UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): September 5, 2023
M3-BRIGADE ACQUISITION III CORP.
(Exact
name of registrant as specified in its charter)
| Delaware |
|
001-40946 |
|
86-3185502 |
(State
or other jurisdiction
of
incorporation) |
|
(Commission
File Number) |
|
(I.R.S.
Employer
Identification
No.) |
| 1700 Broadway, 19th Floor |
| New York, New York 10019 |
| (Address
of principal executive offices, including zip code) |
(212)
202-2200
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions:
| ☒ |
Written
communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities
registered pursuant to Section 12(b) of the Act:
| Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange
on
which registered |
| Units, each consisting of one share of Class A common stock and one-third of one redeemable public warrant |
|
MBSC.U |
|
New York Stock Exchange |
| Class A common stock, par value $0.0001 per share |
|
MBSC |
|
New York Stock Exchange |
| Public warrants, each whole public warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per share |
|
MBSC WS |
|
New York Stock Exchange |
Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Item
1.01 Entry into a Material Definitive Agreement.
Amendment
to Business Combination Agreement
On
September 5, 2023, M3-Brigade Acquisition III Corp., a Delaware corporation (the “Company” or “MBSC”), entered
into an amendment (the “BCA Amendment No. 3”) to the Business Combination Agreement, dated as of December 14, 2022 (as previously
amended on April 21, 2023 and June 15, 2023, and as amended by BCA Amendment No. 3, the “Business Combination Agreement”),
by and among the Company, Greenfire Resources Ltd., an Alberta corporation (“PubCo”), DE Greenfire Merger Sub Inc., a Delaware
corporation and a direct, wholly owned subsidiary of PubCo, 2476276 Alberta ULC, an Alberta corporation and a direct, wholly owned subsidiary
of PubCo, and Greenfire Resources Inc., an Alberta corporation (“Greenfire”). A copy of the Business Combination Agreement,
as amended on April 21, 2023 and June 15, 2023 was filed as Annex A to the Definitive Proxy Statement on Schedule 14A filed by the Company
with the Securities and Exchange Commission (the “SEC”) on August 14, 2023 (the “Definitive Proxy Statement”).
The
BCA Amendment No. 3, among other things and subject to the terms and conditions set forth therein, extends the Termination Date (as defined
in the Business Combination Agreement) from September 14, 2023 to September 28, 2023. The purpose of the extension of the Termination
Date is to allow Greenfire additional time to consummate a potential refinancing (the “Potential Refinancing”) of Greenfire’s
12.000% Senior Secured Notes due 2025 (the “Existing Greenfire Bonds”) prior to or concurrently with the closing of the transactions
contemplated by the Business Combination Agreement (the “Closing”).
The
Company does not expect to delay, postpone or adjourn its special meeting of stockholders (the “Company Stockholders Meeting”)
or special meeting of warrantholders to approve the proposals set forth in the Definitive Proxy Statement, currently scheduled to be
held on September 11, 2023, at 9:00 a.m., Eastern Time and 9:30 a.m., Eastern Time, respectively. The Company expects that, upon receipt
of the SPAC Stockholder Approval (as defined in the Business Combination Agreement) at the Company Stockholders Meeting, all conditions
to Closing will have been met (other than those conditions that by their nature are to be satisfied at the Closing, but subject to satisfaction
or waiver of such conditions), subject to receipt of Aggregate Transaction Proceeds (as defined in the Business Combination Agreement)
equal to or greater than $100,000,000. The Company does not intend to further amend the Business Combination Agreement to further extend
the Termination Date, notwithstanding the status of the Potential Refinancing, and expects the Closing to occur on the earlier of the
closing of the Potential Refinancing and September 27, 2023.
In
addition, the BCA Amendment No. 3 provides, among other things and subject to the terms and conditions set forth therein, that up to
$50 million of proceeds obtained by PubCo from the Potential Refinancing, if any, are PubCo Debt Financing (as defined in the Business
Combination Agreement), and that such proceeds are therefore included in the calculation of Aggregate Transaction Proceeds. Only the
proceeds of the Potential Refinancing that are in excess of the aggregate principal amount of the Existing Greenfire Bonds outstanding
on and as of the Closing Date (as defined in the Business Combination Agreement), plus the amount of accrued and unpaid interest thereon,
and the amount of applicable premiums to redeem the Existing Greenfire Bonds, are PubCo Debt Financing (the “Backstop Debt Financing”).
The
foregoing description of the BCA Amendment No. 3 does not purport to be complete and is qualified in its entirety by reference to the
full text of the BCA Amendment No. 3, which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
Amendment
to Subscription Agreement
On
September 5, 2023, concurrently with its entry into the BCA Amendment No. 3, the Company entered into an amendment (the “Subscription
Agreement Amendment”) to the Subscription Agreement (the “Subscription Agreement”), dated as of December 14, 2022,
by and among the Company, PubCo, and the Subscriber thereto (as defined in the Subscription Agreement), a copy of the form of which was
filed as Annex C to the Definitive Proxy Statement.
Prior
to the Subscription Agreement Amendment, the Subscription Agreement provided that each of the PIPE Financing and the Convertible Debt
Financing (each, as defined in the Business Combination Agreement) would be automatically reduced by the amount remaining in the Trust
Account (as defined in the Business Combination Agreement) after giving effect to the SPAC Stockholder Redemption (as defined in the
Business Combination Agreement), with the Convertible Debt Financing being reduced first, and, if reduced in its entirety, the PIPE Financing
being thereafter reduced. Pursuant to the Subscription Agreement Amendment, the Convertible Debt Financing will first be reduced by the
amount of any Backstop Debt Financing and, any remaining amounts will thereafter be reduced by the amount remaining in the Trust Account
after giving effect to the SPAC Stockholder Redemption. If the Convertible Debt Financing equals zero (whether due to reduction by the
Backstop Debt Financing or amounts remaining in the Trust Account after the SPAC Stockholder Redemption), the PIPE Financing will be
reduced by the amount remaining in the Trust Account after giving effect to the SPAC Stockholder Redemption to the extent such amounts
have not already reduced the Convertible Debt Financing.
Pursuant
to the terms of the other Subscription Agreements, dated as of December 14, 2022, by and among the Company, PubCo, and the Subscribers
thereto (the “Other Subscription Agreements”), the Other Subscription Agreements were automatically amended and modified,
without any further action by the Subscribers thereto, PubCo or the Company, to reflect the terms of the Subscription Agreement Amendment.
The
foregoing description of the Subscription Agreement Amendment does not purport to be complete and is qualified in its entirety by reference
to the full text of the Subscription Agreement Amendment, which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.
Item
7.01 Regulation FD Disclosure.
The
Company is furnishing herewith (a) certain unaudited interim financial statements and management’s discussion and analysis of financial
condition and results of operations of Greenfire and (b) certain unaudited pro forma condensed consolidated financial information presenting
the combination of the financial information of PubCo, Greenfire, and MBSC adjusted to give effect to the Transactions (as defined in
the Business Combination Agreement), which have each been prepared for use by MBSC and Greenfire.
Included
in this Current Report on Form 8-K are (a) the unaudited condensed interim consolidated financial statements of Greenfire
as at June 30, 2023 and for the three and six months ended June 30, 2023 and 2022, (b) Greenfire management’s discussion and analysis
for the three and six month period ended June 30, 2023 (c) the unaudited condensed interim consolidated financial statements of PubCo
for the three and six month period ended June 30, 2023 and (d) the unaudited pro forma condensed combined statements of income for the
six months ended June 30, 2023 and year ended December 31, 2022 and the unaudited pro forma condensed combined balance sheet as of June
30, 2023 including the related notes, which are attached hereto as Exhibits 99.1, 99.2, 99.3 and 99.4, respectively, and incorporated
by reference herein.
In
accordance with General Instruction B.2 of Form 8-K, the information in Item 7.01 and in Exhibits 99.1, 99.2, 99.3
and 99.4 of this Current Report on Form 8-K is being furnished and shall not be deemed to be “filed”
for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated
by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act,
except as shall be expressly set forth by specific reference in such filing. In addition, the furnishing of this Item 7.01 of Form 8-K and Exhibits
99.1, 99.2, 99.3 and 99.4 will not be deemed an admission that such information includes material information that is not otherwise publicly
available.
