MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis ("MD&A") of the consolidated financial results of Crown Point Energy Inc. ("Crown Point" or the "Company") is at and for the three and nine months ended September 30, 2024.
This MD&A is dated as of and was approved by the Company's Board of Directors on November 11, 2024, and should be read in conjunction with the Company's unaudited September 30, 2024 condensed interim consolidated financial statements (the "Q3 Financial Statements") and the audited December 31, 2023 consolidated financial statements, prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IFRS Accounting Standards").
The Company's Q3 Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, CanAmericas (Argentina) Energy Ltd. and Crown Point Energía S.A..
The functional currency of the Company's two subsidiaries is the United States dollar ("USD"); the functional currency of the Company is the Canadian dollar ("CAD"). The Company's presentation currency is the USD. In this MD&A, unless otherwise noted, all dollar amounts are expressed in USD. References to "ARS" are to Argentina Pesos.
Throughout this MD&A and in other materials disclosed by the Company, we adhere to IFRS Accounting Standards, however the Company also employs certain non-IFRS measures to analyze financial performance, financial position, and cash flow, including "operating netback". Additionally, other financial measures are also used to analyze performance. These non-IFRS and other financial measures do not have any standardized meaning prescribed by IFRS Accounting Standards and therefore may not be comparable to similar measures provided by other issuers. The non-IFRS and other financial measures should not be considered to be more meaningful than financial measures which are determined in accordance with IFRS Accounting Standards, such as net income (loss), oil and natural gas sales revenue and net cash provided by (used in) operating activities, as indicators of our performance. This MD&A also contains oil and natural gas information, abbreviations and forward-looking information relating to future events and the Company's future performance. Please refer to "Non-IFRS and Other Financial Measures", "Abbreviations and BOE Presentation" and "Advisories" sections at the end of this MD&A for further information.
Additional information relating to Crown Point, including Crown Point's Q3 Financial Statements, audited December 31, 2023 consolidated financial statements and other filings are available on SEDAR+ at www.sedarplus.ca.
In the following discussion, the three and the nine months ended September 30, 2024 may be referred to as "Q3 2024" and "the September 2024 period", respectively, and as "the 2024 periods" collectively. The comparative three and nine months ended September 30, 2023 may be referred to as "Q3 2023" and "the September 2023 period", respectively, and as "the 2023 periods", collectively. The previous three-month period ended June 30, 2024 may be referred to as "Q2 2024".
CORPORATE OVERVIEW AND STRATEGY
Crown Point (TSX-V:CWV) is a Calgary-based junior international oil and gas company with producing assets and an opportunity base in four producing basins in Argentina: the Golfo San Jorge basin in the Province of Santa Cruz, the Austral basin in the Province of Tierra del Fuego ("TDF") and the Neuquén and Cuyo (or Cuyana) basins, in the Province of Mendoza.
The Company's strategy is designed to deliver low-risk growth and capitalize on large potential exploration upside. Specifically, Crown Point is focused on increasing its production base in Santa Cruz, TDF and Mendoza through exploration and development drilling supplemented by recompletion and fracture stimulation of select older producing wells. The Company's production is derived from its participating interest in the Piedra Clavada and Koluel Kaike hydrocarbon exploitation concessions in Santa Cruz (the "Santa Cruz Concessions"), the Rio Cullen, Las Violetas and La Angostura exploitation concessions in TDF (the "TDF Concessions"), the Chañares Herrados concession in Mendoza (the "CH Concession" or "CH") and
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Crown Point Energy Inc. June 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS
the Puesto Pozo Cercado Oriental concession in Mendoza (the "PPCO Concession" or "PPCO"). CH and PPCO may be referred to collectively as the Mendoza Concessions.
Crown Point is also conducting an exploration program in its 100% interest in the Cerro de Los Leones ("CLL") exploration concession permit (the "CLL Permit") in the Province of Mendoza.
