ended June 30, 2022, the Company expended $23,369,431 (June 30, 2021 - $3,469,396) on related exploration and evaluation assets. Additions relate mainly to undeveloped lands and drilling costs without assigned reserves prior to their transfer to property, plant and equipment.
Risk Management - Commodity Contracts
The Company's cash flow is highly variable, in large part because oil and natural gas are commodities whose prices are determined by worldwide and/or regional supply and demand, transportation constraints, weather conditions, availability of alternative energy sources and other factors, all of which are beyond the Company's control.
Historically, the markets for oil, natural gas and NGL have been volatile, and they are likely to continue to be volatile. During the first half of 2020, oil prices dramatically collapsed due to the impact of the COVID-19 pandemic and other conditions. On January 30, 2020, the World Health Organization declared the COVID-19 a "Public Health Emergency of International Concern" and on March 11, 2020, declared COVID-19 a pandemic. As a result, there was a significant demand shock worldwide which created downward pressure on oil prices. There was also increased supply due to the dispute between Saudi Arabia and Russia which had a further adverse impact on oil prices. After the severe price drop in 2020, oil prices rebounded and increased from levels immediately preceding the pandemic. In addition to recovering demand, the recent conflict between Russia and Ukraine has contributed to significant increases and volatility in the price for oil and natural gas. Wide fluctuations in oil, natural gas and NGL prices may result from relatively minor changes in the supply of or demand for oil, natural gas and NGL market uncertainty.
Management of cash flow variability is an integral component of the Company's business strategy. Business conditions are monitored regularly and reviewed with Management to establish risk management guidelines used by management in carrying out the Company's strategic risk management program.
The Company has elected not to use hedge accounting and, accordingly, the fair value of the financial contracts is recorded at each period-end. The fair value may change substantially from period to period depending on commodity forward strip prices for the financial contracts outstanding at the balance sheet date. The change in fair value from period-end to period-end is reflected in the income for that period. As a result, income may fluctuate considerably.
At June 30, 2022, the Company had the following commodity contracts, with a total mark-to-market liability of $14,684,908 (December 31, 2021 - $20,381,180).
|
Commodity |
Expiry |
Type |
Fixed Price |
Remaining Notional |
Index |
|
Ethane (gallons) |
Feb 2024 |
Swap |
$0.13 |
2,794,720 |
NGL-Mont Belvieu |
|
Ethane (gallons) |
May 2025 |
Swap |
$0.37 |
6,999,630 |
NGL-Mont Belvieu |
|
Propane (gallons) |
Feb 2024 |
Swap |
$0.45 |
1,718,277 |
NGL-Mont Belvieu |
|
Propane (gallons) |
May 2025 |
Swap |
$1.02 |
4,251,482 |
NGL-Mont Belvieu |
|
Natural gas (gallons) |
Feb 2024 |
Swap |
$0.88 |
1,100,985 |
NGL-Mont Belvieu |
|
Natural gas (gallons) |
May 2025 |
Swap |
$1.80 |
1,586,620 |
NGL-Mont Belvieu |
|
Isobutane (gallons) |
Feb 2024 |
Swap |
$0.49 |
359,533 |
NGL-Mont Belvieu |
|
Isobutane (gallons) |
May 2025 |
Swap |
$1.22 |
800,247 |
NGL-Mont Belvieu |
|
Norbutane (gallons) |
Feb 2024 |
Swap |
$0.50 |
835,983 |
NGL-Mont Belvieu |
|
Norbutane (gallons) |
May 2025 |
Swap |
$1.20 |
1,620,444 |
NGL-Mont Belvieu |
|
Natural gas (mmbtu) |
Feb 2024 |
Swap |
$2.61 |
1,904,433 |
Henry Hub -Nymex |
|
Natural gas (mmbtu) |
May 2025 |
Swap |
$5.45 |
1,043,576 |
Henry Hub -Nymex |
|
Natural gas (mmbtu) |
Aug 2022-May 2023 |
Short |
$3.91-5.17 |
1,560,000 |
Henry Hub -Nymex |
|
Natural gas (mmbtu) |
May 2025 |
Short |
$5.42 |
110,000 |
Henry Hub -Nymex |
|
Crude oil (bbl) |
Aug -Dec 2022 |
Put |
$65.00 |
215,970 |
WTI-Nymex |
|
Crude oil (bbl) |
Aug -Dec 2022 |
Short |
$72.62-88.50 |
24,000 |
WTI-Nymex |
|
Crude oil (bbl) |
Jan -May 2023 |
Short |
$72.00-89.18 |
16,000 |
WTI-Nymex |
|
Crude oil (bbl) |
Jun 2023 |
Call |
$97.00 |
919,000 |
WTI-Nymex |
|
Crude oil (bbl) |
May 2027 |
Swap |
$87.20 |
456,631 |
WTI-Nymex |
|
Crude oil (bbl) |
Dec 2028 |
Swap |
$43.38 |
618,953 |
WTI-Nymex |
(1) remaining notional volumes decrease on a monthly basis until expiry of the contracts
The unrealized loss for the six months ended June 30, 2022, of $5,751,522 and realized losses of $18,623,855 (June 30, 2021 - $17,570,964 unrealized and $7,838,514 realized loss) was a result of an increase in future strip prices from the date the commodity contracts were entered into and actual commodity prices during the period.
Financing, Liquidity and Capital Resources
Liquidity describes a company's ability to access cash. Companies operating in the upstream oil and gas industry require sufficient cash in order to fund capital programs that maintain and increase production and reserves, to acquire strategic oil and gas assets, to repay current liabilities and debt and ultimately to provide a return to shareholders. The Company's capital programs are funded by existing working capital, various lending facilities (discussed below) and cash provided from operating activities. The Company expects to fund its 2022 exploration and development program through the use of working capital and cash flow from operations. Fluctuations in commodity prices, product demand, interest rates and various other risks may impact capital resources and capital expenditures.