Cautionary
Statement Regarding Forward-Looking Statements
This
communication may contain certain forward-looking statements within the meaning of the federal securities laws with respect to the proposed
transaction between PubCo, MBSC, Greenfire and the other parties thereto. These forward-looking statements generally are identified by
the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,”
“strategy,” “future,” “opportunity,” “plan,” “may,” “should,”
“will,” “would,” “will be,” “will continue,” “will likely result,” and similar
expressions. Forward-looking statements are predictions, projections and other statements about future events that are based on current
expectations and assumptions and, as a result, are subject to risks and uncertainties. Many factors could cause actual future events
to differ materially from the forward-looking statements in this communication, including but not limited to: (i) the timing to complete
the proposed business combination by MBSC’s business combination deadline and the potential failure to obtain an extension of the
business combination deadline if sought by MBSC; (ii) the occurrence of any event, change or other circumstances that could give rise
to the termination of the definitive agreements relating to the proposed business combination; (iii) the outcome of any legal, regulatory
or governmental proceedings that may be instituted against PubCo, MBSC, Greenfire or any investigation or inquiry following announcement
of the proposed business combination, including in connection with the proposed business combination; (iv) the inability to complete
the proposed business combination due to the failure to obtain approval of MBSC’s stockholders or the inability to receive approval
of the proposed plan of arrangement in connection with the proposed business combination; (v) Greenfire’s and PubCo’s success
in retaining or recruiting, or changes required in, its officers, key employees or directors following the proposed business combination;
(vi) the ability of the parties to obtain the listing of PubCo’s common shares and warrants on the New York Stock Exchange upon
the closing of the proposed business combination; (vii) the risk that the proposed business combination disrupts current plans and operations
of Greenfire; (viii) the ability to recognize the anticipated benefits of the proposed business combination; (ix) unexpected costs related
to the proposed business combination; (x) the amount of redemptions by MBSC’s public stockholders being greater than expected;
(xi) the management and board composition of PubCo following completion of the proposed business combination; (xii) limited liquidity
and trading of PubCo’s securities; (xiii) geopolitical risk and changes in applicable laws or regulations; (xiv) the possibility
that Greenfire or MBSC may be adversely affected by other economic, business, and/or competitive factors; (xv) operational risks; (xvi)
the possibility that the COVID-19 pandemic or another major disease disrupts Greenfire’s business; (xvii) litigation and regulatory
enforcement risks, including the diversion of management time and attention and the additional costs and demands on Greenfire’s
resources; (xix) the risks that the consummation of the proposed business combination is substantially delayed or does not occur; (xx)
risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; disruptions
to the Canadian and global economy resulting from major public health events, the Russian-Ukrainian war and the impact on the global
economy and commodity prices; the impacts of inflation and supply chain issues and steps taken by central banks to curb inflation; pandemic,
war, terrorist events, political upheavals and other similar events; events impacting the supply and demand for oil and gas including
the COVID-19 pandemic and actions taken by the OPEC + group; delays or changes in plans with respect to exploration or development projects
or capital expenditures); (xxi) the uncertainty of reserve estimates; (xxii) the uncertainty of estimates and projections relating to
production, costs and expenses; (xxiii) health, safety and environmental risks; (xxiv) commodity price and exchange rate fluctuations;
(xxv) changes in legislation affecting the oil and gas industry; (xxvi) uncertainties resulting from potential delays or changes in plans
with respect to exploration or development projects or capital expenditures; and (xxvii) the risk that the Potential Refinancing is unsuccessful
or does not occur. The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other
risks and uncertainties described in the “Risk Factors” section of MBSC’s registration on Form S-1 (Registration Nos.
333-256017 and 333-260423), MBSC’s annual report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March
31, 2023, MBSC’s quarterly report on Form 10-Q for the quarter ended March 31, 2023 filed with the SEC on June 2, 2023, the Registration
Statement and definitive proxy statement/prospectus of PubCo, effective August 14, 2023, including those under “Risk Factors”
therein and other documents filed by MBSC or PubCo from time to time with the SEC. These filings identify and address other important
risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements.
Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking
statements, and PubCo, MBSC and Greenfire assume no obligation and do not intend to update or revise these forward-looking statements,
whether as a result of new information, future events, or otherwise. Neither PubCo, MBSC nor Greenfire gives any assurance that either
PubCo, MBSC nor Greenfire will achieve its expectations.
Additional
Information and Where to Find It
A
full description of the terms of the proposed business combination have been provided in a Registration Statement filed by PubCo with
the SEC, that includes a proxy statement of MBSC and constitutes a prospectus of PubCo. The Registration Statement was declared effective
by the SEC on August 14, 2023. PubCo and MBSC filed the definitive proxy statement/prospectus with the SEC on August 14, 2023. The definitive
proxy statement/prospectus was mailed to shareholders of MBSC on or around August 16, 2023. Each of PubCo and MBSC may also file other
relevant documents with the SEC regarding the proposed business combination. This document is not a substitute for the definitive proxy
statement/prospectus or any other document that PubCo and MBSC may file with the SEC. PubCo and MBSC urge investors, stockholders and
other interested persons to read the Registration Statement, definitive proxy statement/prospectus, as well as other documents filed
with the SEC, because these documents contain or will contain important information about PubCo, MBSC, Greenfire and the proposed business
combination. Stockholders may obtain a copy of the Registration Statement on Form F-4 including the definitive proxy statement/prospectus,
and other documents filed with the SEC without charge, by directing a request to: Greenfire Resources Inc., 1900 – 205 5th Avenue
SW, Calgary, AB T2P 2V7, and M3-Brigade Acquisition III Corp., 1700 Broadway, 19th Floor, New York, NY 10019. The definitive proxy statement/prospectus
can also be obtained, without charge, at the SEC’s website (www.sec.gov).
Participants
in the Solicitation
PubCo,
MBSC and Greenfire, and their respective directors and executive officers, may be deemed participants in the solicitation of proxies
of MBSC’s stockholders in respect of the proposed business combination. Information about the directors and executive officers
of MBSC is set forth in MBSC’s filings with the SEC. Information about the directors and executive officers of PubCo and Greenfire
and more detailed information regarding the identity of all potential participants, and their direct and indirect interests by security
holdings or otherwise, are set forth in the definitive proxy statement/prospectus for the proposed business combination. Additional information
regarding the identity of all potential participants in the solicitation of proxies to MBSC’s stockholders in connection with the
proposed business combination and other matters to be voted upon at the special meeting, and their direct and indirect interests, by
security holdings or otherwise, are included in the definitive proxy statement/prospectus.
No
Offer or Solicitation
This
Current Report on Form 8-K does not constitute an offer or invitation for the sale or purchase of securities, assets or the business
described herein or a commitment to PubCo, MBSC or Greenfire, nor is it a solicitation of any vote, consent or approval in any jurisdiction
pursuant to or in connection with the business combination or otherwise, nor shall there be any sale, issuance or transfer of securities
in any jurisdiction in contravention of applicable law.
Item
9.01. Financial Statements and Exhibits.
Exhibit
No. |
|
Description |
| 2.1 |
|
Amendment No. 3, dated as of September 5, 2023, to Business Combination Agreement, dated as of December 14, 2022 (as amended on April 21, 2023 and June 15, 2023), by and among M3-Brigade Acquisition III Corp., Greenfire Resources Ltd., DE Greenfire Merger Sub Inc., 2476276 Alberta ULC and Greenfire Resources Inc. |
| 10.1 |
|
Amendment No. 1 to Subscription Agreement, dated as of September 5, 2023, by and among M3-Brigade Acquisition III Corp., Greenfire Resources Ltd., and Subscriber |
| 99.1 |
|
Unaudited Condensed Interim Consolidated Financial Statements of Greenfire Resources Inc. as at June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 |
| 99.2 |
|
Greenfire Resources Inc.’s Management’s Discussion and Analysis for the three and six months ended June 30, 2023 |
| 99.3 |
|
Unaudited Condensed Interim Consolidated Financial Statements of Greenfire Resources Ltd. as at June 30, 2023 |
| 99.4 |
|
Unaudited Pro Forma Condensed Combined Statements of Income for the Six Months Ended June 30, 2023 and Year Ended December 31, 2022 and the Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2023, including the Related Notes. |
| 104 |
|
Cover
Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURE
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
| |
M3-BRIGADE ACQUISITION III CORP. |
| |
|
|
|
| Date: September 5, 2023 |
By: |
/s/
Mohsin Y. Meghji |
| |
|
Name: |
Mohsin Y. Meghji |
| |
|
Title: |
Executive Chairman of the Board of Directors |
-5-
Exhibit 2.1
AMENDMENT NO. 3 TO
BUSINESS COMBINATION AGREEMENT
This Amendment No. 3 to the
Business Combination Agreement (this “Amendment”) is entered into as of September 5, 2023, by and among M3-Brigade
Acquisition III Corp., a Delaware corporation, Greenfire Resources Ltd., an Alberta corporation (“PubCo”), DE Greenfire
Merger Sub Inc., a Delaware corporation and a direct, wholly owned subsidiary of PubCo, 2476276 Alberta ULC, an Alberta unlimited liability
corporation and a direct, wholly owned subsidiary of PubCo, and Greenfire Resources Inc., an Alberta corporation. Capitalized terms used
but not defined herein shall have the meanings ascribed to them in the Business Combination Agreement.