Santa Cruz Acquisition
On October 31, 2024, Crown Point closed the acquisition of a 100% operating interest in the Santa Cruz Concessions. The effective date of the acquisition is January 1, 2024. The Santa Cruz Concessions are located in the Santa Cruz Province, on the southern flank of Golfo San Jorge basin, approximately 200 kilometers southwest of Comodoro Rivadavia. The Santa Cruz Concessions, comprising a total of 71,593 acres, include Company owned extensive infrastructure in place capable of handling larger than current production volumes, which averaged production of 3,223 bbl/d of oil during the first half of 2024. See "Subsequent Events".
TDF Acquisition
On August 12, 2024, the Company entered into a sale and purchase agreement with an arm's length party (the "Seller") to acquire the Seller's 16.9972% non-operating participating interest in the TDF Concessions (the "TDF Acquisition"). The purchase price payable by Crown Point to the Seller is $0.7 million cash ($0.3 million of which has been paid as a deposit), subject to customary closing adjustments, including for crude oil and natural gas inventories attributable to the participating interest on the effective date of the TDF Acquisition, which is July 1, 2024.
Completion of the TDF Acquisition is subject to, among other things, the receipt of all necessary regulatory, stock exchange and Provincial approvals, the waiver or expiration of applicable rights of first refusal ("ROFR"), and other customary closing conditions. Crown Point's partners in the TDF Concessions have ROFRs in connection with the TDF Acquisition. If one or more of such partners exercises its ROFR, the Company will acquire the portion of the participating interest in respect of which the ROFR has not been exercised, and the purchase price shall be adjusted accordingly.
OPERATIONAL UPDATE
TDF Concessions
Crown Point and its joint venture partners are exporting oil by truck to the ENAP refinery at San Gregorio, Chile, and to the Total Austral facilities in Rio Cullen. Crude oil trucked to both San Gregorio and Rio Cullen is sold at a discount to the Brent oil price.
During Q3 2024, San Martin oil production averaged 453 (net 157) bbls of oil per day; Las Violetas concession natural gas production averaged 8,960 (net 3,112) mcf per day and oil production averaged 218 (net 76) bbls of oil per day.
Mendoza Concessions
During Q3 2024, the UTE carried out one workover on an oil well in the CH Concession. Oil production for Q3 2024 averaged 812 (net 406) bbls of oil per day from the CH Concession and 140 (net 70) bbls of oil per day from the PPCO Concession.
CLL Permit
In February 2023, the Province of Mendoza issued Resolution N°208 which formally granted the CLL Permit over the CLL area for a term of 18 months until October 23, 2023.
The Company is in conversations with the Province of Mendoza for an extension of the CLL Permit or other alternatives for the CLL Permit, including the potential compensation of the Company's only outstanding commitment, consisting of a well repair, with working units performed by the Company in excess of what was otherwise required during the exploration period of the CLL Permit.
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Crown Point Energy Inc. September 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS
OUTLOOK
Capital Spending - Developed and Producing Assets included in Property and Equipment
Previous | Updated | ||
guidance for | guidance for | ||
2024 | 2024 | Explanation | |
TDF Concessions ($) | 1.5 million | 0.8 million | Well workover re-scheduled to 2025 |
Mendoza Concessions ($) | 2.2 million | 2.8 million | Re-estimation of costs |
3.7 million | 3.6 million |
The Company's capital spending on developed and producing assets for fiscal 2024 is budgeted at approximately $3.6 million. During the September 2024 period, the Company incurred $1.8 million of capital expenditures comprised of $0.1 million in the TDF Concessions and $1.7 million in the Mendoza Concessions
The Company expects to spend the remaining $1.8 million during the last quarter of 2024 on expenditures for the following proposed activities:
- $0.8 million on improvements to facilities in the TDF Concessions; and
- $1.0 million for a well workover, facilities improvements and optimization in the Mendoza Concessions.