As at June 30, 2022 all of the Company's cash is on deposit with high credit-quality financial institutions. The Company incurs an approximate 30-day collection cycle on oil and natural gas sales.
Long-term Debt
a. Asset backed securitization facility
On April 27, 2022 the Company entered into an asset backed securitization of certain producing oil and gas wells. The ABS Facility is led by an insurance company and has an initial size of $80 million with additional capacity to expand up to $150 million in total.
All borrowings under the facility are secured by working interests in a subset of the Company's producing assets, which are held by a subsidiary of its operating subsidiary, HB2 Origination, LLC . The ABS Facility carries an interest rate of LIBOR+6% (with a 1% LIBOR floor) for the initial year, LIBOR +12% for the second year and an ultimate maturity date of May 2024. Interest payments are required monthly. As at June 30, 2022, the Company had $75,883,970 outstanding under the ABS Facility.
The Company's subsidiaries have certain financial covenants under the ABS Facility, including maintaining a debt service coverage ratio of no less that 1.1 to 1.0.
Under the terms of the ABS Facility, the Company is also required to;
i) As at the initial borrowing date, enter into certain forward commodity swap contracts, which it has done.
ii) Maintain an interest reserve account that will hold a cash balance sufficient to cover three months of scheduled interest payments.
Repayments of principal required under the ABS Facility are as follows;
| June 30, 2022 | |||
| 2022 | $ | 19,158,643 | |
| 2023 | 27,403,454 | ||
| 2024 | 29,321,873 | ||
| 2025 | - | ||
| Thereafter | - | ||
| $ | 75,883,970 |
In addition to the required principal repayments outlined above, the Company's subsidiaries could also be required to make additional payments if:
i) if the debt service coverage ratio is less than 1.20 to 1.00, the Company must make an additional principal prepayment equal to net income/(loss) adjusted for all non-cash charges, plus/(minus) working capital not including the current portion of debt under this facility and other adjustments required under the terms of the agreement.
ii) if the production tracking ratio is less than 80%, the Company must make an additional principal prepayment equal to net income/(loss) adjusted for all non-cash charges, plus/(minus) working capital not including the current portion of debt under this facility and other adjustments required under the terms of the agreement.
iii) if the loan to value is above 85%, the Company must make an additional principal prepayment equal to net income/(loss) adjusted for all non-cash charges, plus/(minus) working capital not including the current portion of debt under this facility and other adjustments required under the terms of the agreement.
At June 30, 2022, the Company was not subject to any other additional principal prepayments.
b. Goldman facility
On December 22, 2020, the Company entered into a credit facility with Goldman Sachs (the "Goldman Facility"). All borrowings under the Goldman Facility were secured by the Company's oil and gas producing wells as well as all assets of three of the Company's subsidiaries. The Goldman Facility carried an interest rate of LIBOR+6% (with a 1% LIBOR floor) and a maturity date of December 22, 2031. Interest payments were required quarterly.
In April 2022, in connection with the ABS Facility (above), the Company repaid the Goldman Facility in full and amortized the remaining unamortized borrowing costs.
Corporate Credit Facility
In October 2021, the Company's operating subsidiary Origination closed on a corporate credit facility. The facility had a maximum borrowing capacity of $12.5 million, subject to quarterly borrowing base determinations by the lender. The loan charges interest at prime +2.25% and had a one-year maturity. A subset of certain Company working interests in producing assets have been secured in connection with the corporate credit facility.
During the first quarter of 2022, Origination closed a new corporate credit facility to replace the previous facility. The new corporate credit facility has a total size of $30 million. The corporate credit facility is secured by working interests in a subset of the Company's producing assets and charges interest at the greater of 5.00% and Prime +1.75% and has a one-year maturity.
As at June 30, 2022, the Company had drawn $17,000,000 under the credit facility (December 31, 2021 - $2,200,000), and for the three and six months ended June 30, 2022, incurred $138,070 and $495,834, respectively, of interest and finance expense related to the facility. The borrowing base as at June 30, 2022 was $24,667,080 (December 31, 2021- $6,579,750).
Development Partnerships
The Company, through its subsidiary Origination, sponsors and manages development programs to participate in its drilling initiatives and accelerate its growth. Most of Origination's drilling programs are limited partnerships structured to minimize drilling risks on repeatable prospects and optimize tax advantages for private investors. At the commencement of operations, Origination assigns drilling rights for specified wells to an operating partnership.
Refer to the Consolidated Financial Statements for additional disclosures related to previously formed, repayments and reversions of development partnerships.
During the fourth quarter of 2021, Origination formed DP3 with 23 limited partners (the "DP3 LPs") and certain wholly-owned subsidiaries of Origination as limited partners and the general partner, which was $35.3 million in total size. DP3 funded the drilling and completion of five wells, with the DP3 LPs funding 60% and Origination funding 40%. The DP3 LPs chose to receive development partnership units ("DP Units") that distributed profits either based on a Flat payout option or an IRR based payout option. Flat Payout Units participated in 75% of the income of DP3 (along with IRR based Payout Units) until that income equaled their invested capital and thereafter participated in 20% of the income of DP3 (along with IRR based Payout Units). IRR Based Payout Units participated in 75% of the income of DP3 (along with Flat Payout Units) until that income equaled their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever was greater, and thereafter participated in 6% of the income of DP3, along with Flat Payout Units, which participated in 20% of the income of DP3. The DP3 LPs also had a put right to effectively sell their remaining interest for Subordinate Voting Shares or Multiple Voting Shares or cash, subject to the consent of Origination and certain other restrictions, for an amount calculated at the net future present values on oil and gas reserve estimates.
