CYGAM Energy Inc.
TSX VENTURE : CYG

CYGAM Energy Inc.

November 27, 2014 07:00 ET

CYGAM Announces Third Quarter Financial Results and Outlook

CALGARY, ALBERTA--(Marketwired - Nov. 27, 2014) - CYGAM Energy Inc. (TSX VENTURE:CYG) ("CYGAM", or the "Company"), an emerging oil and gas company with interests in Tunisia and Italy, has filed its unaudited interim consolidated financial statements and related management's discussion & analysis ("MD&A") for the three and nine months ended September 30, 2014. These filings may be viewed on the Company's web site (www.cygamenergy.com) or at www.sedar.com.

CYGAM's third quarter results were impacted by the absence of oil sales during the quarter from the TT Field that is contained within the Bir Ben Tartar ("BBT") Concession in the Sud Remada exploration permit. All production for the quarter was included in inventory at quarter end and was subsequently sold on October 22, 2014.

Highlights of the quarter

  • Gross production from the TT Field averaged 2,529 bopd (222 bopd CYGAM net, post ETAP);
  • Impairment charge of $5.6 million with respect to the BBT Concession in Tunisia. This non-cash provision was recorded following an assessment of impairment indicators which included commodity prices, current operating costs and netbacks and current production levels;
  • Impairment charge of $1.7 million with respect to the Sud Remada exploration permit in Tunisia which was recorded following an assessment of impairment indicators, principally the ability of the Company to finance future exploration.
  • Additional penalty provision of $2.2 million with respect to the Sud Tozeur exploration permit in Tunisia. The total penalty provision was increased to $5.6 million as a result of uncertainty of closing the proposed sale transaction;
  • Net loss of $10.5 million, due principally to the factors described above; and
  • Deteriorating conditions relating to the Company's business in Tunisia and its liquidity situation and ability to fund its commitments.

A more detailed discussion of the results is included in the Company's unaudited interim consolidated financial statements and MD&A available on the Company's web site or SEDAR.

SELECTED FINANCIAL INFORMATION
Three Months ended September 30,Nine Months ended September 30,
2014 2013 2014 2013
Oil sales - Tunisia$-$2,507,719$4,241,077$6,544,670
Other income 20 243 1,650 6,155
20 2,507,963 4,242,727 6,550,826
Operating costs - 860,674 1,521,164 1,977,304
General and administrative 685,234 772,379 1,788,206 1,959,652
Stock based compensation 26,273 17,246 75,753 79,557
Financing costs 167,501 51,313 461,156 97,976
Impairment on property, plant and equipment 5,600,000 - 5,600,000 -
Impairment on exploration and evaluation assets 1,662,421 2,916,270 2,228,449 3,447,301
Exploration expense 17,587 443,009 46,508 -
Permit penalty 2,240,000 - 5,556,500 545,889
Export and state taxes 121,358 - 460,856 -
Depletion and depreciation 2,747 1,058,402 1,670,823 2,800,618
10,523,121 6,119,293 19,409,416 10,908,297
Net loss (10,523,101) (3,611,330) (15,166,689) (4,357,472)
Per share - basic and diluted$(0.10)$(0.03)$(0.13)$(0.04)
Total non-current financial liabilities$-$1,012,230$-$1,012,230.00
Total assets$15,082,896$19,177,316$15,082,896$19,177,316
OPERATING
Three Months ended September 30, Nine Months ended September 30,
2014 2013 2014 2013
Oil revenues$-$2,507,719$4,241,077$6,544,670
Operating costs$-$(860,674)$(1,521,164)$(1,977,304)
Net operating income$-$1,647,045$2,719,913$4,567,366
Depletion and depreciation$-$1,058,402$1,670,823$2,800,618
Revenue per boe$-$111.60$118.32$109.05
Operating costs per boe$-$38.30$42.44$32.95
Operating income per boe$-$73.30$75.87$76.10
(1) Net operating income and netback are non-IFRS measures. Net operating income and netback is defined as revenue less operating costs.
(2) Since ETAP pays all taxes and royalties from its share of production, net operating income is effectively after tax to the Company.