Capital Spending - Exploration and Evaluation Assets
The Company does not plan to spend any funds in fiscal 2024 on exploration and evaluation assets.
Crown Point expects to fund its capital spending, along with its other anticipated expenses, using cash held in bank accounts, cash flow from operations and/or new debt. See "Liquidity and Capital Resources".
Argentina - Economic Summary
According to the Regional Economic Outlook published on October 25, 2024, the International Monetary Fund states that Argentina's firm implementation of the economic program is helping to restore macroeconomic stability. During the first half of 2024, Argentina achieved a fiscal surplus, rebuilt reserves, and reduced inflation. Economic activity expanded after April, although the pace of recovery remains uncertain and uneven across sectors. Sustaining progress will require further evolving policies, including on the monetary, exchange rate, and structural fronts. According to policy benchmarks, after contracting about 3.5% in 2024, the economy is projected to expand about 5% in 2025. Meanwhile, annual inflation is projected to end the year below 140% before falling to around 45% by the end of 2025.
The Argentine government authorities announced in October 2024 that the World Bank Group and the International Development Bank Group will provide financing of $8.8 billion to promote Argentine economic development.
The inflation rate reached 101.6% for the September 2024 period and 209.0% during the 12-month period ending September 30, 2024.
Commodity Prices
Oil
Oil from the Company's TDF Concessions is sold at a discount to the Brent oil price and oil from the Company's Mendoza Concessions is sold at a price negotiated with the customer. During Q3 2024, the Company received an average of $59.94 per bbl for its TDF oil, all of which was exported and $69.53 per bbl for its oil from the Mendoza Concessions, all of which was sold to the domestic market.
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Crown Point Energy Inc. September 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS
Natural gas
Crown Point can sell its natural gas production to both industrial and residential consumers. Crown Point has sold all of its natural gas production to the industrial market since 2020. During Q3 2024, the Company received an average of $3.48 per mcf for its TDF natural gas.
FINANCIAL INFORMATION
SUMMARY OF FINANCIAL INFORMATION
(expressed in $, except shares outstanding) | September 30 | December 31 | December 31 | ||
2024 | 2023 | 2022 | |||
Current assets | 5,492,636 | 7,636,408 | 9,852,182 | ||
Current liabilities | (35,165,540) | (19,422,342) | (11,125,229) | ||
Working capital (3) | (29,672,904) | (11,785,934) | (1,273,047) | ||
Exploration and evaluation assets | 14,094,575 | 14,103,353 | 14,115,555 | ||
Property and equipment | 41,925,646 | 45,834,731 | 43,963,610 | ||
Total assets | 66,215,433 | 67,785,665 | 68,183,547 | ||
Non-current financial liabilities (1)(3) | 8,993,076 | 18,317,856 | 16,055,005 | ||
Share capital | 56,456,328 | 56,456,328 | 56,456,328 | ||
Total common shares outstanding | 72,903,038 | 72,903,038 | 72,903,038 | ||
(expressed in $, except shares outstanding) | Three months ended | Nine months ended | |||
September 30 | September 30 | ||||
2024 | 2023 | 2024 | 2023 | ||
Oil and natural gas sales revenue | 5,560,809 | 7,400,992 | 17,246,209 | 21,235,332 | |
Loss before taxes | (3,490,096) | (2,084,976) | (9,966,566) | (7,751,038) | |
Net loss | (2,063,972) | (2,027,637) | (6,024,390) | (6,031,549) | |
Net loss per share (2) | (0.03) | (0.03) | (0.08) | (0.08) | |
Net cash (used) provided by operating activities | (1,793,711) | 2,144,720 | (2,861,420) | 2,453,571 | |
Net cash per share - operating activities (2)(3) | (0.02) | 0.03 | (0.04) | 0.03 | |
Funds flow (used) provided by operating activities | (1,201,259) | 622,333 | (2,085,892) | (501,188) | |
Funds flow per share - operating activities (2)(3) | (0.02) | 0.01 | (0.03) | (0.01) | |
Weighted average number of shares - basic | 72,903,038 | 72,903,038 | 72,903,038 | 72,903,038 |
- Non-currentfinancial liabilities are comprised of the non-current portions of trade and other payables, notes payable and lease liabilities. The total amount of trade and other payables at September 30, 2024 is $7,055,663 of which $5,564,137 is classified as current (December 31, 2023 - $7,248,650 of which $5,768,105 is classified as current; December 31, 2022 - $6,655,100 of which $6,107,607 was classified as current). The total amount of notes payable at September 30, 2024 is $29,244,240 of which $22,061,186 is classified as current (December 31, 2023 - $28,757,720 of which $12,298,533 is classified as current; December 31, 2022 - $14,542,382 of which $7,233 was classified as current). The total amount of lease liabilities at September 30, 2024 is $575,353 of which $256,857 is classified as current (December 31, 2023 - $865,168 of which $487,044 is classified as current; December 31, 2022 - $1,455,890, of which $483,527 was classified as current).