R E C I T A L S
WHEREAS, on December 14, 2022,
the parties hereto entered into that certain Business Combination Agreement (the “Original Business Combination Agreement”);
and
WHEREAS, on April 21, 2023,
the parties hereto entered into Amendment No. 1 to the Business Combination Agreement (“Amendment No. 1”) and, on June
14, 2023, the parties hereto entered into Amendment No. 2 to the Business Combination Agreement (“Amendment No. 2”
and references to the “Business Combination Agreement” shall be references to the Original Business Combination Agreement
as amended by Amendment No. 1 and Amendment No. 2); and
WHEREAS, the parties hereto
desire to adopt certain amendments to the terms of the Business Combination Agreement, in accordance with Section 11.3 of the Business
Combination Agreement.
NOW THEREFORE, in consideration
of the premises and the mutual agreements and covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Amendments
to Recitals.
(a) The
ninth recital is hereby amended and restated as follows:
WHEREAS, prior to Closing, PubCo
(i) will authorize the issuance of 9.00% convertible senior notes due 2028, in an aggregate principal amount not to exceed $50,000,000,
and in order to provide the terms and conditions upon which such notes are to be authenticated, issued and delivered, PubCo will authorize
the execution and delivery of an indenture, and forms of notes to be issued under the Indenture (as defined in the Subscription Agreements)
and documents ancillary thereto, and all acts and things necessary to make the notes, when executed by PubCo and authenticated and delivered
by the Trustee or a duly authorized authenticating agent, valid, binding and legal obligations of PubCo (the “Convertible Debt
Financing”) and (ii) may issue the Backstop Debt Financing (together with the Convertible Debt Financing, the “PubCo
Debt Financing”);
(b) The
tenth recital is hereby amended and restated as follows:
WHEREAS, concurrently with the execution
of this Agreement, certain investors (collectively, the “Convertible Debt Financing Investors” and together with any
investors in the Backstop Debt Financing, the “PubCo Debt Financing Investors”) are entering into Subscription Agreements,
pursuant to which, among other things, each Convertible Debt Financing Investor has agreed to subscribe for and purchase on the Closing
Date 9.00% convertible senior notes due 2028 in connection with the Convertible Debt Financing;
2. Amendments
to Section 1.1.
(a) The
definition of “Aggregate Closing Financing Proceeds” in Section 1.1 of the Business Combination Agreement is hereby amended
and restated as follows:
“Aggregate
Closing Financing Proceeds” means (i) the aggregate cash proceeds actually received (or deemed received) by SPAC in respect
of the PIPE Financing plus (ii) the aggregate cash proceeds actually received (or deemed received) by PubCo in respect
of the PubCo Debt Financing and the Backstop Equity Financing. For the avoidance of doubt, any cash proceeds received (or deemed received)
by SPAC or PubCo or any of their respective Affiliates in respect of any amounts funded under a Subscription Agreement prior to the Closing
Date and not refunded or otherwise used prior to the Closing shall constitute, and be taken into account for purposes of determining,
the Aggregate Closing Financing Proceeds (without, for the avoidance of doubt, giving effect to, or otherwise taking into account the
use of any such proceeds).
(b) The
following definition be added to Section 1.1 of the Business Combination Agreement:
“Backstop Debt
Financing” means a potential debt financing, to consist of senior secured notes of PubCo, at or prior to the Closing, which
may be undertaken by PubCo and may reduce the Investment Amount with respect to the Convertible Debt Financing pursuant to Section 4 of
the Subscription Agreements, solely to the extent the proceeds from the offerings of such notes exceed the aggregate principal amount
of the Company’s 12.000% Senior Secured Notes due 2025, plus the amount of accrued and unpaid interest thereon, and the amount of
applicable premiums to redeem such notes, outstanding on and as of the Closing Date, in an amount up to $50,000,000; provided that if
such amount is $50,000,000 it shall be reduced by the amount remaining in the Trust Account in excess of $50,000,000, if any, after giving
effect to the SPAC Stockholder Redemption; provided, further, that such amount shall not, when summed with the amount remaining in the
Trust Account after giving effect to the SPAC Stockholder Redemption, exceed $100,000,000.
(c) The
definition of “Backstop Equity Financing” in Section 1.1 of the Business Combination Agreement is hereby amended and restated
as follows:
“Backstop Equity
Financing” means a potential equity financing, to consist of subscriptions to purchase PubCo Common Shares or SPAC Class A Shares
at the Closing (at a price per share to be set forth in the applicable subscription agreements), which may be undertaken by PubCo or SPAC
in addition to the PIPE Financing in connection with reductions in the Investment Amount with respect to Convertible Debt Financing pursuant
to Section 4 of the Subscription Agreements, in an amount up to $50,000,000; provided, that if such amount is $50,000,000, it shall be
reduced by the Backstop Debt Financing and the amount remaining in the Trust Account in excess of $50,000,000, if any, after giving effect
to the SPAC Stockholder Redemption; provided, further, that such amount shall not, when summed with the Backstop Debt Financing and the
amount remaining in the Trust Account after giving effect to the SPAC Stockholder Redemption, exceed $100,000,000.
(d) The
definition of “Transaction Financing Investors” in Section 1.1 of the Business Combination Agreement is hereby amended and
restated as follows:
“Transaction
Financing Investors” means, collectively, the PIPE Investors and the Convertible Debt Financing Investors.
(e) The
definition of “Triggering Event” in Section 1.1 of the Business Combination Agreement is hereby amended and restated as follows:
“Triggering
Event” shall occur if the Investment Amount, solely with respect to the amount of any Convertible Debt Financing to be issued
at the Closing and after taking into account any reduction pursuant to Section 4 of the Subscription Agreements (excluding any such reduction
resulting from any Backstop Debt Financing, but including, for the avoidance of doubt, any such reduction resulting from any Backstop
Equity Financing), does not exceed $25,000,000.
3. Amendment
to Section 9.1(a).
Clause (i) of
Section 9.1(a) is hereby amended and restated as follows:
“(i) if any Convertible
Debt Financing is to be issued pursuant to the Subscription Agreements, the Seventh Supplemental Indenture shall have become effective
in accordance with its terms and shall remain in full force and effect as of the Closing Date; and”
4. Amendment
to Section 10.1(d).
(a) Section
10.1(d) is hereby amended and restated as follows:
“by either SPAC
or the Company, if the Transactions shall not have been consummated on or prior to September 28, 2023 (the “Termination Date”); provided that
if as of the Termination Date any of the conditions set forth in Section 9.1(c) or Section 9.1(h) shall
not have been satisfied, the Termination Date may be extended by either the Company or SPAC for a period of three (3) months by written
notice to the other, and such date, as so extended, shall thereafter be the Termination Date for all purposes under this Agreement and
the Ancillary Documents; provided, further, that, in the event of any such extension, and as of such extended Termination Date
any of the conditions set forth in Section 9.1(c) or Section 9.1(h) shall not have been satisfied, the Termination
Date may be further extended by either the Company or SPAC for a period of three (3) months by written notice to the other, and such date,
as so further extended, shall thereafter be the Termination Date for all purposes under this Agreement and the Ancillary Documents; provided, further,
that (i) the right to terminate this Agreement pursuant to this Section 10.1(d) shall not be available to SPAC if SPAC’s
breach of any of its covenants or obligations under this Agreement shall have primarily caused the failure to consummate the Transactions
on or before the Termination Date, and (ii) the right to terminate this Agreement pursuant to this Section 10.1(d) shall
not be available to the Company if the Company’s or any Acquisition Entity’s breach of its respective covenants or obligations
under this Agreement shall have primarily caused the failure to consummate the Transactions on or before the Termination Date;”
5. Business
Combination Agreement Remains in Effect. Except as expressly amended by this Amendment, the Business Combination Agreement remains
in full force and effect and nothing in this Amendment shall otherwise affect any other provision of the Business Combination Agreement
or the rights and obligations of the Parties. Without limiting the foregoing, each Party agrees that nothing in this Amendment shall limit
in any way any of the provisions of the Business Combination Agreement.
6. References
to the Business Combination Agreement. After giving effect to this Amendment, each reference in the Business Combination Agreement
to “this Agreement,” “hereof,” “hereunder” or words of like import referring to the Business Combination
Agreement shall refer to the Business Combination Agreement as amended by this Amendment.
