I pulled the Management Discussion and Analysis. Looks to be a reiteration of the other report. Posted some of it below, pretty lengthy...
Chelsea Oil and Gas Ltd.
Management Discussion and Analysis
For the years ended December 31, 2013 and 2012
April 30, 2014
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BASIS OF PREPARATION
The following Management’s Discussion and Analysis (“MD&A”) dated April 30, 2014 is a review of the
results of operations and the liquidity and capital resources of Chelsea Oil and Gas Ltd. (“Chelsea” or the
“Company”) for the years ended December 31, 2013 and 2012.
The audited consolidated financial statements of the Company and its subsidiaries have been prepared in
accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). This is the
second reporting period in which the Company has prepared its financial statements under IFRS and the
comparative information has been restated from US Generally Accepted Accounting Principles
(“USGAAP”) to comply with IFRS. In these financial statements, the term USGAAP refers to United States
GAAP before the adoption of IFRS. Reconciliations to IFRS from the previously published USGAAP
financial statements are shown in note 19 in the Company’s financial statements for the years ended
December 31, 2013 and 2012.
The Company’s significant accounting policies under IFRS are presented in note 4 in the audited
consolidated financial statements. These policies have been retrospectively and consistently applied
except where specific exemptions permitted an alternative treatment upon transition to IFRS in
accordance with IFRS 1, First-time Adoption of IFRS. The impact of the new standards, including
reconciliations presenting the change from previous USGAAP to IFRS as at January 1, 2012, and as at
and for the year ended December 31, 2012, is presented in note 19 in the Company’s audited
consolidated financial statements for the years ended December 31, 2013 and 2012. As a result,
financial statements previously filed by the Company when it was called Australian-Canadian Oil
Royalties Ltd. (”ACOR”) compiled under USGAAP are not directly comparable to the
accompanying audited consolidated financial statements for the years ended December 31, 2013
and 2012.
Certain information contained herein is forward-looking and based upon assumptions and anticipated
results that are subject to risks, uncertainties and other factors. Should one or more of these uncertainties
materialize or should the underlying assumptions prove incorrect, actual results may vary materially from
those expected. For additional information, refer to Section 13 - Forward Looking Statements.
All dollar amounts herein are US Dollars unless otherwise noted.
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CHAIRMAN’S MESSAGE
I am pleased to provide this first annual report for Chelsea Oil and Gas Ltd. as successor to Australian
Canadian Oil Royalties Ltd.
Under its new management and Board, Chelsea has assembled a portfolio of oil and gas assets onshore
Australia, principally in Queensland. The assets, by design, cover the oil and gas risk spectrum. We hold
high risk, high reward unconventional prospects in the Georgina Basin through medium risk conventional
light oil prospects in the Western Flank play of the Cooper Basin, and lower risk development and
exploitation of previous discoveries and newly defined opportunities within the Surat-Bowen Basin,
Australia’s oldest petroleum producing basin.
Georgina Basin
Key to managing and controlling our largest asset, on October 1, 2013 was the completion of our merger
of International TME Resources Inc., which consolidated ownership of the five million acre ATP 582. This
permit includes one million acres of land within the Toko Syncline of the southern Georgina Basin, the
area of the basin thought to be the most prospective for both conventional and unconventional
hydrocarbon accumulations. Further, a large portion of the permit covers lands considered prospective for
unconventional resources in the Triassic strata of the Simpson Basin sequence.
Current industry activities in the Georgina Basin with potentially dramatic impact on Chelsea include the
recent announcement by Total S.A of the acceleration of exploration expenditures on its immediately
adjacent joint venture with Central Petroleum Ltd., from $60 million to $95 million in the first phase of a
three phase programme of up to $190 million of expenditures. Over 1,000 kilometers of new seismic data
has recently been acquired and six wells are expected to be drilled within the next year to core and
evaluate the unconventional potential of the Cambrian Arthur Creek formation in the Toko Syncline. This
drilling programme is slated to begin in May 2014.
Also, immediately adjacent to Chelsea’s ATP 582 west boundary, Statoil ASA has recently drilled and
cased the first of up to five test wells to be drilled under the terms of their re-structured farm-in with
Petrofrontier Corp. Testing and fracture stimulation is to be conducted on several wells to be determined
after completion of the drilling program. This brings Statoil’s potential expenditure to $205 million over
three phases.