- All per share figures are based on the basic weighted average number of shares outstanding in the period. The effect of options is anti-dilutive in loss periods. Per share amounts may not add due to rounding.
- "Working capital" is a capital management measure. "Non-current financial liabilities" is a supplemental financial measure. "Net cash per share - operating activities" is a supplemental financial measure. "Funds flow per share - operating activities" is a supplemental financial measure. See "Non-IFRS and Other Financial Measures" for additional disclosures.
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Crown Point Energy Inc. September 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Operating Netback
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2024 | 2023 | 2024 | 2023 | |
Oil and natural gas sales revenue ($) | 5,560,809 | 7,400,992 | 17,246,209 | 21,235,332 |
Export tax ($) | (76,514) | (139,494) | (309,309) | (377,964) |
Royalties and turnover tax ($) | (999,926) | (1,299,685) | (3,045,017) | (3,557,850) |
Operating costs ($) | (4,877,196) | (4,793,415) | (14,118,773) | (15,048,736) |
Operating netback (1) ($) | (392,827) | 1,168,398 | (226,890) | 2,250,782 |
- "Operating netback" is a non-IFRS measure. See "Non-IFRS and Other Financial Measures".
Per BOE, except total BOE sales volumes | Three months ended | Nine months ended | ||
September 30 | September 30 | |||
2024 | 2023 | 2024 | 2023 | |
Total BOE sales volumes | 129,807 | 138,243 | 370,183 | 407,863 |
Oil and natural gas sales revenue ($) | 42.84 | 53.54 | 46.59 | 52.06 |
Export tax ($) | (0.59) | (1.01) | (0.84) | (0.93) |
Royalties and turnover tax ($) | (7.70) | (9.40) | (8.23) | (8.72) |
Operating costs ($) | (37.57) | (34.67) | (38.14) | (36.90) |
Operating netback (1) ($) | (3.02) | 8.46 | (0.62) | 5.51 |
- "Operating netback per BOE" is a non-IFRS ratio. See "Non-IFRS and Other Financial Measures".
Variances in the operating netback for Q3 2024 as compared to Q3 2023 are explained by changes in sales volumes and revenues, export taxes, royalties and turnover tax and operating costs as detailed below.