The Company, through the structure of DP3, maintained control of DP3 and consolidated 100% of the operations of DP3.
In April 2022, the Company repaid and paid out the reversion of DP3. As part of the completion of the DP3 program, the Company retired liabilities of $30,171,337.
Twelve of the DP3 partners exercised the put right provided to such partners by DP3 regarding residual interests in their associated investment and, elected to exchange the remaining interest in DP3 for 894,929 Class B non-voting units of Origination (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company, having a deemed value of US$5.70 per unit, or a total of $5,127,229.
Fair value was determined by present valuing the expected cash flows to be received by the unit holders at a discount rate of 15%.
During the first quarter of 2022, Origination formed its fourth development partnership ("DP4") with 29 limited partners (the "DP4 LPs") and certain wholly-owned subsidiaries of Origination as limited partners and the general partner, which is $42.0 million in total size. DP4 is currently funding the drilling and completion of five wells, with the DP4 LPs funding 60% and Origination funding 40%. The DP4 LPs can choose to receive development partnership units ("DP Units") that distribute profits either based on a Flat payout option or an IRR based payout option. Flat Payout Units will participate in 75% of the income of DP4 (along with IRR based Payout Units) until that income equals their invested capital and thereafter will participate in 20% of the income of DP4 (along with IRR based Payout Units). IRR Based Payout Units will participate in 75% of the income of DP4 (along with Flat Payout Units) until that income equals their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever is greater and thereafter will participate in 6% of the income of DP4, along with Flat Payout Units, which will participate in 20% of the income of DP4. The DP4 LPs will also have a put right to effectively sell their remaining interest for Subordinate Voting Shares or Multiple Voting Shares or cash, subject to the consent of Origination and certain other restrictions, for an amount calculated at the net future present values on oil and gas reserve estimates.
The Company, through the structure of the DP4, maintains control of the DP4 and consolidates 100% of the operations of the DP4.
The Company has categorized the development partnership liability as current based on the anticipated timing of repayments. For the six months ended June 30, 2022, an increase in the DP4 liability of $12,003,751 was recorded related to the change in fair value of the liability, with a corresponding increase to finance expense.
Refer to subsequent events section below for further details of DP4.
During the first quarter of 2022, Origination formed development partnership Red Dawn 1 with 37 limited partners (the "Red Dawn 1 LPs") and certain wholly-owned subsidiaries of Origination as limited partners and the general partner, which is $50.4 million in total size. Red Dawn 1 is currently funding the drilling and completion of five wells, with the Red Dawn 1 LPs funding 60% and Origination funding 40%. The Red Dawn 1 LPs can choose to receive development partnership units ("Red Dawn 1 Units") that distribute profits either based on a Flat payout option or an IRR based payout option. Flat Payout Units will participate in 75% of the income of Red Dawn 1 (along with IRR based Payout Units) until that income equals their invested capital and thereafter will participate in 20% of the income of Red Dawn 1 (along with IRR based Payout Units). IRR Based Payout Units will participate in 75% of the income of Red Dawn 1 (along with Flat Payout Units) until that income equals their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever is greater and thereafter will participate in 6% of the income of Red Dawn 1, along with Flat Payout Units, which will participate in 20% of the income of Red Dawn 1. The Red Dawn 1 LPs will also have a put right to effectively sell their remaining interest for Subordinate Voting Shares or Multiple Voting Shares or cash, subject to the consent of Origination and certain other restrictions, for an amount calculated at the net future present values on oil and gas reserve estimates.
The Company, through the structure of Red Dawn 1, maintains control of Red Dawn 1 and consolidates 100% of the operations of Red Dawn 1.
The Company has categorized the development partnership liability as current based on the anticipated timing of repayments. For the six months ended June 30, 2022, there was no increase in the liability related to the change in fair value of the liability as no associated drilling or reserve results were completed.
During the second quarter of 2022, Origination formed DP5 with 25 limited partners (the "DP5 LPs") and certain wholly-owned subsidiaries of Origination as limited partners and the general partner, which is $50.3 million in total size. DP5 is currently funding the drilling and completion of five wells, with the DP5 LPs funding 60% and Origination funding 40%. The DP5 LPs can choose to receive development partnership units ("DP5 Units") that distribute profits either based on a Flat payout option or an IRR based payout option. Flat Payout Units will participate in 75% of the income of DP5 (along with IRR based Payout Units) until that income equals their invested capital and thereafter will participate in 20% of the income of DP5 (along with IRR based Payout Units). IRR Based Payout Units will participate in 75% of the income of DP5 (along with Flat Payout Units) until that income equals their invested capital plus a 15% annualized return on invested capital or 120% of their initial investment, whichever is greater and thereafter will participate in 6% of the income of DP5, along with Flat Payout Units, which will participate in 20% of the income of DP5. The DP5 LPs will also have a put right to effectively sell their remaining interest for Subordinate Voting Shares or Multiple Voting Shares or cash, subject to the consent of Origination and certain other restrictions, for an amount calculated at the net future present values on oil and gas reserve estimates.
The Company, through the structure of DP5, maintains control of DP5 and consolidates 100% of the operations of DP5.
The Company has categorized the development partnership liability as current based on the anticipated timing of repayments. For the six months ended June 30, 2022, there was no increase in the liability related to the change in fair value of the liability as no associated drilling or reserve results were completed.
Shareholder Takeout and Asset Backed Preferred Instrument
On March 5, 2021, Origination executed an Origination Member Units buy back structure, in which a member exchanged 100% of their holdings (3,992,629 Origination Member Units representing approximately 23.4% of the outstanding Origination Member Units at the time) along with a $1,000,000 promissory note for a preferred instrument (23,500,000 LP units) in a newly created limited partnership controlled by the Company ("the LP Units"). Origination was required to redeem 6,670,000 LP Units on or before May 1, 2021 at $0.71 per LP Unit, or before June 1, 2021, at $0.8809 per LP Unit, or before September 1, 2021 at $1.00 per LP Unit or would be considered in default.
