Condensed Interim Consolidated Financial Statements as at ...

[Pages:16]Condensed Interim Consolidated Financial Statements as at March 31, 2020 and for the three months ended March 31, 2020 and 2019

(Unaudited)

(In U.S. Dollars)

Condensed Interim Consolidated Statements of Financial Position

(thousands of US Dollars, unaudited) Assets Current Assets

Cash and cash equivalents Accounts receivable Prepaid expenses and deposits Inventory

Restricted cash (note 3)

Right of use lease asset (note 8) Exploration and evaluation assets (note 4) Property, plant and equipment (note 5)

March 31, 2020 December 31, 2019

$

32,554

$

36,111

4,078

5,590

988

1,123

216

214

37,836

43,038

272

258

95 3,970 30,800

78 4,006 34,283

$

72,973

$

81,663

Liabilities and Shareholders' Equity

Current Liabilities Accounts payable and accrued liabilities

$

3,782

$

Lease liability (note 8)

Decommissioning obligations (note 6) Deferred taxes

88

7,024 1,612

Shareholders' Equity Share capital (note 7) Contributed surplus Accumulated other comprehensive loss Deficit

179,717 21,415 (55,118) (85,547) 60,467

$

72,973

$

See accompanying notes to the condensed interim consolidated financial statements.

5,393

69 8,181 1,702

179,717 21,229 (49,273) (85,355) 66,318

81,663

2

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss For the three months ended March 31, 2020 and 2019

(thousands of US Dollars, unaudited)

March 31, 2020

March 31, 2019 (1)

Revenue (note 9) Petroleum and natural gas sales Royalties Other Income

$

2,808

$

2,918

(378)

(388)

268

621

2,698

3,151

Expenses Production General and administrative Severance (note 10) Transaction costs Accretion on decommissioning liabilities (note 6) Foreign exchange (gain) loss Share-based compensation (note 7) Depletion and depreciation (notes 5 and 8)

Loss for the period before income taxes

Income taxes Current tax expense Deferred tax expense

Net loss

Other comprehensive loss Currency translation adjustments

Comprehensive loss

Net loss per share Basic and diluted

801 1,230

450 -

218 (1,317)

157 1,278 2,817 (119)

73

(192)

783 1,066

806 379 349 538 1,397 5,318 (2,167)

108 35

(2,310)

(5,845) (6,037)

(662) (2,972)

$

(0.00) $

(0.03)

Weighted average number of shares outstanding (thousands) (1) Presented in US Dollars to conform with current period presentation (note 2b)

86,585

See accompanying notes to the condensed interim consolidated financial statements.

86,491

3

Condensed Interim Consolidated Statements of Cash Flows For the three months ended March 31, 2020 and 2019

(thousands of US Dollars, unaudited)

Cash was provided by (used in):

Operating activities: Net loss for the period Depletion and depreciation (note 5 and 8) Share-based compensation (note 7) Accretion on decommissioning liabilities (note 6) Unrealised foreign exchange loss (gain) Deferred tax expense Decommissioning costs incurred (note 6) Change in non-cash working capital (note 11) Cash (used in) provided by operating activities

March 31, 2020 March 31, 2019 (1)

$

(192)

$

(2,310)

1,278

1,397

157

538

218

379

(1,482)

302

73

35

(16)

(8)

775

(640)

811

(307)

Financing activities: Principal payments on lease liability (note 8) Proceeds from stock option exercises Cash (used in) provided by financing activities

(24)

(23)

-

201

(24)

178

Investing activities: Property and equipment expenditures (note 5) Exploration and evaluation expenditures (note 4) Banarli Farm-in Change in restricted cash Change in non-cash working capital (note 11) Cash used in investing activities Foreign exchange gain (loss) on cash held in foreign currencies

(1,461) (421) (14)

(1,046) (2,942) (1,402)

Net change in cash Cash, beginning of period

(3,557) 36,111

Cash, end of period

$

32,554

$

(1) Presented in US Dollars to conform with current period presentation (note 2b)

See accompanying notes to the condensed interim consolidated financial statements.

(818) (3,455) 1,452

50 4,444 1,673

263

1,807 45,993 47,800

4

Condensed Interim Consolidated Statements of Changes in Shareholders' Equity For the three months ended March 31, 2020 and 2019

(thousands of US Dollars and thousands of shares)

Number of common shares

Share Contributed

Capital

Surplus

Deficit

Accumulated

Total

Other Comp. Shareholders'

Loss

Equity

Balance, January 1, 2020 Net loss for the period

Currency translation adjustments

Share-based Compensation

March 31, 2020

86,585 $ 179,717 $

-

-

21,229 $ (85,355) $ (49,273) $

-

(192)

-

66,318 (192)

-

-

-

-

(5,845)

(5,845)