Sales Volumes and Sales Revenues
Three months ended | Nine months ended | |||
Sales volumes | September 30 | September 30 | ||
2024 | 2023 | 2024 | 2023 | |
Light oil (bbls) | 62,475 | 88,507 | 210,363 | 256,845 |
NGL (bbls) | 1,422 | 1,770 | 4,931 | 4,818 |
Natural gas (mcf) | 395,460 | 287,803 | 929,335 | 877,198 |
Total BOE | 129,807 | 138,243 | 370,183 | 407,863 |
Light oil bbls per day | 679 | 962 | 768 | 941 |
NGL bbls per day | 15 | 19 | 18 | 18 |
Natural gas mcf per day | 4,298 | 3,128 | 3,392 | 3,213 |
Total BOE per day | 1,410 | 1,502 | 1,351 | 1,495 |
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Crown Point Energy Inc. September 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS
Three months ended | Nine months ended | |||
Sales revenue | September 30 | September 30 | ||
2024 | 2023 | 2024 | 2023 | |
Light oil ($) | 4,135,151 | 5,410,358 | 13,574,156 | 16,217,489 |
NGL ($) | 47,598 | 42,484 | 147,922 | 175,375 |
Natural gas ($) | 1,378,060 | 1,948,150 | 3,524,131 | 4,842,468 |
Total sales revenue | 5,560,809 | 7,400,992 | 17,246,209 | 21,235,332 |
Light oil per bbl ($) | 66.19 | 61.13 | 64.53 | 63.14 |
NGL per bbl ($) | 33.47 | 24.00 | 30.00 | 36.40 |
Natural gas per mcf ($) | 3.48 | 6.77 | 3.79 | 5.52 |
Total sales revenue per BOE ($) | 42.84 | 53.54 | 46.59 | 52.06 |
Sales Volumes
During Q3 2024, the Company's average daily sales volumes were 1,410 BOE per day, higher than 1,340 BOE per day in Q2 2024 and lower than 1,502 BOE per day in Q3 2023 mainly due to lower oil sales volumes from the Mendoza Concessions in Q3 2024.
Sales volumes were weighted as follows:
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2024 | 2023 | 2024 | 2023 | |
Light oil | 48% | 64% | 57% | 63% |
NGL | 1% | 1% | 1% | 1% |
Natural gas | 51% | 35% | 42% | 36% |
Total | 100% | 100% | 100% | 100% |
Production Volumes
Average daily production volumes for Q3 2024 were 1,235 BOE per day, slightly lower than 1,248 BOE per day in Q2 2024 and lower than 1,452 BOE per day in Q3 2023 mainly due to lower oil production volumes from the Mendoza Concessions related to mechanical issues that required a greater quantity of well workovers and interventions combined with lower oil and gas production volumes from the TDF Concessions related to the natural decline rates on oil and natural gas wells.
Three months ended | Nine months ended | |||
Production volumes | September 30 | September 30 | ||
2024 | 2023 | 2024 | 2023 | |
Light oil (bbls) | 65,142 | 83,910 | 196,210 | 250,199 |
NGL (bbls) | 1,482 | 1,710 | 4,906 | 4,502 |
Natural gas (mcf) | 281,977 | 287,803 | 836,219 | 877,198 |
Total BOE | 113,620 | 133,587 | 340,485 | 400,901 |
Light oil bbls per day | 708 | 912 | 716 | 916 |
NGL bbls per day | 16 | 19 | 18 | 16 |
Natural gas mcf per day | 3,065 | 3,128 | 3,052 | 3,213 |
Total BOE per day | 1,235 | 1,452 | 1,243 | 1,468 |
Oil (and related NGL) production from TDF may be either (1) stored then shipped for sale to the domestic market and/or international brokers for export or (2) trucked and sold to Chile. The sale of crude oil transported by ship from TDF can be impacted by intermittent shipments due to storage levels and weather conditions and/or by delivery restrictions arising due to repair and maintenance activities at the shipping
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Crown Point Energy Inc. September 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS
terminal.
Oil production from the Mendoza Concessions is sold to the domestic market and may be stored and then trucked to the delivery point in Tupungato, Mendoza.
Oil and NGL sales volumes may include both previously inventoried volumes as well as current period production.
As at September 30, 2024, all previously inventoried oil production had been sold as well as a portion of oil produced in Q3 2024, with excess oil production stored in inventory for sale in subsequent months.