As a result of the transaction, the Company recorded a reduction to Origination Member Units of $8,680,786 (weighted average issue price to date of $2.17/unit) a reduction in promissory note liability of $1,000,000, a liability at an initial fair value of $21,565,700 and a reduction to accumulated deficit of $11,884,914. The fair value of the liability was determined by discounting the expected cash flows related to the instrument at a market based rate of 12% per annum.
During the six months ended June 30, 2022, the Company redeemed all of the LP units for $19,345,398, in connection with the ABS Facility.
For the three and six months ended June 30, 2022, the Company recorded finance expense related to the outstanding instrument in the amount of $139,293 and $658,047 (June 30, 2021 - $620,443 and $778,382)(above).
Shareholders' Capital
Authorized
The Company is authorized to issue an unlimited number of Subordinate Voting, Multiple Voting and Proportionate Voting Shares. Subject to certain restriction set out in the Company's articles, each SVS is entitled to one vote per share, each MVS is convertible, at the option of the holder, into 100 SVS and entitles the holder to 100 votes per share and each PVS is convertible into 1 SVS and entitles the holder to 1,000 votes per share. Each PVS will automatically convert to one SVS upon the holders equity interest in Origination reducing to less than 75% of the interest held on the date of the closing of the Business Combination Agreement ("BCA").
Issued
| Origination Member Units |
SVS | MVS | PVS | Amount | ||||||||||||
| Balance at January 1, 2021 | Note | 17,083,501 | - | - | - | $ | 37,097,376 | |||||||||
| Issuance of member units for cash | 12 | 819,215 | - | - | - | 8,044,700 | ||||||||||
| Issuance of member units exchanged for promissory notes | 12 | 353,870 | - | - | - | 3,475,000 | ||||||||||
| Issuance of member units for exploration and evaluation assets | 12 | 356,415 | - | - | - | 3,499,995 | ||||||||||
| Issuance of member units to contractors | 12 | 923,954 | - | - | - | 9,073,228 | ||||||||||
| Redemption of member units | 12 | (3,992,629 | ) | - | - | - | (8,680,786 | ) | ||||||||
| Issuance of member units exchanged for promissory notes | 12 | 234,216 | - | - | - | 2,300,000 | ||||||||||
| Origination Unit split 1:3 | 2 | 31,557,084 | - | - | - | - | ||||||||||
| Allocation of opening non-controlling interest | 14 | (16,168,422 | ) | - | - | - | (18,721,276 | ) | ||||||||
| Shares issued for cash, net of issuance costs of $247,218 | 2 | - | 161,976.000 | 17,057.000 | - | 5,499,832 | ||||||||||
| Exchange of units for SVS and MVS | 2 | (31,167,204 | ) | 1,427,421.000 | 297,397.830 | - | - | |||||||||
| Proportiante Voting Shares issued for cash | 2 | - | - | - | 15,947.292 | 128,213 | ||||||||||
| Shares issued on reverse takeover | 2 | - | 534,384.000 | - | - | 1,697,865 | ||||||||||
| MVS converted to SVS | 12 | - | 30,411,950.000 | (304,119.500 | ) | - | - | |||||||||
| Balance at December 31, 2021 | - | 32,535,731.000 | 10,335.330 | 15,947.292 | $ | 43,414,147 | ||||||||||
| RSU settlement | 12 | - | 1,114,430.000 | - | - | 4,633,897 | ||||||||||
| Repurchase of SVS | 12 | - | (44,900.000 | ) | - | - | (282,178 | ) | ||||||||
| MVS converted to SVS | 12 | - | 158,686.000 | (1,586.860 | ) | - | - | |||||||||
| Balance at June 30, 2022 | - | 33,763,947.000 | 8,748.470 | 15,947.292 | $ | 47,765,866 |
During the six months ended June 30, 2022, 1,114,430 SVS were issued as a result of settling certain restricted share units ("RSU"). Previously stock-based compensation of $4,633,897 has been removed from contributed surplus and has been reclassified to share capital to reflect the impact of settlement.
On June 10, 2022, the TSX Venture Exchange approved the Company's normal course issuer bid ("NCIB"). Under the NCIB, the Company may purchase, for cancellation, up to 1,648,783 SVS of the Company (representing approximately 5% of its issued and outstanding SVS as of June 6, 2022) over a 12-month period commencing on June 10, 2022. The NCIB will expire no later than June 9, 2023. During June 2022, the Company purchased and cancelled 44,900 SVS at an average price of $6.28/share for an aggregate value of $282,178.
In January 2022, 1,586.860 MVS were converted into 158,686 SVS.
During the twelve months ended December 31, 2021, the Company issued 819,215 Origination Member Units for aggregate cash of $8,044,700 ($9.82/unit). In addition, the Company issued 353,870 Origination Member Units in exchange for the retirement of $3,475,000 in promissory notes ($9.82/Unit).
The Company entered into an agreement, with a third party, to acquire 16,201 net acres in the Eagle Ford formation, located in the Austin, Fayette, Lee and Washington counties of Texas. In exchange for the acreage, the Company issued 203,666 Origination Member Units valued at $2,000,000 ($9.82/Unit).
In addition, the Company issued 152,749 Origination Member Units, valued at $1,499,995 ($9.82/Unit) in exchange for approximately 630 net mineral acres in Washington County, Texas.
In May of 2021, the Company issued 923,954 Origination Member Units to officers and consultants of the Company for services at an estimated value of $9.82/Unit for total consideration of $9,073,228 in connection with preparing for the Company's listing on the TSX-V.
