Despite the almost 48% decrease in world oil (WTI) and 40% decrease in natural gas prices (NYMEX) in 2015 from 2014, the Company realized gross revenues of $15,038,644 in 2015, representing a modest reduction of only 16.5% compared to gross revenues of $18,003,800 in 2014. 2015 was a challenging year for the industry and Quattro was not immune, realizing $4,488,203 in expenses for non-recoverable partner expenses (due to partner receiverships and bankruptcies), and administrative restructuring charges, which are in management’s opinion non-recurring in nature and therefore will not impact future profitability of the Company. These challenges were compounded by over 61 days of maintenance and plant turn-rounds by mid-stream operators, materially restricting the Company’s revenues in 2015.
Despite these challenges in 2015 the Company’s strong balance sheet at the end of 2014, positioned the Company to make the best of a challenging year. Below is a summary of the key results from the year-ended December 31, 2015:
|Net income from operations (net of non-reoccurring expenses) $15.56 per boe “Net Back”||$||7,313,912|
|Net income (net of non-reoccurring expenses)||$||846,769|
|Cash and equivalents||$||2,100,363|
|Working capital (net of Long Term Debt)||$||1,522,608|
|Net debt (excluding decommissioning liabilities & deferred taxes)||$||11,100,855|
At December 31, 2015, the Company’s restricted exit production was 1,580 boe/day, representing a 4% increase from December 31, 2014. The Company’s average production was 1,546 boe/day for the 304(net) days that were available which resulted in an annualized average production rate of 1,288 boe/d.
The Company continues to focus on the strengthening of its financial foundation, as summarized above, and reported in its audited financial statements and corresponding management discussion and analysis.
Leonard Van Betuw, President and CEO commented, “Through measured capital spending decisions, and a continued focus on cost reductions in combination with strategic acquisitions, the Company is pleased to report year-over-year growth of 150% in Quattro’s oil gas reserves of 6.602 mmboe on a Total Proven (1P) Reserves basis valued on December 31, 2015 at $58.5 million (NPVdiscounted10%) and 10.977 mmboe on a Proven plus Probable (2P) basis valued at $112.9 million (NPVdiscounted10%). This growth, despite an extremely challenging macro-environment for the Company, proving to the market, Quattro’s continuing focus on maintaining the capacity to make patient, measured and sound business decisions that ultimately are for the betterment of all stakeholders.”
Quattro remained focused in 2015 on the long term development of its business and completed three strategic acquisitions funded through the issuance of three series of non-voting Class C preferred shares totaling a value of $6,063,500. The Acquisitions targeted additions to Quattro’s existing core areas in British Columbia and Saskatchewan.
Following the filing of the year-end financial statements and correlated MD&A, Quattro will be filing with the Alberta Securities Commission for the revocation of the management cease trade order currently in place.
In December 2015, the Company completed the 100% acquisition of SRD Innovations Inc. (via the issuance of a fourth series of non-voting Class C shares), which was a strategic investment in a technology company which has certain products and intellectual property that in Management’s opinion will; vastly enhance the quality of data for the Company’s long term exploration and development program, reduce capital costs associated with this program, and potentially provide a significant diversified revenue stream to the Company.
Strategic Investment – SRD Innovations Inc.
“The acquisition of SRD Innovations Inc., remains consistent with Quattro’s mission statement, of being positioned as a competitively priced supplier of energy and an environmentally responsible Company,” said Leonard B. Van Betuw, President and CEO of Quattro. “SRD has been a known asset to Quattro for many years. A power house of intellectual personnel and capacity, recognized by a far reaching array of their peers including the IEEE, the National Science and Engineering Research Council and the Alberta Research Council. Quattro’s interest in SRD has been as a passive supporter for the past 5 years. Their skills as innovators are boundless, ranging from the foundations of cellular wireless standards, and Wi-Fi in the 1980’s to development of the stable power systems required for what is now commonly known as the MIR.”
“Quattro’s interest in SRD Innovations developed into a need two years ago, as SRD’s patent portfolio and research resulted in their first commercialized application; the hyMesh™ wireless solution, developed for the collection of real-time seismic imaging for exploration, reservoir engineering and micro-seismic monitoring and the analysis of hydraulic fracking. This innovative solution, is now quickly migrating, as all proven technologies do, into a vast arena of needs, including wireless communications, voice and video. Applications range from private and secure wireless communications and data networks, to collecting data from remote industrial work sites, to monitoring pipelines, to wireless video monitoring,” said Mr. Van Betuw.
“Quattro commenced negotiations with SRD Innovations Inc. in 2014 for the application of SRD’s technologies in the areas of focus Quattro thought were a priority, only to realize that we were competing with a growing monster, just a few competing industries were; WIRELESS COMMUNICATION NETWORKS, AGRI-TECH, INDUSTRIAL ASSET MANAGEMENT, AND ATONOMOUS EQUIPMENT CONTROL AND VIDEO DATA STREAMING.”
“After 18 months of contract negotiations, and the development of a strong appreciation of SRD’s technological applications, potential and challenges it became apparent that buying the Company, participating in the growing licensing revenues and gaining control over the SRD’s technology in the areas of resources exploration and development was not only the best solution for the low cost implementation and the continuing application of the technology for Quattro’s needs but it had the potential to be a very accretive investment opportunity.”