For the nine months ended | Oil | NGL | |||||||
September 30 | 2024 | 2023 | 2024 | 2023 | |||||
bbls | bbls per | bbls | bbls per | bbls | bbls per | bbls | bbls per | ||
day | day | day | day | ||||||
Inventory, January 1 | 26,945 | 39,364 | 2,207 | 2,446 | |||||
Production | 196,210 | 716 | 250,199 | 916 | 4,906 | 18 | 4,502 | 16 | |
Sales | (210,363) | (768) | (256,845) | (941) | (4,931) | (18) | (4,818) | (18) | |
Inventory, September 30 | 12,792 | 32,718 | 2,182 | 2,130 | |||||
All of the Company's natural gas production is usually sold in the period produced, therefore natural gas sales volumes have historically equalled production volumes. However, during Q4 2023 a portion of natural gas production was not sold due to the drop in demand combined with the drop in natural gas spot prices and was included in inventory at December 31, 2023 and was sold during the September 2024 period.
For the nine months ended | Natural gas | |||
September 30 | 2024 | 2023 | ||
mcf | mcf per | mcf | mcf per | |
day | day | |||
Inventory, January 1 | 79,598 | - | ||
Production | 836,219 | 3,052 | 3,052 | 3,213 |
Gas imbalance | 13,518 | - | ||
Sales | (929,335) | (3,392) | (3,392) | (3,213) |
Inventory, September 30 | - | - | ||
Revenues and Pricing
Revenue per BOE earned in Q3 2024 was approximately $42.84, lower than the $45.81 per BOE earned in Q2 2024 and the $53.54 per BOE earned in Q3 2023. This decrease was primarily due to the drop in natural gas and oil prices in the TDF Concessions, combined with a reduction in oil volumes sold from the Mendoza Concessions.
The price earned by the Company on TDF natural gas sales in Q3 2024 averaged $3.48 per mcf, lower than the $3.71 per mcf earned in Q2 2024 and the $6.77 per mcf earned in Q3 2023. 100% of sales were to the industrial market in each period. The price of natural gas earned by the Company varies with price fluctuations within the industrial market.
Oil revenue from Crown Point's concessions was $66.19 per bbl in Q3 2024, higher than $65.50 per bbl in Q2 2024 and $61.13 per bbl in Q3 2023, due to an increase in oil prices for domestic oil sales in Q3 2024.
During Q3 2024, the Company earned $33.47 per bbl on TDF NGL sales as compared to $29.58 per bbl earned in Q2 2024 and $24.00 per bbl earned in Q3 2023.
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Crown Point Energy Inc. September 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS
Export Tax
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2024 | 2023 | 2024 | 2023 | |
Export tax ($) | 76,514 | 139,494 | 309,309 | 377,964 |
Export tax as a % of TDF oil sales revenue | 7% | 7% | 7% | 7% |
TDF export tax per BOE ($) | 0.59 | 1.01 | 0.84 | 0.93 |
The Government of Argentina imposes an export tax on all goods exported from Argentina. The Company recognizes export taxes related to TDF oil sales to the export market. The rate of export tax is determined by a formula based on the price of Brent oil, ranging from 0% when the price of Brent oil is at or below $45 per bbl to a maximum of 8% when the price of Brent oil is at or higher than $60 per bbl.
Royalties and Turnover Tax
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2024 | 2023 | 2024 | 2023 | |
Provincial royalties and turnover tax ($) | 999,926 | 1,299,685 | 3,045,017 | 3,557,850 |
Royalties and turnover tax as a % of total | 18.0% | 17.6% | 17.7% | 16.8% |
sales revenue | ||||
Royalties and turnover tax per BOE ($) | 7.70 | 9.40 | 8.23 | 8.72 |
The base royalty rate for revenue from the TDF Concessions is 15% plus turnover tax at an average rate of 2% on revenues for which the base royalty is paid in cash rather than in-kind. Variances in TDF royalties are also impacted by commodity prices over certain thresholds which may increase the base rate by 0.5% increments and by the level of export sales volumes which bear an additional royalty of 2% compared to domestic sales which carry a 1% royalty.