On July 2, 2021, the Company exercised its option to convert all the existing convertible promissory notes ($2,300,000) into 234,216 Origination units ($9.82/Unit) effective as of July 7, 2021.
During the year ended December 31, 2021, 304,119.500 MVS shares were converted into 30,411,950 SVS.
In connection with the BCA and reverse takeover, 16,168,422 Origination Member Units elected to not convert. Refer to Non-controlling Interest ("NCI") discussion below.
161,976 SVS and 17,057 MVS were issued in connection with the BCA Finco raise for approximate proceeds of $5.5 million, net of issuance costs.
Remaining Origination Unit Holders converted their holdings into 1,427,421 SVS and 297,397.830 MVS in conjunction with preparing for the BCA and reverse takeover.
15,947.292 PVS were issued to a non converting Origination Unit Holder for proceeds of $128,213.
As a part of the RTO the Company issued 534,384 SVS on September 7, 2021, for total consideration of $1,697,865 based on the Finco financing value of CDN$4.01/SVS or $3.18/SVS, for the Red Pine Petroleum Ltd.'s net assets, which are made up primarily of cash valued at $396,173. The excess of purchase consideration over net assets acquired resulted in a listing expense of $1,301,692 and is presented in the consolidated statement of loss and comprehensive loss.
A full exchange of all non-voting units of Origination (refer to Non-Controlling Interest discussion below) and conversion of all MVS and PVS into SVS would result in approximately 50.1 million SVS outstanding as of December 31, 2021.
Income/(loss) per share:
| Six months ended June 30, 2022 | Six months ended June 30, 2021 | |||||||||||||||||
| Net Loss | Shares | Loss per share | Net Loss | Shares | Loss per share | |||||||||||||
| Loss - basic | $ | (2,075,148 | ) | 33,947,937 | $ | (0.06 | ) | $ | (32,978,534 | ) | 15,514,266 | $ | (2.13 | ) | ||||
| Diliutive effect of outstanding awards | - | - | - | - | - | - | ||||||||||||
| Income - diluted | $ | (2,075,148 | ) | 33,947,937 | $ | (0.06 | ) | $ | (32,978,534 | ) | 15,514,266 | $ | (2.13 | ) | ||||
| Three months ended June 30, 2022 | Three months ended June 30, 2021 | |||||||||||||||||
| Net Income | Shares | Income per share | Net Loss | Shares | Loss per share | |||||||||||||
| Income/(loss) - basic | $ | 6,873,817 | 34,084,148 | $ | 0.20 | $ | (24,751,922 | ) | 14,775,021 | $ | (1.68 | ) | ||||||
| Diliutive effect of outstanding awards | - | 1,321,189 | - | - | - | - | ||||||||||||
| Income/(loss) - diluted | $ | 6,873,817 | 35,405,337 | $ | 0.19 | $ | (24,751,922 | ) | 14,775,021 | $ | (1.68 | ) | ||||||
The Company had share purchase options ("Options"), RSU's and deferred share units ("DSUs") outstanding for the three and six months ended June 30, 2022 (June 30, 2021 - none outstanding) (Note 15). The effect of the conversion or exercise of Options, RSU's and DSU's (three months 1,321,189, six months 1,136,744) are included in the three months ended calculation of diluted income per share and excluded for the six months ended as they are anti-dilutive. The Company used an average market price of $5.84 and $5.51 per share, respectively, to calculate the dilutive effect of stock options, RSUs and DSUs outstanding.
The Company's NCI interest, which can be freely converted SVS on a one for basis, would be anti-dilutive and therefore have not been included in the calculation of diluted loss per share (three months 17,746,901, six months 17,454,806). There was no NCI interest for the same periods of 2021.
Normal Course Issuer Bid ("NCIB")
On June 6, 2022, the TSX Venture Exchange (“TSXV”) approved the Company to commence a NCIB to repurchase up to 1,648,783 SVS (representing approximately 5% of its issued and outstanding SVS as of June 6, 2022) over a 12-month period commencing on June 10, 2022. The NCIB will expire no later than June 9, 2023.
All purchases made pursuant to the NCIB will be made through the facilities of the TSXV. The NCIB will be made in accordance with the applicable rules and policies of the TSXV and applicable Canadian securities laws. The price that Alpine Summit will pay for SVS in open market transactions will be the market price at the time of purchase. Any SVS that are purchased under the NCIB will be cancelled. A copy of the related Notice of Intention to Make a NCIB will be provided to shareholders, at no charge, upon receipt of written request to the Company at ir@alpsummit.com.
Through June 30, 2022, a total of 44,900 SVS were repurchased at an aggregate cost of $282,178 under the NCIB. All shares repurchased have been returned to treasury for cancellation.
Dividends
On December 14, 2021, the Company announced that its Board of Directors had declared a dividend distribution policy, beginning in January 2022. Monthly dividends of $0.03 per SVS and $3.00 per MVS were declared and paid for each month ended during the six months ended June 30, 2022, with an aggregate distribution of $6,112,521.
The Company utilizes Odyssey Transfer, Inc. as the paying agent for dividend distributions.
Non-Controlling Interest
2022 Activity
In connection with the BCA, certain Origination equity holders elected not to convert their equity holdings in Origination into SVS/MVS of the Company. The non-converting equity holders amount to a 34.467% economic interest in Origination as at June 30, 2022 (December 31, 2021 - 32.954%).
In January 2022, ten of the DP2 partners exercised the put right provided to such partners by DP2 regarding residual interests in their associated investment and elected to exchange the remaining interest in DP2 for 339,372 Class B non-voting units of Origination. As a result, a credit to NCI for the fair value of the put right for DP2 of $3,159,706 was recorded to settle liabilities.