Operating Outlook and Going Concern

The majority of the planned 2014 capital expenditure program has been completed and fully funded. Remaining minor capital investment for the balance of 2014 related to infrastructure upgrades is expected be funded from cashflow. Excess free cash flow generated will be used to progressively pay down debt.

The Company's third quarter financial statements highlight material uncertainties that raise significant doubt as to the ability of the Company and its subsidiaries to continue as a going concern, including in relation to the Sud Tozeur exploration permit and the Company's debt financing arrangements.

Further to our news releases of August 18 and November 10, 2014, Rigo Oil Company Limited ("Rigo"), the Company's wholly owned subsidiary, submitted a revised proposal to the Tunisian authorities on September 11, 2014 in which Rigo and YNG Exploration Limited ("YNG"), a private company, proposed that a total of US$2.5 million of the penalty would be paid to the authorities upon transfer of the Sud Tozeur exploration permit to YNG. Of this total, US$2.0 million would be funded by YNG and the balance of US$0.5 million by Rigo. The balance of US$2.5 million would be paid by Rigo before the end of 2015.

Following informal feedback from the Tunisian authorities, a revised proposal was submitted to the Tunisian authorities on September 26, 2014. In this proposal, a total of US$2.5 million of the Penalty would be paid to the authorities upon transfer of the Sud Tozeur exploration permit to YNG. Of this total, US$2.0 million would be funded by YNG and the balance of US$0.5 MM by Rigo. The balance of US$2.5 million would be paid by Rigo as follows;

  • US$0.5 million by May 31, 2015
  • US$1.0 million by September 30, 2015
  • US$1.0 million by December 31, 2015

In addition, Rigo proposed to assign a share of its revenues from the BBT Concession as security for these deferred payments.

On November 7, 2014, the Tunisian authorities requested the following changes to our September 26, 2014, proposal:

  • US$2.5 million to be paid by November 30, 2014
  • US$2.5 million to be paid by March 31, 2015

In addition, the Tunisian authorities requested a bank guarantee for the US$2.5 million due by end March, 2015 plus, in the event of default, a share of Rigo's revenues from the BBT Concession. Rigo is not in a position to comply with the latest terms and has been engaged in further discussions with the Tunisian government authorities to find a mutually acceptable arrangement. The outcome of this situation cannot be determined at this time, however, in the event that agreement cannot be reached, then the Tunisian authorities have indicated that the Sud Tozeur exploration permit will be cancelled and penalties in the amount of up to US$9.0 million would be payable by Rigo.

The Company is dependent on debt financing provided by Ms. Neli Da Silva Rigo de Righi (and a company she controls) to fund its operating and capital requirements. Ms. Neli Da Silva Rigo de Righi, a director of the Company, owns or controls 25.9% of the Company's outstanding common Shares. To date, Ms. Da Silva Rigo de Righi has supported the Company and its subsidiaries by increasing the amount of debt funding available and agreeing to several amendments to extend the maturity dates for repayment of the outstanding principal and payment of the accrued and unpaid interest. In that regard, Ms. Da Silva Rigo de Righi and the Company have agreed to extend the maturity date for the repayment of outstanding principal and accrued and unpaid interest from January 1, 2015 to July 1, 2015. The amendment was approved by all of the independent directors of the Company. The Company is still required to use its best efforts to pledge the common shares of the Company's wholly-owned subsidiary, Cygam Energy Italia S.p.A. (the entity holding the Company's Italian assets), as security for the performance of the Company's obligations under the debt financing arrangements. While Ms. Da Silva Rigo de Righi has supported the Company in the past, there can be no assurance that she will be able and willing to do so in the future.