Under the terms of the CH exploitation license agreement, the Company pays a 13% royalty on oil production from the CH Concession plus turnover tax at an average rate of 3% on revenues.
Under the terms of the PPCO exploitation license agreement, the Company pays an 18.2% royalty on oil production from the PPCO Concession plus turnover tax at an average rate of 3% on revenues.
Operating Costs
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2024 | 2023 | 2024 | 2023 | |
Production and processing ($) | 4,392,578 | 3,980,634 | 12,604,985 | 12,304,042 |
Transportation and hauling ($) | 484,618 | 812,781 | 1,513,788 | 2,744,694 |
Total operating costs ($) | 4,877,196 | 4,793,415 | 14,118,773 | 15,048,736 |
Production and processing per BOE ($) | 33.84 | 28.79 | 34.05 | 30.17 |
Transportation and hauling per BOE ($) | 3.73 | 5.88 | 4.09 | 6.73 |
Operating costs per BOE ($) | 37.57 | 34.67 | 38.14 | 36.90 |
Production and processing costs per BOE in the 2024 periods are higher than those incurred in the 2023 periods, due to a greater quantity of well repair services required in the Mendoza Concessions combined with a decrease in sales volumes which increased fixed costs per BOE.
Transportation and hauling costs consist of contracted services hired to perform vacuum truck and transportation activities for crude oil. Transportation and hauling costs per BOE are lower in the 2024 periods than in the 2023 periods due to the conversion of the SM.a-1003 well to a disposal well during Q2 2023, to capture formation water from the San Martin field which helped to reduce the associated trucking costs.
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Crown Point Energy Inc. September 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS
Gas Processing Income
During Q3 2024 and the September 2024 period, the Company recognized $84,491 and $244,556, respectively, of gas processing income as compared to $64,507 and $191,658 during Q3 2023 and the September 2023 period, respectively.
G&A Expenses
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2024 | 2023 | 2024 | 2023 | |
Salaries and benefits ($) | 472,994 | 375,178 | 1,126,938 | 1,178,907 |
Professional fees ($) | 243,298 | 158,743 | 730,339 | 493,135 |
Office and general ($) | 110,983 | 57,145 | 349,269 | 328,285 |
Travel and promotion ($) | 24,582 | 14,178 | 59,040 | 47,912 |
851,857 | 605,244 | 2,265,586 | 2,048,239 | |
Salaries and benefits in Q3 2024 are higher than in Q3 2023 due to the addition of new employees at the Buenos Aires office, partially offset by the devaluation of the ARS. However, salaries and benefits in the September 2024 period are slightly lower than in the September 2023 period, primarily due to the devaluation of the ARS during the September 2024 period.
Professional fees include reserve reports fees, consulting fees for financial reporting and investor relations services, legal and consulting fees related to assistance with the preparation of various documents for regulatory compliance and consulting fees related to geological and engineering assistance. Professional fees are higher in the 2024 periods than in the 2023 periods due mainly to legal fees related to the acquisition of the Santa Cruz Concessions combined with consulting fees related to engineering assistance.
Office and general expenses in Q3 2024 and the September 2024 period are higher than in Q3 2023 and the September 2023 period due to the stamp tax related to certain agreements.
Travel and promotion expenses are higher in Q3 2024 and the September 2024 period than in Q3 2023 and the September 2023 period due to travels to Santa Cruz and Mendoza Provinces made during the September 2024 period.
Depletion and Depreciation
Three months ended | Nine months ended | |||
September 30 | September 30 | |||
2024 | 2023 | 2024 | 2023 | |
Depletion ($) | 1,415,617 | 1,784,754 | 5,753,789 | 5,302,052 |
Depreciation ($) | 140,283 | 140,847 | 413,418 | 422,271 |
1,555,900 | 1,925,601 | 6,167,207 | 5,724,323 | |
Depletion rate per BOE ($) | 10.91 | 12.91 | 15.54 | 13.00 |
Depletion rates reflect the all-in combined charge of drilling operations, various asset acquisitions and investments in facilities and gathering systems. Office furniture, equipment and other assets are recorded at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using a straight-line basis over 3 to 10 years for Argentina office furniture and equipment and a straight- line basis over the term of the lease for leasehold improvements and right-of-use assets.
