When we stress test the balance sheet (i.e. -57M tax not recovered and reduce PPE by 75% and add the 20 Million in escrow) we have a book value as low as $1.51 US or 1.97 CDN at current exchange rates.
Value Range => $1.97 to $3.17 Note 3 Financial assets
Financial commodity contracts $ 2,169
Note 4a Credit Risk As at June 30, 2016, the Company’s total receivables consisted of approximately $22 million from petroleum refineries, $22 million in Value Added Tax (VAT) receivable and $2 millionof other trade receivables.
The $22 million VAT receivable consists of $4 million and $18 million VAT receivable for the years ended December 31, 2014 and 2015, respectively. Of the total receivables from petroleum refineries, a total of $19 million (December 31, 2015 – $10 million) is due within 30 days, of which $19 million has been received and cleared subsequent to June 30, 2016. Of the VAT receivable outstanding, approximately $3 million has been recovered subsequent to June 30, 2016. Of the total other trade receivables, approximately $0.5 million in realized gain on financial commodity contracts for the month of June 2016 was received in July 2016.
As at June 30, 2016, the Company had receivables owing from the Government of Albania totaling $22 million and deposits held by the Government of Albania totaling $77 million. As noted in notes 7, 9, 10 and 11, the Company is involved in various disputes and assessments with the Albanian Government relating to tax filings, cost recoveries and carbon and circulation tax matters, among other items. While management believes that all receivable amounts and deposits paid are recoverable in their entirety, uncertainty does exist with respect to the ultimate collectability and recoverability of these amounts and the timing of such payments. Any adjustments arising from settlement of the disputes and assessments will be reflected in the financial statements when they become known or expected or as management’s expectations change.
Note 7: INCOME TAX EXPENSE The Company is subject to income and commodity taxes. Judgment is required in determining provisions for taxation. There are many transactions and calculations for determination of the various tax assets and liabilities. The Company maintains provisions for tax assets and liabilities. These provisions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, the Company is subject to ongoing audits, and it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will be recognized in the consolidated financial statements in the period in which such determination is made.
The cost recovery pool represents deductions for income taxes in Albania. Under the terms of the Petroleum Agreements in Albania, profit will be taxed at a rate of 50%. The amounts referenced represent BPAL’s filing position, which is in accordance with BPAL’s Petroleum and License Agreements. The annual Work Plan and Budget was presented and approved by AKBN and all costs within the cost recovery pool are subject to ongoing routine audits. BPAL had received an audit report for 2011 expenditures from AKBN with findings that could result in a $303 million reduction to the cost recovery pool and a potential taxable position. On July 27, 2015, Bankers received a revised audit report from AKBN wherein the disputed costs were reduced to $251 million. Other routine audits have accepted BPAL’s costs within the cost recovery pool and based on these audits and the AKBN project approval, BPAL is currently defending all costs and providing the requested support documentation. In February 2016, the Company signed a binding agreement with AKBN and the Minister of Energy and Industry to engage a third-party international auditor to review and assess whether they were certifiable petroleum costs according to the Petroleum Agreement and Licence Agreements. The work by the independent auditor and consultant has commenced and is expected to be completed within the third quarter of 2016.
8. EXPLORATION AND EVALUATION ASSETS
Balance at June 30, 2016 $11,101
Exploration and evaluation assets (E&E) consist of the Company’s exploration projects which are pending the determination of proved or probable reserves.
9. PROPERTY, PLANT AND EQUIPMENT (PP&E)
Balance at June 30, 2016 $1,001,731
10. DEPOSITS AND PREPAID EXPENSES
Of the total deposits and prepaid expenses of $57 million at June 30, 2016, $37 million was paid to the Albanian tax office as deposits for the 2011 profit tax assessment, and $20 million for other deposits and prepaid expenses for operational purposes. For the year ended December 31, 2015, the Company paid $40 million to Albanian Courts, of which $38 million relates to the carbon and circulation (C&C) tax on diluent imports. For the period ended June 30, 2016, these payments were classified as long-term deposits (Note 11).
During 2015, the Company received a tax assessment of $57 million in regards to the 2011 cost recovery audit by AKBN (note 7). The Company has paid a total of $37 million as deposits for this tax assessment and is scheduled to make further monthly deposits to the Albanian tax office of approximately $3.6 million for the year ending December 31, 2016. The refund of this deposit is dependent upon the result of the cost recovery audit (note 7).
As of June 30, 2016, the total amounts paid to the tax office were considered recoverable. The Company expects to collect the full amount of these deposits paid and has classified the full amount as current.
11. LONG-TERM DEPOSITS
As of June 30, 2016 Bankers has paid $43 million to the Albanian Courts as deposits for procedure purposes on several legal cases, of which $40 million is related to the carbon and circulation (C&C) tax on diluent imports. Bankers received a favourable ruling on its initial court case, and as a result of this ruling, the Company recovered approximately $11 million of the C&C taxes paid for 2011 in the first quarter of 2015. District and appeal courts have ruled in favour of Bankers and the Company is continuing its defence at other various levels of appeal. The recoverability of these amounts, summarized in the table below, is dependent on the outcome of these court cases. While management believes that the deposits will be recovered in their entirety, the timing remains uncertain, hence the determination was made to reclassify the deposits to long-term consistent with the aging of when deposits were paid.
Period Ended ($000s) June 30, 2016
December 31, 2011 $1,116
December 31, 2012 $7,405
December 31, 2013 $13,196
December 31, 2014 $13,441
December 31, 2015 $6,043
June 30, 2016 $1,392
$42,593
13. LONG-TERM DEBT
The Company has credit facilities with three international banks, including Raiffeisen Bank, the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC), as summarized below:
Facility Amount ($000s) Outstanding Amount ($000s)
June 30, 2016
Raiffeisen Bank Operating loan
EBRD and IFC* $210,200 $106,359
June 30, 2016
Current portion of long-term debt $11,533
Long-term debt $94,826
Total Debt $106,359
These facilities are secured by all of the assets of BPAL, assignment of proceeds from the Albanian domestic and export crude oil sales contracts, a pledge of the common shares of BPAL and a guarantee by the Company. The credit facilities are subject to certain covenants requiring the maintenance of certain financial ratios, all of which were met as at June 30, 2016.