In January 2022, certain RSUs were settled and as a part of the tax receivable agreement between Origination and the Company, an equivalent number of Origination Units were issued. Based on the fair value of shares issued on the date of settlement, $1,454,063 has been recorded as a decrease to non-controlling interest and a corresponding offset to capital reserve.
In January 2022, certain RSUs were settled and as a part of the amended and restated LLC agreement between Origination and the Company, an equivalent number of Origination Units were issued. Based on the fair value of shares issued on the date of settlement ($5.00/share), $1,406,250 has been recorded as a decrease to non-controlling interest and a corresponding offset to capital reserve.
In May 2022, twelve of the DP3 partners exercised the put right provided to such partners by DP3 regarding residual interests in their associated investment and elected to exchange the remaining interest in DP3 for 894,929 Class B non-voting units of Origination. As a result, a credit to NCI for the fair value of the put right for DP3 of $5,127,229 was recorded to settle liabilities.
In June 2022, certain RSUs were settled and as a part of the amended and restated LLC agreement between Origination and the Company, an equivalent number of Origination Units were issued. Based on the fair value of shares issued on the date of settlement ($6.49/share), $5,407,338 has been recorded as a decrease to non-controlling interest and a corresponding offset to capital reserve.
During the first quarter of 2022, the Company declared and paid dividends to shareholders. In connection with the dividend distributions from Origination, non-converting equity holders received their non-controlling interest share totalling $3,146,942, for the six months ended June 30, 2022, resulting in a decrease of non-controlling interest.
For the six months ended June 30, 2022, $975,842, was recorded to reduce net loss on the condensed interim consolidated statement of loss and comprehensive loss, with an offset to NCI, representing NCI share of net loss (2021 - $Nil).
2021 Activity
On closing the BCA, Origination's consolidated book value of net liabilities was $32,968,557, which resulted in an opening NCI balance of $10,714,781. This NCI balance along with the weighted average stated capital of the equity interests surrendered by the NCI holder of $18,721,276, for a total of $29,436,057, has been credited to capital reserve.
For the 23 days of September, 2021 following the closing of the BCA, $3,355,382 was recorded to decrease net loss on the interim consolidated statements of loss and comprehensive loss, with an offset to NCI, representing NCI share of net loss for the 23 day period.
In October 2021, one of the DP1 partners exercised the put right provided to such partners by DP1 regarding residual interests in their associated investment and, elected to exchange the remaining interest in DP1 for 339,372 Class B non-voting units of Origination. As a result, a credit to NCI for the fair value of DP1 liabilities settled has been recorded.
For the fourth quarter of 2021, $6,136,766 was recorded to reduce net loss on the consolidated statement of loss and comprehensive loss, with an offset to NCI, representing NCI share for the three-month period.
Related Party Transactions
Management services agreement
In the second quarter of 2021, the Company entered into a new Letter Agreement (the "Letter") with a company related by virtue of common equity holders, directors, and officers. The Letter requires the Company to hire its own employees, obtain its own office lease, and assume certain management obligations. In exchange, the Company is paid an annual fee of $1,000,000 on a quarterly basis. During the three and six months ended June 30, 2022, the Company has been paid $250,000 and $500,000 in cash.
Related party balances
At June 30, 2022, the accounts payable included $53,716 (December 31, 2021 - accounts payable of $120,501) due from a company related by virtue of common equity holders, officers and directors under normal credit terms.
Liquidity Risk and Going Concern
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities as they become due. The Company's financial liabilities consist of accounts payable and accrued liabilities and promissory notes, all of which are due within a year, commodity contract liabilities which will all be settled over the life of their contract terms (see below), lease liabilities which will be settled over the life of the lease, asset backed preferred instruments which will be repaid based on available cash flows, development partnership liabilities that will be repaid based on cash flows generated by the wells included in the partnership and a credit facility with portions due in the following year. The Company also maintains and monitors a certain level of cash flow which is used to partially finance all operating and capital expenditures. The Company also attempts to match its payment cycle with collection of oil and natural gas sales which are usually collected within 30 to 60 days.
At June 30, 2022, the Company had negative working capital of $165,427,098. The Company expects to repay its financial liabilities in the normal course of operations and to fund future operational and capital requirements through operating cash flows and through issuance of debt and/or equity.
The Company may need to conduct asset sales, equity issues or issue debt if liquidity risk increases in a given period. Liquidity risk may increase as a result of a change in the amounts settled monthly from the commodity contracts. The Company believes it has sufficient funds to meet foreseeable obligations by actively monitoring its credit facilities through use of the loans/notes, asset sales, coordinating payment and revenue cycles each month, and an active commodity hedge program to mitigate commodity price risk and secure cash flows.
More specifically, in an attempt to increase liquidity, the Company has during and subsequent to the six months ended June 30, 2022: (i) continued its drilling program to increase cash flows from operating activities, (ii) raised significant funds through development partnerships, (iii) entered into a new revolving corporate credit facility, and iv) refinanced indebtedness.
The following table details the Company's financial liabilities and their scheduled maturities as at June 30, 2022:
| Carrying value | Contractual cash flow | Less than one year | 1 - 3 years | Greater than 3 years | |||||||||||
| Accounts payable and accrued liabilities | $ | 56,990,432 | $ | 56,990,432 | $ | 56,990,432 | $ | - | $ | - | |||||
| Commodity contracts | 14,684,908 | 14,684,908 | 12,451,328 | 1,414,660 | 818,920 | ||||||||||
| Lease liability | 462,792 | 482,057 | 129,594 | 352,463 | - | ||||||||||
| Corporate credit facility | 17,000,000 | 17,000,000 | 17,000,000 | - | - | ||||||||||
| Development partnerships liabilities | 94,923,358 | 94,923,358 | 94,923,358 | - | - | ||||||||||
| Long term debt | 73,522,333 | 75,883,970 | 34,835,900 | 41,048,070 | - | ||||||||||
| Total | $ | 257,583,823 | $ | 259,964,725 | $ | 216,330,612 | $ | 42,815,193 | $ | 818,920 |
Going Concern
The Consolidated Financial Statements have been prepared in accordance with IFRS applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business.