7. Incorporation
by Reference. Sections 11.4 (Notices), 11.5 (Governing Law), 11.7 (Construction; Interpretation), 11.10 (Severability), 11.11 (Counterparts;
Electronic Signatures), 11.13 (No Recourse), 11.15 (Waiver of Jury Trial) and 11.16 (Submission to Jurisdiction) of the Business Combination
Agreement are incorporated herein by reference, mutatis mutandis.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties
hereto have executed this Amendment as of the date first above written.
| |
M3-BRIGADE ACQUISITION III CORP. |
| |
|
|
| |
By: |
/s/ Mohsin Y. Meghji |
| |
Name: |
Mohsin Y. Meghji |
| |
Title: |
Executive Chairman of the Board of Directors |
| |
|
|
| |
GREENFIRE RESOURCES LTD. |
| |
|
|
| |
By: |
/s/ David Phung |
| |
Name: |
David Phung |
| |
Title: |
Chief Financial Officer |
| |
|
|
| |
DE GREENFIRE MERGER SUB INC. |
| |
|
|
| |
By: |
/s/ David Phung |
| |
Name: |
David Phung |
| |
Title: |
President |
| |
|
|
| |
2476276 Alberta ULC |
| |
|
|
| |
By: |
/s/ David Phung |
| |
Name: |
David Phung |
| |
Title: |
Chief Financial Officer |
| |
|
|
| |
GREENFIRE RESOURCES INC. |
| |
|
|
| |
By: |
/s/ David Phung |
| |
Name: |
David Phung |
| |
Title: |
Chief Financial Officer |
[Signature Page to Amendment No. 3 to Business
Combination Agreement]
Exhibit 10.1
AMENDMENT NO. 1 TO
SUBSCRIPTION AGREEMENT
This Amendment No. 1 to the
Subscription Agreement (this “Amendment”) is entered into as of September 5, 2023, by and among Greenfire Resources
Ltd., an Alberta corporation, M3-Brigade Acquisition Corp. III, a Delaware corporation, and the undersigned. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Subscription Agreement.
R E C I T A L S
WHEREAS, on December 14, 2022,
the parties hereto entered into that certain Subscription Agreement; and
WHEREAS, the parties hereto
desire to adopt certain amendments to the terms of the Subscription Agreement, in accordance with Section 9.4 of the Subscription
Agreement.
NOW THEREFORE, in consideration
of the premises and the mutual agreements and covenants hereinafter set forth, the parties hereto hereby agree as follows:
1. Amendment
to Section 4.
(a) Section
4 of the Subscription Agreement is hereby amended and restated as follows:
“The parties
hereby agree that the Acquired Securities shall be reduced, if applicable, until such Acquired Securities equal zero, as follows:
(a) (i) the Notes
shall be reduced by the aggregate proceeds of the Backstop Debt Financing (as defined in the Business Combination Agreement), if any,
and (ii) if any Notes remain, the Notes shall thereafter be reduced by the aggregate proceeds of the Backstop Equity Financing (as defined
in the Business Combination Agreement), if any, and (iii) if any Notes remain, the Notes shall thereafter be reduced by the amount remaining
in the Trust Account after payments to redeeming holders of Common Shares in connection with the consummation of the Transactions, collectively
up to an aggregate amount of $50,000,000 under this clause (a); and
(b) if the Notes pursuant
to the foregoing clause (a) equal zero, the Acquired Shares shall be reduced by the quotient of (i) the product of (A) the quotient of
(I) the number of Acquired Shares hereunder, divided by (II) the sum of (x) the number of Acquired Shares hereunder, plus
(y) the number of Acquired Shares in the Other Subscription Agreements, multiplied by (B) the difference of (x) the amount remaining in
the Trust Account after payments to redeeming holders of Common Shares in connection with the consummation of the Transactions, minus
(y) the amount by which the Notes have been reduced pursuant to the foregoing clause (a)(iii) of this Section 4, if any, divided by
(ii) the Common Per Share Price, rounded up to the nearest whole number.
PubCo shall pay Subscriber
a cancellation fee equal to 2% of the aggregate dollar value of the amount by which the Acquired Securities are reduced with respect to
Subscriber under the foregoing clauses (a) and (b). In the event the Acquired Securities are reduced with respect to Subscriber under
the foregoing clauses (a) or (b), MBSC or PubCo, as applicable, will instruct their respective escrow agent, at least one (1) business
day prior to the Closing Date, and the escrow agent shall refund the Purchase Price for the Acquired Securities so reduced prior to or
concurrently with the Closing to the Subscriber.”
2. Subscription
Agreement Remains in Effect. Except as expressly amended by this Amendment, the Subscription Agreement remains in full force and effect
and nothing in this Amendment shall otherwise affect any other provision of the Subscription Agreement or the rights and obligations of
the Parties. Without limiting the foregoing, each Party agrees that nothing in this Amendment shall limit in any way any of the provisions
of the Subscription Agreement.
3. References
to the Subscription Agreement. After giving effect to this Amendment, each reference in the Subscription Agreement to “this
Agreement,” “hereof,” “hereunder” or words of like import referring to the Subscription Agreement shall
refer to the Subscription Agreement as amended by this Amendment.
4. Incorporation
by Reference. Sections 9.2 (Notices), 9.6 (Benefit); 9.7 (Governing Law), 9.8 (Consent to Jurisdiction; Waiver of Jury Trial), 9.9
(Severability), 9.13 (Headings and Captions), 9.14 (Counterparts) and 9.15 (Construction) of the Subscription Agreement are incorporated
herein by reference, mutatis mutandis.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties
hereto have executed this Amendment as of the date first above written.
| |
GREENFIRE RESOURCES LTD. |
| |
|
|
|
| |
By: |
/s/ David Phung |
| |
|
Name: |
David Phung |
| |
|
Title: |
Chief Financial Officer |
| |
M3-BRIGADE ACQUISITION III CORP. |
| |
|
|
|
| |
By: |
/s/ Mohsin Y. Meghji |
| |
|
Name: |
Mohsin Y. Meghji |
| |
|
Title: |
Executive Chairman of the Board of Directors |
| |
|
|
|
| |
Subscriber: |
| |
BRIGADE CAPITAL MANAGEMENT, L.P., |
| |
as Investment Manager on Behalf of its Funds and Accounts |
| |
|
|
|
| |
By: |
/s/ Patrick Criscillo |
| |
|
Name: |
Patrick Criscillo |
| |
|
Title: |
Chief Financial Officer |
[Signature Page to Amendment No. 1 to Subscription
Agreement]
Exhibit 99.1
Condensed Interim Consolidated Balance Sheets
(Unaudited)
As at
($CAD thousands) | |
note | | |
June
30,
2023 | | |
December 31,
2022 | |
| Assets | |
| | |
| | |
| |
| Current assets | |
| | |
| | |
| |
| Cash and cash equivalents | |
| | |
$ | 36,882 | | |
$ | 35,363 | |
| Restricted cash | |
5 | | |
| 47,363 | | |
| 35,313 | |
| Accounts receivable | |
6 | | |
| 36,511 | | |
| 34,308 | |
| Inventories | |
7 | | |
| 10,714 | | |
| 14,568 | |
| Prepaid expenses and deposits | |
| | |
| 3,072 | | |
| 3,975 | |
| | |
| | |
| 134,542 | | |
| 123,527 | |
| Non-current assets | |
| | |
| | | |
| | |
| Property, plant and equipment | |
8 | | |
| 930,280 | | |
| 963,050 | |
| Deferred income tax asset | |
| | |
| 88,199 | | |
| 87,681 | |
| | |
| | |
| 1,018,479 | | |
| 1,050,731 | |
| Total assets | |
| | |
| 1,153,021 | | |
| 1,174,258 | |
| Liabilities | |
| | |
| | | |
| | |
| Current liabilities | |
| | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
| | |
| 39,843 | | |
| 46,569 | |
| Current portion of long-term debt | |
11 | | |
| 61,156 | | |
| 63,250 | |
| Current portion of lease liabilities | |
12 | | |
| 186 | | |
| 98 | |
| Risk management contracts | |
10 | | |
| 10,847 | | |
| 27,004 | |
| | |
| | |
| 112,032 | | |
| 136,921 | |
| Non-current liabilities | |
| | |
| | | |
| | |
| Long-term debt | |
11 | | |
| 185,649 | | |
| 191,158 | |
| Lease liabilities | |
12 | | |
| 1,259 | | |
| 865 | |
| Decommissioning liabilities | |
9 | | |
| 7,983 | | |
| 7,543 | |
| | |
| | |
| 194,891 | | |
| 199,566 | |
| Total liabilities | |
| | |
| 306,923 | | |
| 336,487 | |
| Shareholders’ equity | |
| | |
| | | |
| | |
| Share capital | |
15 | | |
| 15 | | |
| 15 | |
| Contributed surplus | |
15 | | |
| 45,324 | | |
| 44,674 | |
| Retained earnings | |
| | |
| 800,759 | | |
| 793,082 | |
| | |
| | |
| 846,098 | | |
| 837,771 | |
| Total liabilities and shareholders’ equity | |
| | |
$ | 1,153,021 | | |
$ | 1,174,258 | |
Commitments (note 14)
See accompanying notes to the unaudited condensed interim
consolidated financial statements
These Condensed Interim Consolidated Financial Statements
were approved by the Board of Directors on August 14, 2023.