The depletion rate per BOE in Q3 2024 is lower than in Q3 2023, mainly due to changes in the reserves related to the TDF Concessions based on management's estimates. However, the rate is higher in the September 2024 period compared to the September 2023 period, primarily due to the increase in future development costs required for developing the Company's proved and probable petroleum and natural gas reserves.
9
Crown Point Energy Inc. September 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS
The depletion expense calculation for the 2024 periods included $75.6 million (December 31, 2023 - $76.2 million) for estimated future development costs associated with the Company´s petroleum and natural gas proved and probable reserves in Argentina.
Depreciation expense in the September 2024 period is comparable to the September 2023 period.
Share-based Payments
During Q3 2024 and the September 2024 period, the Company recognized $nil (Q3 2023 and the September 2023 period - $nil and $16,148) respectively, of share-based payment expense.
As at September 30, 2024, the balance of unvested share-based payments was $nil.
Foreign Exchange Gain (Loss)
Foreign exchange gains (losses) reported in the consolidated statement of (loss) income and comprehensive (loss) income occur as a result of translation of foreign denominated monetary assets and liabilities to the functional currency of the respective entity and the related currency fluctuations between the CAD and the USD and the USD and the ARS.
September 30 | December 31 | |
Exchange rates as at: | 2024 | 2023 |
CAD to USD (1) | 0.7408 | 0.7561 |
ARS to USD (2) | 0.0010 | 0.0012 |
USD to ARS (2) | 969.00 | 806.95 |
- Source Bank of Canada (2) Source BNA (National Bank of Argentina)
In Crown Point, the translation of USD denominated foreign net monetary liabilities to CAD during the September 2024 period resulted in a foreign exchange gain of approximately $0.02 million (September 2023 period - $0.02 million foreign exchange gain).
Notwithstanding that the functional currency of the Company's Argentine subsidiary is the USD, a portion of monetary assets and liabilities such as certain accounts receivable, accounts payable and loans are denominated in ARS and re-measured into the functional currency at each reporting date, making net monetary assets and liabilities somewhat sensitive to currency fluctuations.
In the Argentine subsidiary, the translation of ARS denominated net monetary liabilities to USD during the September 2024 period resulted in a foreign exchange gain of approximately $0.5 million (September 2023 period - $0.6 million foreign exchange gain).
Currency devaluation in Argentina partially impacts the cost of ARS denominated items which are translated to the USD functional currency of the Argentine subsidiary. A portion of the Company's operating costs and general and administrative expenses incurred in Argentina are denominated in ARS and are also subject to inflation adjustments. During the September 2024 period, the devaluation of ARS resulted in lower operating costs and general and administrative expenses incurred in Argentina by approximately 10% (September 2023 period - devaluation of ARS; lower by 26%), offset by cost increases related to inflation.
During the September 2024 period, the devaluation of ARS resulted in a reduction in the USD equivalent of ARS denominated foreign currency denominated financial instruments, excluding loans and notes payable, by approximately $0.2 million (September 2023 period - devaluation of ARS; reduction by approximately $2.1 million).
The effect of currency devaluation on ARS denominated bank debt during the September 2024 period was a $0.4 million reduction (September 2023 period - $1.8 million reduction) in the USD equivalent amounts.
Other Income
During Q3 2024 and the September 2024 period, the Company recognized $nil and $133,993, respectively, of other income related to the sale of certain consumables from the Mendoza Concessions.
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Crown Point Energy Inc. September 30, 2024 MANAGEMENT'S DISCUSSION AND ANALYSIS