During the six months ended June 30, 2022, the Company generated a net loss and comprehensive loss before non-controlling interest of $3,050,990 (six months ended June 30, 2021 - $32,978,534), and as at that date, the Company had a working capital deficiency of $165,427,098 (December 31, 2021 - working capital deficiency of $80,838,833) and accumulated deficit of $89,501,774 (December 31, 2021 - $81,314,105).
In order to continue operating as a going concern the Company will need to achieve profitable operations and/or secure additional sources of financing in order to satisfy its obligations, including scheduled repayments of long-term debt, as they become due. During the six months ended June 30, 2022, the Company formed three development partnerships to fund a portion of 2022 capital activity which raised approximately $41.8 million and entry into a new debt facility, raising $80 million, which repaid existing debt and the asset backed preferred instrument. Subsequent to June 30, 2022, the Company closed on one additional development partnership resulting in cash inflows of approximately $7.9 million. Although the Company has been successful in its financing activities to date, additional financing may be required to continue operations and such funding may not be available on terms that are acceptable to the Company.
Due to the factors mentioned above, there is a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern. These consolidated financial statements do not include necessary adjustments to reflect the recoverability and classification of recorded assets and liabilities and related expenses that might be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and such adjustments could be material.
Subsequent Events
Dividends declared
On July 1, 2022, the Company's Board of Directors declared a dividend of $0.03 per SVS and $3.00 per MVS, for a total amount of $1,039,642, payable on July 29, 2022, to shareholders of record on the close of business on July 15, 2022.
On August 1, 2022, the Company's Board of Directors declared a dividend of $0.03 per SVS and $3.00 per MVS, for an estimated total amount of $1,039,642, payable on August 17, 2022, to shareholders of record on the close of business on August 31, 2022.
Completion of DP4 and creation of DP6
On July 15, 2022, the Company successfully completed the repayment and reversion of DP4 that it formed during the first quarter of 2022, along with the concurrent closing of its sixth development partnership ("DP6").
DP4 funded the drilling and completion of a total of five wells: three wells in the Giddings Field near Austin, TX and two wells in Webb County, TX; and comprised a total capital program of approximately $42 million, with 60% funded by external partners. As part of the completion of the DP4 program, Alpine has retired liabilities of approximately $34.5 million.
Nine of the DP4 partners exercised the put right provided to such partners by DP4 regarding residual interests in their associated investment and, subject to the approval of the TSX Venture Exchange (the "TSXV"), elected to sell their remaining interest in DP4 for 706,975 Class B non-voting units of HB2 Origination, LLC (which are exchangeable on a one-for-one basis for Subordinate Voting Shares of the Company), having a deemed value of US$5.85 per unit (which was calculated with reference to the trailing 30 day share price and the allowable discounts permitted by the policies of the TSXV), or a total of approximately $4.1 million.
DP6 has an expanded capital program of approximately $56.9 million, with approximately $34.2 million of external development capital, and is expected to continue to develop assets within the Company's existing operational footprint.
Quarterly Results
Summarized information by quarter for the previous two years ended June 30, 2022 appears below.
Quarter ended June 30, 2022
| 2022 | 2021 | 2020 | ||||||||||||||||||||||
| Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | |||||||||||||||||
| Revenue from product sales | 77,412,882 | 47,039,285 | 42,028,563 | 23,427,075 | 12,836,239 | 19,625,913 | 2,568,289 | 1,239,879 | ||||||||||||||||
| Net income (loss) | 6,873,817 | (8,948,965 | ) | 21,943,230 | (18,636,041 | ) | (24,751,922 | ) | (8,226,612 | ) | (3,007,192 | ) | 123,065 | |||||||||||
| Per unit - basic | $ | 0.20 | (0.26 | ) | $ | 0.48 | $ | (0.42 | ) | $ | (1.68 | ) | $ | (0.53 | ) | $ | (0.18 | ) | $ | 0.01 | ||||
| Net capital expenditures | (28,383,860 | ) | (42,274,114 | ) | (27,159,171 | ) | (26,909,107 | ) | (13,211,052 | ) | (5,151,463 | ) | (36,276,414 | ) | (1,901,004 | ) | ||||||||
| Average daily production (Boe) | 13,195 | 8,801 | 8,772 | 5,399 | 3,805 | 4,983 | 981 | 523 | ||||||||||||||||
| Working capital deficiency | (165,427,098 | ) | (151,923,864 | ) | (80,838,833 | ) | (80,891,770 | ) | (49,133,400 | ) | (24,142,999 | ) | (29,102,456 | ) | (9,512,412 | ) | ||||||||
Increased production and stable commodity prices from for the three months ended June 30, 2021, compared to March 31, 2022 led to increased revenue and cash flows from operations. These increased operating results led to net income increases versus prior periods.
The Company maintained consistent production for the three months ended March 31, 2022, however, improved realized commodity prices led to increased revenue. The increased commodity prices noted also increased realized and unrealized commodity contract losses in the period, leading to the decrease in first quarter net losses.
In 2021, the formation of the three development partnerships resulted in the drilling of ten wells that came on production in the second half of the year increasing the operating results. These additional wells increased overall revenue from product sales and cash flows from operating activities.
The impact of unrealized commodity contracts and financing expenses related to fair value changes and associated development partnership liabilities created the increase in net loss for the quarters of 2021.
Due to reduced commodity prices, resulting from COVID-19, the Company shut in all wells during the three months ended June 30, 2020.
Off-Balance-Sheet Arrangements
The Company does not have any special-purpose entities nor is it a party to any arrangements that would be excluded from the consolidated balance sheet.