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 2 |
Condensed Interim Consolidated Statements of Comprehensive
Income (Loss)
(Unaudited)
| | |
| | |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| ($CAD thousands, except per share amounts) | |
note | | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Revenues | |
| | |
| | |
| | |
| | |
| |
| Oil sales | |
| | |
$ | 173,605 | | |
$ | 315,794 | | |
$ | 353,273 | | |
$ | 608,558 | |
| Royalties | |
| | |
| (5,793 | ) | |
| (18,788 | ) | |
| (10,295 | ) | |
| (30,628 | ) |
| Oil sales, net of royalties | |
| | |
| 167,812 | | |
| 297,006 | | |
| 342,978 | | |
| 577,930 | |
| Risk management contracts gains (losses) | |
10 | | |
| 4,357 | | |
| (29,081 | ) | |
| 9,200 | | |
| (205,454 | ) |
| | |
| | |
| 172,169 | | |
| 267,925 | | |
| 352,178 | | |
| 372,476 | |
| Expenses | |
| | |
| | | |
| | | |
| | | |
| | |
| Diluent expense | |
| | |
| 74,027 | | |
| 105,195 | | |
| 175,883 | | |
| 216,176 | |
| Transportation and marketing | |
| | |
| 13,586 | | |
| 17,409 | | |
| 29,600 | | |
| 35,936 | |
| Operating expenses | |
| | |
| 35,675 | | |
| 44,436 | | |
| 75,439 | | |
| 81,890 | |
| General and administrative | |
| | |
| 2,657 | | |
| 2,008 | | |
| 5,483 | | |
| 5,350 | |
| Financing and interest | |
13 | | |
| 5,398 | | |
| 22,160 | | |
| 20,714 | | |
| 45,261 | |
| Depletion and depreciation | |
8 | | |
| 17,120 | | |
| 17,312 | | |
| 38,035 | | |
| 35,674 | |
| Exploration expenses | |
| | |
| 1,026 | | |
| 250 | | |
| 2,819 | | |
| 681 | |
| Other (income) and expenses | |
| | |
| (458 | ) | |
| 620 | | |
| (666 | ) | |
| 1,385 | |
| Transaction costs | |
1 | | |
| 1,914 | | |
| - | | |
| 4,241 | | |
| - | |
| Foreign exchange (gain) loss | |
| | |
| (6,226 | ) | |
| 13,062 | | |
| (6,529 | ) | |
| 7,076 | |
| Total Expenses | |
| | |
| 144,719 | | |
| 222,452 | | |
| 345,019 | | |
| 429,429 | |
| Net income (loss) before taxes | |
| | |
$ | 27,450 | | |
$ | 45,473 | | |
$ | 7,159 | | |
$ | (56,953 | ) |
| Income tax recovery (expense) | |
| | |
| (3,095 | ) | |
| - | | |
| 518 | | |
| - | |
| Net income (loss) and comprehensive income (loss) | |
| | |
$ | 24,355 | | |
$ | 45,473 | | |
$ | 7,677 | | |
$ | (56,953 | ) |
| Net income (loss) per share | |
| | |
| | | |
| | | |
| | | |
| | |
| Basic | |
15 | | |
$ | 2.72 | | |
$ | 5.08 | | |
$ | 0.86 | | |
$ | (6.36 | ) |
| Diluted | |
15 | | |
$ | 1.89 | | |
$ | 3.53 | | |
$ | 0.60 | | |
$ | (6.36 | ) |
See accompanying notes to the unaudited condensed interim
consolidated financial statements
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 3 |
Consolidated Statements of
Changes in Shareholders’ Equity
(Unaudited)
| Six months ended June 30 | |
| | |
| | |
| |
| ($CAD
Thousands) | |
note | | |
2023 | | |
2022 | |
| Share capital | |
| | |
| | |
| |
| Balance, beginning of period | |
| | | |
$ | 15 | | |
$ | 15 | |
| Balance, end of period | |
| | | |
| 15 | | |
| 15 | |
| Contributed surplus | |
| | | |
| | | |
| | |
| Balance, beginning of period | |
| | | |
| 44,674 | | |
| 43,491 | |
| Stock based compensation | |
| | | |
| 650 | | |
| - | |
| Balance, end of period | |
| | | |
| 45,324 | | |
| 43,491 | |
| Retained earnings | |
| | | |
| | | |
| | |
| Balance, beginning of period | |
| | | |
| 793,082 | | |
| 661,384 | |
| Net income (loss) | |
| | | |
| 7,677 | | |
| (56,953 | ) |
| Balance, end of period | |
| | | |
| 800,759 | | |
| 604,431 | |
| Total shareholders’ equity | |
| | | |
$ | 846,098 | | |
$ | 647,937 | |
See accompanying notes to the unaudited condensed interim
consolidated financial statements
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 4 |
Condensed Interim Consolidated Statements of Cash Flows
(Unaudited)
| | |
| | |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| ($CAD Thousands) | |
note | | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Operating activities | |
| | |
| | |
| | |
| | |
| |
| Net income (loss) | |
| | |
$ | 24,355 | | |
$ | 45,473 | | |
$ | 7,677 | | |
$ | (56,953 | ) |
| Items not affecting cash: | |
| | |
| | | |
| | | |
| | | |
| | |
| Deferred income taxes | |
| | |
| 3,095 | | |
| - | | |
| (518 | ) | |
| - | |
| Unrealized (gain) loss on risk management contracts | |
10 | | |
| (11,134 | ) | |
| (28,182 | ) | |
| (16,157 | ) | |
| 114,411 | |
| Depletion and depreciation | |
8 | | |
| 17,255 | | |
| 17,637 | | |
| 37,658 | | |
| 35,319 | |
| Stock-based compensation | |
15 | | |
| 325 | | |
| - | | |
| 650 | | |
| - | |
| Accretion | |
9 | | |
| 223 | | |
| 189 | | |
| 440 | | |
| 348 | |
| Other non-cash expenses | |
| | |
| 17 | | |
| 2 | | |
| 33 | | |
| 2 | |
| Foreign exchange (gain) loss | |
| | |
| (6,228 | ) | |
| 13,066 | | |
| (6,532 | ) | |
| 7,080 | |
| Amortization of debt issuance costs | |
11 | | |
| (6,363 | ) | |
| 9,560 | | |
| (977 | ) | |
| 19,368 | |
| Change in non-cash working capital | |
16 | | |
| 2,095 | | |
| 9,808 | | |
| (3,130 | ) | |
| (21,334 | ) |
| Cash provided by operating activities | |
| | |
| 23,640 | | |
| 67,553 | | |
| 19,144 | | |
| 98,241 | |
| Financing activities | |
| | |
| | | |
| | | |
| | | |
| | |
| Repayment of long-term debt | |
| | |
| - | | |
| (60,691 | ) | |
| - | | |
| (60,691 | ) |
| Lease payments | |
12 | | |
| (6 | ) | |
| (18 | ) | |
| (12 | ) | |
| (18 | ) |
| Cash used by financing activities | |
| | |
| (6 | ) | |
| (60,709 | ) | |
| (12 | ) | |
| (60,709 | ) |
| Investing activities | |
| | |
| | | |
| | | |
| | | |
| | |
| Property, plant and equipment expenditures | |
8 | | |
| (1,911 | ) | |
| (7,706 | ) | |
| (4,428 | ) | |
| (12,906 | ) |
| Restricted cash | |
| | |
| (8,000 | ) | |
| (8,100 | ) | |
| (12,050 | ) | |
| (13,317 | ) |
| Change in non-cash working capital (accrued additions to PP&E) | |
16 | | |
| 845 | | |
| 386 | | |
| (1,108 | ) | |
| 3,144 | |
| Cash used in investing activities | |
| | |
| (9,066 | ) | |
| (15,420 | ) | |
| (17,586 | ) | |
| (23,079 | ) |
| Exchange rate impact on cash and cash equivalents held in foreign currency | |
| | |
| (89 | ) | |
| (1,823 | ) | |
| (27 | ) | |
| (1,947 | ) |
| Change in cash and cash equivalents | |
| | |
| 14,479 | | |
| (10,399 | ) | |
| 1,519 | | |
| 12,506 | |
| Cash and cash equivalents, beginning of period | |
| | |
| 22,403 | | |
| 83,774 | | |
| 35,363 | | |
| 60,869 | |
| Cash and cash equivalents, end of period | |
| | |
$ | 36,882 | | |
$ | 73,375 | | |
$ | 36,882 | | |
$ | 73,375 | |
See accompanying notes to the unaudited condensed interim
consolidated financial statements
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 5 |
Notes to the Interim Consolidated
Financial Statements
As at June 30, 2023 and for the
three and six months ended June 30, 2023 and 2022
(Unaudited)
1. CORPORATE INFORMATION
Greenfire
Resources Inc. (the “Company” or “GRI”) is a corporation
incorporated under the Alberta Business Corporations Act. The Company and its subsidiaries are engaged in the exploration, development
and operation of oil and gas properties, and focuses primarily in the Athabasca oil sands region of Alberta.