-

-

86,585 $ 179,717 $

186

-

-

21,415 $ (85,547) $ (55,118) $

186 60,467

(thousands of US Dollars and thousands of shares)

Number of common Shares

Share Contributed

Capital

Surplus

Accumulated

Total

Other Comp. Shareholders'

Deficit

Loss

Equity

Balance, January 1, 2019 Net loss for the period Shares issued Shares issuance costs

Currency translation adjustments

Share-based Compensation

March 31, 2019(1)

86,233 $ 179,384 $

-

-

352

333

-

-

19,488 $ -

(132) -

(80,540) $ (2,310)

-

(47,389) $ -

70,943 (2,310)

201 -

-

-

-

-

(662)

(662)

-

-

86,585 $ 179,717 $

560

-

-

19,916 $ (82,850) $ (48,051) $

560 68,732

(1) Presented in US Dollars to conform with current period presentation (note 2b) See accompanying notes to the condensed interim consolidated financial statements.

5

Notes to the Condensed Interim Consolidated Financial Statements Three months ended March 31, 2020 and 2019

(tabular amounts in thousands of US Dollars, except share or per share amounts, unaudited)

1. Reporting Entity

Valeura Energy Inc. ("Valeura" or the "Company") and its subsidiaries (refer to note 2c) are currently engaged in the exploration, development and production of petroleum and natural gas in Turkey. Valeura is incorporated in Alberta, Canada and has subsidiaries in the Netherlands, British Virgin Islands and Turkey. Valeura's shares are traded on the Toronto Stock Exchange ("TSX") under the trading symbol VLE and the Main Market of the London Stock Exchange ("LSE"), under the trading symbol "VLU". Valeura's head office address is 1200, 202 ? 6 Avenue SW, Calgary, AB, Canada.

2. Basis of Preparation

(a) Statement of compliance

These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34 ? Interim Financial Reporting of the International Financial Reporting Standards ("IFRS"). The attached unaudited condensed interim consolidated financial statements should be read in conjunction with Valeura's audited consolidated financial statements and MD&A for the year ended December 31, 2019. The unaudited condensed interim consolidated financial statements have been prepared in accordance with IFRS accounting policies and methods of computation as set forth in Valeura's audited consolidated financial statements for the year ended December 31, 2019, with the exception as noted below of certain disclosures that are normally required to be included in annual consolidated financial statements which have been condensed or omitted in the interim statements.

Operating, transportation and marketing expenses in profit or loss are presented as a combination of function and nature in conformity with industry practices. Depletion and depreciation and finance expenses are presented in a separate line by their nature, while net administrative expenses are presented on a functional basis. The use of estimates and judgements is also consistent with the December 31, 2019 financial statements.

The unaudited condensed interim consolidated financial statements were authorised for issue by the Board of Directors on May 11, 2020.

(b) Basis of measurement

These unaudited condensed interim consolidated financial statements have been prepared on the historical cost basis except for certain financial and non-financial assets and liabilities, which have been measured at fair value. The methods used to measure fair value are consistent with the Company's December 31, 2019 audited consolidated financial statements.

Effective December 31, 2019, the Company changed its presentation currency from Canadian Dollars to US Dollars to better reflect the Company's business activities, the needs of investors and comparability to peers in the oil and gas industry. All comparative amounts have been presented in US Dollars to conform with current period presentation.

Subsequent to December 31, 2019, the global impact of the COVID-19 as well as recent declines in spot prices for oil and gas have resulted in significant declines in global stock markets and has created a great deal of uncertainty as to the health of the global economy. As a result, oil and gas companies are subject to liquidity risks in maintaining their revenues and earnings as well as ongoing and future development and operating expenditure requirements. These factors are likely to have a negative impact on the Company's ability to raise equity, if required, in the near future or on terms favorable to the Company. The potential impact that COVID-19 will have on our business or financial results cannot be reasonably estimated at this time. Any shutdowns requested or mandated by government authorities in response to the outbreak of COVID-19 may have a material impact to the Company's planned operating activities, however, no mandated shutdowns have affected operations to date.

The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect to the Company is not known at this time. Estimates and judgments made by management in the preparation of these

6

Notes to the Condensed Interim Consolidated Financial Statements Three months ended March 31, 2020 and 2019

(tabular amounts in thousands of US Dollars, except share or per share amounts, unaudited)

condensed interim consolidated financial statements are subject to a higher degree of measurement uncertainty during this volatile period.

The Company's unaudited condensed interim consolidated financial statements include the accounts of Valeura and its subsidiaries and are expressed in thousands of US Dollars, unless otherwise stated.