Summary of the Acquisition
|Market:||WIRELESS NETWORKS, MONITORING AND SECURE DATA TRANSMISSION|
|Purchase Price:||$3,500,800 of Preferred Class C shares priced @ $100 each.|
|Business:||Wireless Communications, 100% of hardware sales and 25% (net) of licensing revenues.|
|Employees:||2 employees, plus consultants growing to 12 in 5 years (estimated)|
|Assets:||Patents, Inventory, Research Laboratories and Office Equipment Potential**: Sales of more than $100,000,000 per year by 2020.|
**Quattro anticipates that annual savings due to the illumination of alternative services through the application and implementation of SRD’s “technology” starting in 2016 will result in a savings of approximately $500,000 per year in the next 5 years at current production levels and sheltering the Company from additional costs of $8,000,000 in costs, over the same 5 years based on the Company’s, exploration and production plans from 2016 – 2020.
Results of Quattro Acquisition of SRD Innovations Inc. (Note 7 to Quattro’s Audited December 31, 2015)
On November 26, 2015, the Company acquired 100% of all total outstanding Class A shares of a technology company and intellectual property data for $3,501,000, paid by the issuance of 35,010 Class C Series IV convertible preferred shares at $100 per share, and an earn-out payable estimated at $2,120,443 on the acquisition date. The earn-out was determined based on post-acquisition forecasted unit sales of the newly acquired subsidiary, payable over 20 years. The purchase and sale agreement was signed on November 21, 2015, with an effective date of December 30, 2015. The transaction was accounted for as business combination under IFRS 3 – “Business Combinations” as the assets met the definition of a business.
The results of operations of Quattro (SRD) Innovations are included in the audited consolidated financial statements beginning on the date of acquisition and contributed $312,437 to the Company’s net loss for the year ended December 31, 2015. Had Quattro (SRD) Innovations been consolidated from January 1, 2015, its contribution to net loss would have been reduced by a SRED recovery of $123,979.
|Net assets acquired|
|Fair value of identifiable net assets||410,793|
|Identified intangible assets on acquisition||3,709,192|
|Deferred tax liability||(1,001,482||)|
|Total identifiable net assets||5,621,443|
|35,010 preferred shares||$||3,501,000|
The net assets acquired have been allocated to the Quattro Innovations Inc. business segment, while the intellectual property has been recorded as an intangible asset within the property and equipment of Quattro Exploration and Production Ltd. (Please refer to Note 12).
The purchase price allocation for this transaction has not been finalized as of the current reporting date. Under IFRS, the allocation must be finalized within one year of the acquisition date.
Subsequent to the Acquisition of SRD Innovations Inc.
Quattro Exploration and Production Ltd., as the owner of SRD Innovations, in December strengthened the business relationship under the direction of Quattro and negotiated an expanded relationship previously under development at SRD with a Saskatoon based Manufacturer and Distributor of Agri-Tech services equipment. The result was the sale of the exclusive manufacturing and distribution rights to Intelliconn Communication Solutions Inc. of Quattro (SRD) Innovations Inc. hyMesh™ Wireless Products in the areas of agricultural applications and associated rural regions.
Investments (Note 23 to Quattro’s Audited December 31, 2015)
On December 15, 2015, the Company entered into an arm’s length agreement, whereby it sold the exclusive worldwide distribution rights to certain of its intellectual property in the areas of agricultural and associated rural markets to a private company for $5,000,000. The purchase price was settled by way of cash and notes payable of $2,000,000 and 600,000 common non-voting shares of the distributor at a deemed value of $5 per share. Following closing and year end, a fair value assessment in accordance with IFRS was concluded and the acquisition of the 600,000 shares received was recorded at a fair value of $1.50 per share.
“Intelliconn products, business, network of distributors and potential is impressive. We look forward to a long relationship with Intelliconn. The distributorship is anticipated to grow from revenues of $500,000 (net) annually to $16,000,000 (net) in 2020 for Quattro (SRD) Innovations Inc. Quattro is pleased to announce the results of this strategic investment,” said Leonard B. Van Betuw, President and CEO. “To some this may appear to be a distraction, but Quattro’s decision is based on boldly investing in Innovations that the industry needs. The Sale to Intelliconn Communication Solutions Inc. was an opportunity to put a solid footing under Quattro Innovations as a standalone subsidiary, and transition Quattro Innovations Inc. into a profitable business unit that will allow it to continue to focus on its remaining core markets of wireless communication networks, industrial asset management and security in addition to addressing Quattro’s needs in the areas of production management, monitoring, real-time seismic imaging for exploration, reservoir engineering and the growing need for micro-seismic monitoring and the analysis of hydraulic fracking.”
About Quattro Exploration and Production Ltd.
Quattro Exploration and Production Ltd. (“QXP”) continues to focus on the conventional exploration and development of oil and natural gas reserves in Western Canada, with an expanding presence in Alberta and British Columbia. It’s core low risk production base will provide the Company the capacity to aggressively pursue a series of high impact exploration and development efforts in Central and South America. Quattro intends to balance this portfolio of activities to assure its shareholders that it achieves material growth in both reserves and production.