The Company’s corporate head office is located at 1900, 205 5th Avenue SW, Calgary, AB T2P 2V7.
In
December 2022, the Company and M3-Brigade Acquisition III Corp., a New York Stock Exchange listed special purpose acquisition
company, entered into a definitive agreement for a business combination
(the “Business Combination). In April 2023 the Company filed its Registration Statement with the United States
Securities Exchange Commission. The Business Combination is expected to close before the end of 2023, subject to customary closing
conditions, including the receipt of necessary regulatory approvals. During the six months ended June 30, 2023, $4.2 million were
incurred in relation to the Business Combination
2. BASIS OF PRESENTATION AND STATEMENT OF COMPLIANCE
These unaudited condensed
interim consolidated financial statements (“interim
consolidated financial statements”) have
been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”) using
International Accounting Standard IAS 34: “Interim Financial
Reporting”. They are condensed as they do not include all of the information required for full annual consolidated
financial statements, and they should be read in conjunction with the audited annual consolidated financial statements for the year
ended December 31, 2022.
In these interim consolidated financial
statements, all dollars are expressed in Canadian dollars, which is the Company’s
functional currency, unless otherwise indicated. These interim consolidated financial statements have been prepared on a historical
cost basis, except for certain financial instruments which are measured at their estimated fair value.
The Company has one reportable
operating segment which is made up of its oil sands operations based on geographic location (Athabasca oil sands region of Alberta,
Canada), nature of the products sold and integration of facilities and operations. The chief operating decision maker is the
President and CEO, who reviews operating results at this level to assess financial performance and make resource allocation
decisions. The Company determines its operating segments based on the differences in the nature of operations, products sold,
economic characteristics and regulatory environments and management. All of the Company’s
non-current assets are located in and revenue is earned in Canada.
These interim consolidated financial
statements were approved by the Board of Directors on August 14, 2023.
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 6 |
3. MATERIAL ACCOUNTING POLICY INFORMATION
The unaudited interim
consolidated financial statements follow the same accounting policies as the most recent annual audited consolidated financial
statements with the following exceptions. The IASB issued amendments to IAS 1 Presentation of Financial Statements to require
entities to disclose their material accounting policy information rather than their significant accounting policies. To support this
amendment the IASB also amended IFRS Practice Statement 2 Making Materiality Judgements. The IASB also issued amendments to IAS 12
that require entities to recognize deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable
and deductible temporary differences. The amendments were adopted on January 1, 2023 and did not have a significant impact on the
Company's interim condensed consolidated financial statements.
The timely preparation of financial
statements requires that management make estimates and assumptions and use judgment. Accordingly, actual results may differ from estimated
amounts as future confirming events occur. Significant estimates and judgment used in the preparation of the interim consolidated financial
statements are described in the Company’s audited consolidated financial
statements for the year ended December 31, 2022.
4. FINANCIAL INSTRUMENTS
Fair value is the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date (exit price). The Company utilizes market data or assumptions that market participants who are independent, knowledgeable and willing
and able to transact would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs
to the valuation technique. The Company is able to classify fair value balances based on the observability of these inputs. The authoritative
guidance for fair value measurements establishes three levels of the fair value hierarchy, defined as follows:
| ● | Level 1: Unadjusted, quoted prices for identical assets
or liabilities in active markets; |
| ● | Level 2: Quoted prices in markets that are not considered
to be active or financial instruments for which all significant inputs are observable, either directly or indirectly for substantially
the full term of the asset or liability; and |
| ● | Level 3: Significant, unobservable inputs for use
when little or no market data exists, requiring a significant degree of judgment. |
The following table summarizes the
method by which the Company measures its financial instruments on the consolidated balance sheets and the corresponding hierarchy rating
for their derived fair value estimates:
| Financial Instrument | |
Fair Value Hierarchy | |
Classification &
Measurement |
| Cash and cash equivalents | |
Level 1 | |
Amortized cost |
| Restricted cash | |
Level 1 | |
Amortized cost |
| Accounts receivable | |
Level 2 | |
Amortized cost |
| Risk management contracts | |
Level 2 | |
Fair value through profit and loss |
| Accounts payable and accrued liabilities | |
Level 2 | |
Amortized cost |
| Long-term debt | |
Level 2 | |
Amortized cost |
The carrying values of cash and cash
equivalents, restricted cash, accounts receivable and accounts payable and accrued liabilities included on the consolidated balance sheets
approximates the fair values of the respective assets and liabilities due to the short-term nature of those instruments.
The estimated fair value of long-term
borrowings has been determined based on period-end trading prices of long-term borrowings on the secondary market (level 2).
The Company is exposed to a number
of different financial risks arising from normal course business exposures, as
well as the Company’s use of financial instruments. There have been no changes in the Company’s objectives, policies
or risks surrounding financial instruments.
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 7 |
Commodity price risk
The Company is exposed to
commodity price risk on its oil sales due to fluctuations in market prices. The Company continues to execute a consistent risk
management program that is primarily designed to reduce the volatility of revenue and cash flow, generate
sufficient cash flows to service debt obligations, and fund the Company’s operations. The Company’s risk
management liabilities consist of WTI and light-heavy crude differential swaps and options. The Company may utilize financial and/or
physical delivery contracts to fix commodity prices on a portion of its future production. The Company does not use financial
derivatives for speculative purposes. Refer to Note 10 for further details
on the Company’s risk management contracts.
Liquidity risk
Liquidity risk is the risk that an
entity will encounter difficulty in meeting obligations associated with financial liabilities. The Company actively manages its liquidity
through cash and debt management strategies. Such strategies include continuously monitoring forecasted and actual cash flows from operating,
financing and investing activities and opportunities for further financings. The Company believes that it has access to sufficient capital
through internally generated cash flows to meet current spending forecasts and financial obligations for at least twelve months.
The following table details the financial
liabilities as at June 30, 2023:
| (CAD$ thousands) | |
<1 year | | |
1-2 years | | |
2+ years | | |
Total | |
| Accounts payable and accrued liabilities | |
| 39,843 | | |
| - | | |
| - | | |
| 39,843 | |
| Lease liabilities1 | |
| 186 | | |
| 149 | | |
| 1,538 | | |
| 1,873 | |
| Risk management contracts | |
| 10,847 | | |
| - | | |
| - | | |
| 10,847 | |
| Long-term debt1 | |
| 61,156 | | |
| 93,872 | | |
| 133,519 | | |
| 288,547 | |
| Total financial liabilities | |
| 112,032 | | |
| 94,021 | | |
| 135,057 | | |
| 341,110 | |
| 1 | These amounts include the notional principal and interest
payments |
Credit risk
Credit risk is the risk of
financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations and arises principally from the Company’s accounts receivable. The Company is
primarily exposed to credit risk from receivables associated with its oil sales. The Company manages its credit risk exposure by
transacting with high-quality credit-worthy counterparties and monitoring creditworthiness and/or credit ratings on an ongoing
basis. Trade receivables from oil sales are generally collected on the 25th day of the month following production. Joint interest
receivables are typically collected within one to three months of the invoice being issued. The Company has not previously
experienced any material credit losses on the collection of accounts receivable. Refer to Note 6 for further details.
Revenue
The Company has long-term
marketing agreements with a single counterparty (“Sole Petroleum Marketer”), which has exclusive marketing rights over the
Company’s production and diluent purchases at Hangingstone Expansion (“Expansion”),
until October 2026 and at Hangingstone Demo (“Demo”), until April 2024. Fees paid to the Sole Petroleum Marketer as
part of these agreements include, marketing, incentive and royalty fees. These fees are expensed as incurred as transportation and marketing
expenses. In addition, the Sole Petroleum Marketer provides letters of credit
in support of the Company’s long-term transportation commitments. As a result of these marketing agreements, the Company
is exposed to concentration and credit risks, as all sales are to a single counterparty.
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 8 |
5.