(c) Functional and presentation currency

The consolidated financial statements are presented in US Dollars which is Valeura's reporting currency. Valeura's and its foreign subsidiaries transact in currencies other than the US Dollar and have a functional currency of Turkish Lira and Canadian dollars as follows:

Company Valeura Energy Inc. Valeura Energy (Netherlands) Cooperatief UA Valeura Energy (Netherlands) BV Corporate Resources BV Thrace Basin Natural Gas Turkiye Corporation

Functional Currency Canadian Dollars Turkish Lira Turkish Lira Turkish Lira Turkish Lira

The functional currency of a subsidiary is the currency of the primary economic environment in which the subsidiary operates. Transactions denominated in a currency other than the functional currency are translated at the prevailing rates on the date of the transaction. Any monetary items held in a currency which is not the functional currency of the subsidiary are translated to the functional currency at the prevailing rate as at the date of the statement of financial position. All exchange differences arising as a result of the translation to the functional currency of the subsidiary are recorded in earnings.

Translation of all assets and liabilities from the respective functional currencies to the reporting currency are performed using the rates prevailing at the statement of financial position date. The differences arising upon translation from the functional currency to the reporting currency are recorded as currency translation adjustments in other comprehensive income or loss ("OCI") and are held within accumulated other comprehensive loss until a disposal or partial disposal of a subsidiary. A disposal or partial disposal will then give rise to a realized foreign exchange gain or loss which is recorded in earnings.

(d) Use of estimates

The preparation of financial statements in conformity with IFRS 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 ability to make reliable estimates is further influenced by political and economic factors. Management has based its estimates with respect to the Company's operations in Turkey based on information available up to the date these condensed interim consolidated financial statements were approved by the Board of Directors. Significant changes could occur which could materially impact the assumptions and estimates made in these consolidated financial statements. Changes in assumptions are recognised in the financial statements prospectively.

(e) Changes in accounting policies

The following amendment as issued by the IASB has been adopted by the Company effective January 1, 2020.

IFRS 3 ? Business Combinations sets out the principles in accounting for the acquisition of a business. The amendments to this standard include a change in the definition of a business and the addition of an optional concentration test to determine if the acquisition is a business.

7

Notes to the Condensed Interim Consolidated Financial Statements Three months ended March 31, 2020 and 2019

(tabular amounts in thousands of US Dollars, except share or per share amounts, unaudited)

The definition of a business under the amendment to IFRS 3 is now that a business consists of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs. The three elements of a business are defied as follows:

? Input: any economic resource that creates outputs, or has the ability to contribute to the creation of outputs, when one or more processes are applied to it.

? Process: any system, standard, protocol, convention or rule that, when applied to an input or inputs, creates outputs or has the ability to contribute to the creation of outputs.

? Output: the result of inputs and processes applied to those inputs that provide goods or services to customers, generate investment income or generate other income from ordinary activities.

The optional concentration test permits a simplified assessment of whether an acquired set of activities and assets is in fact a business. An entity may elect to apply, or not apply, the test. An entity may make such an election separately for each transaction or other event. If the concentration test is met, the set of activities and assets is determined not be a business and no further assessment is needed.

3. Restricted Cash

The Company has restricted cash in the amount of $0.3 million (2019 - $0.3 million) that is securing licence deposits with the General Directorate of Mining and Petroleum Affairs of the Republic of Turkey ("GDMPA"). This restricted cash is held with National Bank of Canada ("NBC") as security, along with the Account Performance Security Guarantee ("APSG") facility described below, for decommissioning or abandonment obligations and ongoing work programmes on the Company's Turkish licences and as security for third party gas purchase, as described in Note 9 - Revenue. As the expected abandonment date and work programmes for these assets is more than one year from March 31, 2020, this restricted cash and deposit have been classified as non-current in the Company's financial statements.

Effective March 17, 2020, the Company renewed its APSG facility with Export Development Canada ("EDC"). The APSG facility, which was issued to NBC allows the Company to use the facility as collateral for certain letters of credit issued by NBC. The facility is effective from March 17, 2020 to May 31, 2021 with a limit of US$4.5 million and can be renewed on an annual basis. The Company has issued approximately US$2.9 million in letters of credit under the APSG facility at current exchange rates.

4. Exploration and Evaluation Assets

Cost Balance, December 31, 2019 Additions Capitalised share-based compensation Effects of movements in exchange rates Balance, March 31, 2020

Total

$

4,006

421

32

(489)

$

3,970

Exploration and evaluation ("E&E") assets consist of the Company's exploration projects which are pending the determination of proved or probable reserves. Additions represent the Company's share of costs incurred on E&E assets during the period.

In circumstances where the Company has entered into farm-in arrangements whereby the farm-in partner ("partner") will earn a working interest on certain properties through payment of a pre-determined portion of the costs of exploration or development activities, Valeura recognises a disposal of the partner's working interest once the commitment has been met and the difference between the proceeds received and the carrying amount of the asset are recognised as a gain or loss in earnings for Property, Plant and Equipment assets and as a reduction of Exploration and Evaluation Assets for instances where the farm-in is on undeveloped land.

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