In addition, other material uncertainties that raise significant doubt as to the ability of the Company and its subsidiaries to continue as a going concern, include risks relating to:

  • reductions of the Company's net revenue for crude oil sales due to reduced oil prices under the BBT Concession and impact this has on the Company's liquidity position; and
  • the Company funding the required costs associated with its Tunisian exploration and development activities and the potential consequences for failing to do so.

A more detailed discussion of these material uncertainties are included in the Company's unaudited interim consolidated financial statements and MD&A available on the Company's web site or SEDAR. These disclosures are important and investors are encouraged to read them.

Financial Position and Liquidity

The Company had a working capital deficiency of $10.7 million as at September 30, 2014. Included in the working capital deficiency at September 30, 2014 is $.08 million of cash, $2.1 million of oil inventory, together with debt due to a major shareholder totalling $5.0 million due July 1, 2015 and penalties with respect to the Sud Tozeur exploration permit in Tunisia of $5.6 million.

To date, all exploration, development and other operational activities of the Company and its subsidiaries have been funded by cash generated from the BBT Concession in Tunisia, debt financing provided by a director and major shareholder of the Company and new equity issuances by the Company.

Cash on hand, projected cash flows from the BBT Concession and amounts available to the Company under its current debt financing arrangements will not be sufficient to fund the Company's commitments and additional financing will be required. The Company's MD&A for the third quarter discusses certain material uncertainties relating to the Company's liquidity and capital resources, including debt financing arrangements, commitments and funding requirements for the Company's Tunisian activities and risks associated with accessing the capital markets for additional financing. These uncertainties raise significant doubt as to the ability of the Company and its subsidiaries to fund its ongoing commitments and continue as a going concern.

A more detailed discussion of these material uncertainties are included in the Company's third quarter financial statements and MD&A available on the Company's web site or SEDAR. These disclosures are important and investors are encouraged to read them.

Strategic Alternatives

The Company's board of directors and management have been working to identify, examine and consider a range of strategic alternatives available to the Company, including new equity issuances, seeking one or more joint venture partners to fund exploration activities under the Company's exploration permits for the Sud Tozeur and Bazma blocks in Tunisia, a sale of some or all of the assets of the Company and/or its exploration subsidiaries, a merger, amalgamation or sale of the Company with or to a larger, better financed entity and causing Rigo to cease operations. The board has not engaged a financial advisor in connection with this strategic alternative process. To date, these efforts have been unsuccessful and there can be no assurance that the steps management is taking will be successful.

In that regard, the rules and policies of the TSX Venture Exchange prohibit the Company from issuing shares at a price below $0.05 per share. Given the current market price of the Common Shares, and the need to raise additional financing, the Board of Directors of the Company has called a special meeting of holders of Common Shares to be held on January 14, 2015 to approve a consolidation of the Common Shares. The purpose of this proposal is consolidate the shares in order to increase the market value of the Common Shares to allow for an equity financing of the Company in compliance with the rules and policies of the TSX Venture Exchange.

This press release should be read in conjunction with the unaudited consolidated interim financial statements for the three and nine month periods ended September 30, 2014 and the related MD&A for the same period together with the Company's audited consolidated financial statements for the years ended December 31, 2013 and 2012 and related MD&A for the year ended December 31, 2013, including, without limitation, the cautionary statements regarding forward-looking information contained therein.

About CYGAM Energy Inc.

CYGAM is a Calgary based exploration company with extensive international exploration permits and a producing property in Tunisia. The main focus of CYGAM is the acquisition, exploration and development of international oil and gas permits, primarily in Italy and Tunisia. CYGAM currently holds various interests in five exploratory permits in Italy plus two exploratory permits and the BBT Production Concession in Tunisia which together encompass a total of approximately 1.4 million gross acres.

Neither the 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.