RESTRICTED CASH
As
at June 30, 2023 the Company had a $46.8 million credit facility with its Sole Petroleum Marketer (“Credit Facility”)
that was used to issue $46.8 million in letters of credit related to the Company’s long-term pipeline transportation
agreements. Under the terms of the Credit Facility, over a period of 24 months and beginning in October 2021, the Company is
required to contribute cash to a cash-collateral account (“Reserve Account”) until the balance of the Reserve Account is
equal to 105% of the aggregate face value of the Credit Facility. During the six months ended June 30, 2023, the Company contributed
$12.0 million in restricted cash to the Reserve Account.
As
at June 30, 2023 the Company had $47.4 million in restricted cash, which consisted of $39.3 million restricted cash in the Reserve Account
and $8.1 million of restricted cash that collateralizes the Company’s credit cards and other transportation commitments.
6.
ACCOUNTS RECEIVABLE
As at
($ thousands) | |
June 30,
2023 | | |
December 31,
2022 | |
| Trade receivables | |
$ | 30,465 | | |
$ | 22,428 | |
| Joint interest receivables | |
| 6,046 | | |
| 11,880 | |
| Accounts receivable | |
$ | 36,511 | | |
$ | 34,308 | |
At
June 30, 2023, the Company was exposed to concentration risk associated with its outstanding trade receivables and joint interest
receivables balances. Of the Company’s trade receivables at June 30, 2023, 100% was receivable from two companies at
approximately 71% and 29% each (December 31, 2022- 100% was receivable from two companies at 64% and 36% each). At June 30, 2023,
100% of the Company’s joint interest receivables were held by a single company (December 31, 2022- 100% by a single company).
Maximum exposure to credit risk is represented by the carrying amount of accounts receivable on the balance sheet. There are no
material financial assets that the Company considers past due, and no accounts have been written off.
7.
INVENTORIES
As at
($ thousands) | |
June 30,
2023 | | |
December 31,
2022 | |
| Oil inventories | |
$ | 3,685 | | |
$ | 7,560 | |
| Warehouse materials and supplies | |
| 7,029 | | |
| 7,008 | |
| Inventories | |
$ | 10,714 | | |
$ | 14,568 | |
During
the three and six months ended June 30, 2023, approximately $137.6 million and $315.8 million, respectively (June 30, 2022 - $199.7 million
and $333.7 million) of inventory was recorded in operating expenses, diluent expense, transportation expense and depletion and depreciation
in the condensed consolidated statements of comprehensive income (loss). As at June 30, 2023 and December 31, 2022, the Company had no
inventory write downs.
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 9 |
8.
PROPERTY, PLANT AND EQUIPMENT (“PP&E”)
| ($ thousands) | |
Developed
and
producing | | |
Right-of-use | | |
Corporate
assets | | |
Total | |
| Cost | |
| | |
| | |
| | |
| |
| Balance as at December 31, 2021 | |
| 1,016,654 | | |
| - | | |
| 462 | | |
| 1,017,116 | |
| Expenditures on PP&E | |
| 39,425 | | |
| - | | |
| 167 | | |
| 39,592 | |
| Right-of-use asset additions | |
| - | | |
| 969 | | |
| - | | |
| 969 | |
| Revaluation of decommissioning liabilities | |
| 1,237 | | |
| - | | |
| - | | |
| 1,237 | |
| Balance as at December 31, 2022 | |
| 1,057,316 | | |
| 969 | | |
| 629 | | |
| 1,058,914 | |
| Expenditures on PP&E | |
| 4,428 | | |
| - | | |
| - | | |
| 4,428 | |
| Right-of-use asset additions | |
| - | | |
| 460 | | |
| - | | |
| 460 | |
| Balance as at June 30, 2023 | |
| 1,061,744 | | |
| 1,429 | | |
| 629 | | |
| 1,063,802 | |
| Accumulated DD&A | |
| | | |
| | | |
| | | |
| | |
| Balance as at December 31, 2021 | |
| 27,949 | | |
| - | | |
| 47 | | |
| 27,996 | |
| Depletion and depreciation (1) | |
| 67,623 | | |
| 60 | | |
| 185 | | |
| 67,868 | |
| Balance as at December 31, 2022 | |
| 95,572 | | |
| 60 | | |
| 232 | | |
| 95,864 | |
| Depletion and depreciation (1) | |
| 37,479 | | |
| 103 | | |
| 76 | | |
| 37,658 | |
| Balance as at June 30, 2023 | |
| 133,051 | | |
| 163 | | |
| 308 | | |
| 133,522 | |
| Net book Value | |
| | | |
| | | |
| | | |
| | |
| Balance at December 31, 2022 | |
| 961,744 | | |
$ | 909 | | |
| 397 | | |
| 963,050 | |
| Balance at June 30, 2023 | |
$ | 928,693 | | |
$ | 1,266 | | |
$ | 321 | | |
$ | 930,280 | |
| (1) | As
at June 30, 2023 $389 of DD&A was capitalized to inventory (December 31, 2022- $766). |
No
indicators of impairment were identified at June 30, 2023, and as such no impairment test was performed.
9.
DECOMMISSIONING LIABILITIES
The
Company’s decommissioning liabilities result from net ownership interests in oil assets including well sites, gathering
systems and processing facilities. The Company estimates the total undiscounted inflated amount of cash flows required to settle its
decommissioning liabilities to be approximately $206.5 million (December 31, 2022- $206.5 million). A credit-adjusted discount rate
of 12% (December 31, 2022- 12%) and an inflation rate of 2.0% (December 31, 2022- 2.0%) were used to calculate the decommissioning
liabilities. A 1.0% change in the credit-adjusted discount rate would impact the discounted value of the decommissioning liabilities
by approximately $1.1 million with a corresponding adjustment to PP&E. The decommissioning liabilities are estimated to be
settled in periods up to year 2071.
A
reconciliation of the decommissioning liabilities is provided below:
As at
($ thousands) | |
June 30,
2023 | | |
December 31,
2022 | |
| Balance, beginning of period | |
$ | 7,543 | | |
$ | 5,517 | |
| Revaluation | |
| - | | |
| 1,283 | |
| Accretion expense | |
| 440 | | |
| 743 | |
| Balance, end of period | |
$ | 7,983 | | |
$ | 7,543 | |
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 10 |
10.
RISK MANAGEMENT CONTRACTS
The
Company is exposed to commodity price risk on its oil sales due to fluctuations in market prices. The Company continues to execute a
consistent risk management program that is primarily designed to reduce the volatility of revenue and cash flow, generate sufficient
cash flows to service debt obligations, and fund the Company’s operations. The Company’s risk management liabilities
consist of WTI, light-heavy crude and natural gas differential swaps and options. The Company may utilize financial and/or physical
delivery contracts to fix commodity prices on a portion of its future production. The Company does not use financial derivatives for
speculative purposes.
The
Company’s obligations under its Notes (see note 11) includes a requirement to implement a 12-month forward commodity price
risk management program encompassing not less than 50% of the hydrocarbon output under the proved developed producing reserves
forecast in the most recent reserves report, as determined by a qualified and independent reserves evaluator. This requirement is
assessed at the end of every fiscal quarter for the duration of time that the Notes remain outstanding.
The
Company’s commodity price risk management program does not involve margin accounts that require posting of margin with
increased volatility in underlying commodity prices. Financial risk management contracts are measured at fair value, with gains and
losses on re-measurement included in the consolidated statements of comprehensive income (loss) in the period in which they
arise.