Critical Accounting Judgments, Estimates and Policies
The Company's critical accounting judgements, estimates and policies are described in notes 3 and 4 to the December 31, 2021, audited consolidated financial statements. Certain accounting policies are identified as critical because they require management to make judgments and estimates based on conditions and assumptions that are inherently uncertain, and because the estimates are of material magnitude to revenue, expenses, funds flow from operations, income or loss and/or other important financial results. These accounting policies could result in materially different results should the underlying conditions change or the assumptions prove incorrect.
Outstanding Securities
As of the date of this MD&A, the Company has 33,800,802, 8,379.92, and 15,947.292 for current SVS, MVS and PVS issued and outstanding.
Limitations
Forward-Looking Statements
Certain forward-looking information and statements are set forth in this document, including management's assessment of the Company's future plans and operations specifically in relation to the remainder of 2022 and 2023, and contain forward-looking information within the meaning of applicable Canadian securities legislation. Such statements or information are generally identifiable by words such as "anticipate", "believe", "intend", "plan", "expect", "schedule", "indicate", "focus", "outlook", "propose", "target", "objective", "priority", "strategy", "estimate", "budget", "forecast", "would", "could", "will", "may", "future" or other similar words or expressions and include statements relating to or associated with individual wells, facilities, regions or projects as well as timing of any future event which may have an effect on the Company's operations and financial position. Forward-looking statements are based on expectations, forecasts, and assumptions made by the Company using information available at the time of the statement and historical trends which includes expectations and assumptions concerning: the accuracy of reserve estimates and valuations; performance characteristics of producing properties; access to third-party infrastructure; government policies and regulation; future production rates; accuracy of estimated capital expenditures; availability and cost of labour and services and owned or third-party infrastructure; royalties; development and execution of projects; the satisfaction by third parties of their obligations to the Company; and the receipt and timing for approvals from regulators and third parties. All statements and information concerning expectations or projections about the future and statements and information regarding the future business plan or strategy, timing or scheduling, production volumes with splits by commodity, production declines, expected and future activities and capital expenditures, commodity prices, costs, royalties, schedules, operating or financial results, future financing requirements, and the expected effect of future commitments are forward-looking statements.
The forward-looking statements are subject to known and unknown risks and uncertainties and other factors which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to:
Statements relating to "reserves" or "resources" are forward-looking statements, including financial measurements such as net present value, as they involve the assessment, based on estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated, and can be profitably produced in the future.
Readers are advised that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The Company disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required under securities law.
Readers are cautioned that the foregoing list of factors is not exhaustive. The forward-looking statements contained herein are expressly qualified by this cautionary statement.
Non-GAAP Measurements - Within this MD&A, references are made to terms which are not recognized under Generally Accepted Accounting Principles ("GAAP"). Specifically, "field operating netbacks", "field operating netbacks including hedging", "adjusted EBITDA", and measurements "per commodity unit" and "per Boe" do not have any standardized meaning as prescribed by GAAP and are regarded as non-GAAP measures. These non-GAAP measures may not be comparable to the calculation of similar amounts for other entities and readers are cautioned that use of such measures to compare enterprises may not be valid. The Company's Management uses these non-GAAP supplemental measures to benchmark operations against prior periods and peer group companies and believes they provide useful supplemental information that can be used by investors, lenders, analysts and other parties to analyze the Company's performance and financial results.
Field Operating Netbacks
Field operating netbacks and field operating netbacks including hedging are common non-GAAP measurements applied in the crude oil and natural gas industry and are used by management to assess operational performance of assets. Field operating netbacks are calculated by deducting royalties, production and transportation expenses from revenue from product sales and are presented on a per-Boe basis.
Adjusted EBITDA
The Company uses measures primarily based on IFRS and also uses some secondary non-GAAP measures. The non-GAAP measure included in this presentation is: Adjusted earnings before interest, taxes, depletion and amortization ("Adjusted EBITDA"). This measure is used to supplement the Company's reported financial performance or position. This is a useful complementary measure that is used by management in assessing the Company's financial performance, efficiency and liquidity, and they may be used by the Company's investors for the same purpose. The non-GAAP measure does not have standardized meanings prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other issuers. They are common in the reports of other companies but may differ by definition and application.
The Company believes that Adjusted EBITDA, considered along with net earnings (loss), is a relevant indicator of trends relating to our operating performance and provides management and investors with additional information for comparison of our operating results to the operating results of other companies. All figures presented do not reflect any potential impact of Non-Controlling Interest. The Company's calculation of Adjusted EBITDA is net income/(loss) adding back interest, non-cash financing expenses, depletion, depreciation, accretion, amortization, impairment, non-recurring costs and expenses and realized/unrealized commodity contract gains/(losses).
Business Risks
There are a number of risks facing participants in the crude oil and natural gas industry. Some risks are common to all businesses while others are specific to the industry. The Company's identified business risks have been described in the MD&A as at December 31, 2021.
Additional Information
Additional information relating to the Company is contained in the Company's Annual Information Form which may be viewed under the SEDAR profile of Alpine Summit Energy Partners, Inc. (formerly Red Pine Petroleum, Inc.) at www.sedar.com.
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Craig Perry, Chief Executive Officer of Alpine Summit Energy Partners, Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Alpine Summit Energy Partners, Inc. (the "issuer") for the interim period ended June 30, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: August 24, 2022
"Craig Perry"
___________________________________________
Craig Perry
Chief Executive Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Darren Moulds, Chief Financial Officer of Alpine Summit Energy Partners, Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Alpine Summit Energy Partners, Inc. (the "issuer") for the interim period ended June 30, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: August 24, 2022
"Darren Moulds"
___________________________________________
Darren Moulds
Chief Financial Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.