Cautionary Statement regarding Forward-Looking Information

Certain information contained in this news release and documents referred to therein, including, without limitation, statements which contain words such as "anticipate", "could", "should", "expect", "seek", "may", "intend", "likely", "will", "believe" and similar expressions, statements relating to matters that are not historical facts, and statements of our beliefs, intentions and expectations about development, results and events which will or may occur in the future, constitute "forward-looking information" within the meaning of applicable Canadian securities legislation and are based on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in this news release and documents referred to therein includes, but is not limited to, statements relating to: expected cash provided by continuing operations; future capital expenditures, including the amount and nature thereof; oil and natural gas prices and demand; expansion and other development trends of the oil and natural gas industry; business strategy and outlook; expansion and growth of our business and operations; drilling and seismic plans and operations, including the costs, location and timing thereof; the formal award of certain permits; the extension date of certain permits and the terms and conditions attached thereto, including approval from the Comité Consultatif des Hydrocarbures; the penalties payable under the Sud Tozeur exploration permit; approval of payment terms of US$5.0 million penalty by Tunisian Ministry of Finance; satisfaction of the terms and conditions for completion of the Sale and Purchase Agreement with YNG Exploration Limited; timing of closing of the Sale and Purchase Agreement; the ability to obtain a farmin partner for the Bazma exploration permit; approval and timing of drilling at Elsa-2 by the Environmental Impact Assessment; the R factor for 2014 remaining unchanged; repayment of taxes payable by ETAP; the timing of putting security in place for the Amended RPN (as defined herein); the amount of capital expenditures for the remainder of 2014; the amount of capital expenditures for 2015; the ability of the Company to fund cash calls related to capital expenditures for 2015; the ability of the Company to fund penalty payments in 2015; the ability of the Company to attain profitability and positive cash flow; the fulfillment of the Company's work commitments under its permits; the evaluation of future wells; the timing of any transfers of operatorship; the submission of environmental impact assessments to the appropriate authorities; the maintenance of existing government, supplier and partner relationships; receipt of regulatory approvals for operating activities; plans for seeking joint venture partners; supply channels; accounting policies; credit risks; and other such matters.

All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and perception of trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances. With respect to the forward looking information contained in this news release and documents referred to therein, the Company has made assumptions regarding: future commodity prices; the impact of royalty regimes; the timing and the amount of capital expenditures; production of new and existing wells and the timing of new wells coming on stream; future operating expenses including processing and gathering fees; the performance characteristics of oil and natural gas properties; the size of oil and natural gas reserves; the ability to raise capital; the continued availability of undeveloped land and skilled personnel; the ability to obtain equipment in a timely manner to carry out exploration and development activities; the ability to obtain financing on acceptable terms; the ability to add production and reserves through exploration and development activities; changes in laws and regulations and changes they are interpreted; the receipt of required regulatory approvals and the continued stability of political, regulatory, tax and fiscal regimes in the countries in which the Company has operations.

The risks and uncertainties that may cause actual results to differ materially from the forward looking information are difficult to predict and may affect operations, including, without limitation: the risks associated with foreign operations including changes in the stability of political, regulatory, tax and fiscal regimes in the countries in which the Company has operations; foreign exchange fluctuations; commodity prices; equipment and labour shortages and inflationary costs; general economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital and obtain financing; the effect of weather conditions on operations and facilities; the existence of operating risks; imprecision of reserve and resource estimates; results of geological, geophysical and reservoir analysis and testing operations; volatility of oil and natural gas prices; oil and natural gas product supply and demand; unexpected decline rates; risks inherent in the ability to generate sufficient cash flow from operations to meet current and future obligations; increased competition; stock market volatility; failure to obtain required regulatory approvals or extensions; risks associated with the operation of the Company's assets by third parties, including the limited ability of the Company to exercise influence over the operation of those assets or their associated costs; and opportunities available to or pursued by us and other factors, many of which are beyond our control. The foregoing factors are not exhaustive.

Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits will be derived therefrom. As such, readers are cautioned not to place undue reliance on forward-looking information. Except as required by law, the Company disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

The forward-looking information contained herein is expressly qualified by this cautionary statement.

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