Statoil ASA had previously announced it would be increasing its expenditures and concentrating its efforts
in the area of the Owen wells. This area of the Statoil/Petrofrontier permits is the most geologically similar
to that of ATP 582 although it does not have the much thicker interval of prospective Cambrian strata that
is present in the Toko Syncline underlying Chelsea’s ATP 582. This brings Statoil’s potential expenditure
to $205 million over three phases.
Cooper Basin
In the Cooper Basin “West Flank” light oil play, Chelsea has farmed out its non-operated approximate
14% working interest in PEL’s 112 and 444 for 3D seismic and one well commitment to each of its two
permits. To date, the 3D has been completed on both permits and one unsuccessful exploratory well
drilled on PEL 112. The second earning well on PEL 444 is committed to be drilled in 2014.
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Surat-Bowen Basin
Chelsea’s lower risk exploitation and development assets in the Surat-Bowen Basin will be the focus of
our efforts in the near future as we strive to build cashflow. Our technical team believes that while the
Surat-Bowen basins are considered mature by Australian standards, much potential remains for not only
secondary and enhanced recovery projects as typically applied in North America, but also for significant
low risk exploration and development in areas and formations previously considered uneconomic.
Further, the fiscal regime for oil and, especially natural gas is very attractive to producers. Unlike North
American where natural gas prices have fluctuated wildly the past decade, in the continental market,
Australia and particularly Queensland has a long term demand for natural gas to supply its existing and
planned LNG exports to Asia. This Asian demand and the under- performance of the coal seam gas
sector has resulted in current prices of $8-$10 per GJ, projected to increase to $12 to $14 per GJ over the
next three to five years.
As a result of technical work the past year, and the current and projected attractive product prices,
increased portfolio value has been realized in the form of potentially significant new Probable gas
reserves being attributed to our Louise PL 40 permit in the basin. As our technical evaluation of the basin
expands, additional new similar opportunities are being recognized and inventoried.
The environment for oil is similarly attractive. The basin generally produces very high quality oil that is
priced according to Tapis, a Malaysian benchmark crude that trades at a significant premium to both WTI
and Brent crude. Further pricing support comes from the fact that Australia is a significant net importer of
crude oil.
Funding and Capitalization
While the Company’s commitments are modest considering the scope and potential of its asset base,
funding is required to advance the projects. To this end, Chelsea has initiated a financing process.
Response from the investment community has been very positive with regard to the Company’s assets
and in spite of current challenging market conditions for small cap energy ventures, we have received
support from several investment banks and institutions. We are optimistic that a significant financing can
be secured in the near term, sufficient to meet our work obligations and advance our current Surat-Bowen
projects to cash generating status. Particulars of any deals reached will of course be promptly press
released.
Summary
Management and the Board believe strongly in the quality and depth of Chelsea’s assets base. The
pieces are in place and the catalysts exist to provide a step-change in shareholder value. The “free
exploration” being carried out by Total S.A and Statoil ASA in the Georgina Basin is the most significant
of these at this time. The acceleration of Total S.A’s expenditures of up to $190 million on one side of
Chelsea and up to $205 million by Statoil ASA on the other side dwarf the modest $11 million work
requirement over the next three years on Chelsea’s ATP 582 and attest to the prospectivity of ATP 582.
Chelsea could be considered an option play on the knowledge and expertise of two of the world’s
foremost multi-national energy companies.
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An additional catalyst is the potential to establish and grow early cash flow from the Surat-Bowen assets.
Current plans call for a capital expenditure of approximately five million dollars on a 3D seismic survey,
initiation of pressure maintenance/water flood, at least one development oil well and one recompletion to
evaluate the newly defined Probable gas reserves on the Louise permit.
In the Cooper Basin, a discovery on the farm-out of PEL’s 112 and 444, while a small working interest,
would contribute significant cash flow, as typically these wells produce at high rates. Also within the
Cooper Basin, Chelsea holds numerous legacy overriding royalty interests (ORRI), generally small in size
but covering extensive permit areas. These include a 0.175% ORR on the 2.9 Tcf Hornet discovery. A
$500 million development of this discovery is planned by Senex, beginning in 2014. This is forecast to
generate up to one million dollars per year to Chelsea under full field development. In total, including
offshore Gippsland Basin, Chelsea holds varying ORRI’s in over 12 million acres in addition to its net
approximate 5.2 million acres of high working interest lands.
In closing, I thank all shareholders for their patience in the re-structuring of the Company and the
consolidation of its asset base. On behalf of the Board of directors, I look forward to reporting on the
exploitation of Chelsea’s impressive asset portfolio.
William (Bill) Petrie Sr.
Executive Chairman
Chelsea Oil and Gas Ltd.
April 30, 2014
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