Financial
contracts
The
Company’s financial risk management contracts are subject to master netting agreements that create the legal right to settle the
instruments on a net basis. The following table summarizes the gross asset and liability positions of the Company’s individual
risk management contracts that are offset in the consolidated balance sheets:
| |
|
As at June 30, 2023 |
| |
As at December 31, 2022 | |
| (CAD$ thousands) | |
Asset | | |
Liability | | |
Asset | | |
Liability | |
| Gross amount | |
$ | 104 | | |
$ | (10,951 | ) | |
$ | 21,375 | | |
$ | (48,379 | ) |
| Amount offset | |
| (104 | ) | |
| 104 | | |
| (21,375 | ) | |
| 21,375 | |
| Risk Management contracts | |
$ | - | | |
$ | (10,847 | ) | |
$ | - | | |
$ | (27,004 | ) |
The
following table summarizes the financial commodity risk management gains and losses:
| | |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Realized gain (loss) on risk management contracts | |
$ | (6,777 | ) | |
$ | (57,263 | ) | |
$ | (6,957 | ) | |
$ | (91,044 | ) |
| Unrealized gain (loss) on risk management contracts | |
| 11,134 | | |
| 28,182 | | |
| 16,157 | | |
| (114,410 | ) |
| Gain (loss) on risk management contracts | |
$ | 4,357 | | |
$ | (29,081 | ) | |
$ | 9,200 | | |
$ | (205,454 | ) |
As
at June 30, 2023, the following financial commodity risk management contracts were in place:
| | |
WTI- Fixed Price Swap | | |
WTI- Put Options | | |
WTI- Costless Collar | |
| Term | |
Volume
(bbls) | | |
Swap
Price
(US$/bbl)(1) | | |
Volume
(bbls) | | |
Strike
Price
(US$/bbl) | | |
Option
Premium
($US/bbl) | | |
Volume
(bbls) | | |
Put Strike
Price
(US$/bbl) | | |
Call Strike
Price
(US$/bbl) | |
| Q3 2023 | |
| - | | |
| - | | |
| 1,278,551 | | |
| 50.00 | | |
| 4.73 | | |
| - | | |
| - | | |
| - | |
| Q4 2023 | |
| - | | |
| - | | |
| 371,169 | | |
| 50.00 | | |
| 5.90 | | |
| 742,337 | | |
| 50.00 | | |
| 108.25 | |
| Q1 2024 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 877,968 | | |
| 60.00 | | |
| 77.00 | |
| Q2 2024 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 877,968 | | |
| 60.00 | | |
| 74.55 | |
| (1) | Presented
as weighted average prices |
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 11 |
| | |
Natural Gas-Fixed Price Swaps | |
| Term | |
Volume
(GJs) | | |
Swap Price
(CAD$/GJ) | |
| Q4 2023 | |
| 305,000 | | |
| 2.97 | |
| Q1 2024 | |
| 455,000 | | |
| 2.97 | |
The
following table illustrates the potential impact of changes in commodity prices on the Company’s net income, before tax, based
on the financial risk management contracts in place at June 30, 2023:
| | |
Change in WTI | | |
Change in Natural Gas | |
As at June 30, 2023
($ thousands) | |
Increase of $5.00/bbl | | |
Decrease of
$5.00/bbl | | |
Increase of
$0.10/GJ | | |
Decrease of
$0.10/GJ | |
| Increase (decrease) to fair value of commodity risk management contracts | |
| - | | |
| - | | |
$ | 76 | | |
$ | (76 | ) |
The
Company’s commodity risk management contracts are held with two large reputable financial institution. As a result, the Company
concluded that credit risk associated with its commodity risk management contracts is low.
11.
LONG-TERM DEBT AND BONDHOLDER WARRANTS
Long-term
debt
On
August 12, 2021, the Company issued US$312.5 million of senior secured notes (“the Notes”) and 312,500 detachable share
purchase warrants (“Bondholder Warrants”) as part of a debt offering (“the Offering”). The Notes had an
original issuer discount of 3.5% and bear interest at the fixed rate of 12.00% per annum, payable semi-annually, and mature on
August 12, 2025. The Notes are secured by a first priority lien on substantially all the assets of the Company and its wholly owned
subsidiaries. Subject to certain exceptions and qualifications, the Notes contain certain covenants that limit the Company’s
ability to, among other things, incur additional indebtedness, create or permit liens to exist, and make certain restricted
payments, dispositions and transfers of assets. The Notes also contain minimum hedging requirements. As at June 30, 2023 and
December 31, 2022, the Company was compliant with all covenants.
As at
($ thousands) | |
June 30,
2023 | | |
December 31,
2022 | |
| US dollar denominated debt: | |
| | |
| |
| 12.00% senior notes issued at 96.5% of par (USD$217.9 million at June 30, 2023 and US$217.9 million at December 31, 2022)(1) | |
$ | 288,547 | | |
$ | 295,173 | |
| Unamortized debt discount and debt issue costs | |
| (41,742 | ) | |
| (40,765 | ) |
| Total term debt | |
$ | 246,805 | | |
$ | 254,408 | |
| Current portion of long-term debt | |
$ | 61,156 | | |
$ | 63,250 | |
| Long-term debt | |
$ | 185,649 | | |
$ | 191,158 | |
| (1) | The
U.S. dollar denominated debt was translated into Canadian dollars as at June month-end exchange rate of 1.324 (December 31, 2022- 1.3544). |
Under
the terms of the Notes, the Company is required to redeem 75% of Excess Cash Flow in every six-month period, with the first period
beginning on September 17, 2021 and ending March 31, 2022. Excess Cash Flow is defined as the net change in cash for the six-month
period minus net cash used in or provided by financing activities (other than any amounts used to reduce the principal amount of the
Notes or any indebtedness that is subordinated to the Notes). Cash amounts deposited into the Reserve Account (see note 5) are
excluded from the Excess Cash Flow calculation. Letters of credit issued by banks in the ordinary course of business are also
excluded from the definition of Excess Cash Flow. The redemption price for this Excess Cash Flow redemption is equal to 106% of the
principal amount, plus accrued and unpaid interest to the date of redemption. The Company has up to 65 days after a six-month period
to affect the redemption, with a 30-day notice period. For the period ended June 30, 2023, the estimated Excess Cash Flow redemption
for the next 12 months was estimated at $61.2 million (December 31, 2022- $63.3 million) and is recorded on the Company’s
financial statements as a current liability.
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 12 |
At
any time prior to August 15, 2023, the Company may on any one or more occasions redeem, on a pro rata basis, all or a part of the Notes,
at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus a prepayment premium, and accrued and unpaid
interest, if any, to, but not including, the date of redemption. The prepayment premium is calculated as follows:
On
the redemption date, the greater of:
| (1) | 1.0%
of the principal amount of the Note; or |
(a)
the present value at such redemption date of (i) the redemption price of the Note at August 15, 2023 (see table below), plus (ii) all
required interest payments due on the Note through August 15, 2023 (excluding accrued but unpaid interest to the redemption date), computed
using a discount rate equal to the “Treasury Rate” as of such redemption date plus 50.0 basis points; over (b) the principal
amount of the Note.
“Treasury
Rate” defined as of any redemption date, the yield to maturity as of such redemption date of United States Treasury securities
with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has
become publicly available at least two Business Days prior to the redemption date (or, if such Statistical Release is no longer
published, any publicly available source of similar market data) most nearly equal to the period from the redemption date to August
15, 2023; provided, that if the period from the redemption date to August 15, 2023, is less than one year, the weekly average yield
on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
The
Company also has the option to redeem the Notes at the following specified redemption prices:
| | |
US$312.5 million
12.00% senior
notes | |
| On or after August 15, 2023 to August 15, 2024 | |
| 106.0 | |
| On or after August 15, 2024 to February 15, 2025 | |
| 103.0 | |
| On or after February 15, 2025 | |
| 100.0 | |
The
Company is exposed to foreign exchange rate fluctuations on the principal value and interest payments in respect of its Notes. As of
June 30, 2023, a 10% change to the value of the Canadian dollar relative to the US dollar would result in a foreign exchange gain (loss)
of approximately $28.8 million (December 31, 2022 - $29.3 million).
As
at June 30, 2023, the carrying value of the Company’s long-term debt was $288.5 million and the fair value was $306.8 million (December
31, 2022 carrying value – $254.4 million, fair value – $315.7 million).
The
Notes are subject to fixed interest rates and are not exposed to changes in interest rates.
Bondholder warrants
The
Offering included one, detachable, five-year share purchase warrant for every US$1,000 in face value of Notes issued resulting in
the issue of 312,500 Bondholder Warrants that entitle the holder to acquire up to 3,225,806 common shares at $0.01 per warrant. The
Bondholder Warrants were exercisable and detachable 30 days post the closing of the JACOS acquisition. The Notes and Bondholder
Warrants were separated on October 18, 2021. These warrants were issued in conjunction with the Offering to enable the bondholders
to acquire 25% of the Company, prior to new equity being raised by the Company, at a nominal value. The remaining 75% was to be held
by the founders of the Company, a group that included the four shareholders, key management and employees.
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 13 |
The
Bondholder Warrants have been determined to be equity instruments and have been allocated a portion of the net proceeds raised by the
Offering based on the relative fair value of the Notes and the Bondholder Warrants. The fair value of the Bondholder Warrants was determined
by the Company using a level 3 fair value hierarchy. In determining the fair value of the Bondholder Warrants the Company considered
all available information, including indicative valuation estimates provided by the agents of the Offering, secondary market bid and
ask prices, adjusted for the risks related to the closing of the JACOS acquisition that existed at their date of issue in August 2021.
12.
LEASE LIABILITIES
The
Company has recognized the following leases:
| ($ thousands) | |
June 30,
2023 | | |
December 31,
2022 | |
| Balance, beginning of year | |
$ | 963 | | |
$ | - | |
| Additions | |
| 460 | | |
| 970 | |
| Interest expense | |
| 34 | | |
| 19 | |
| Payments | |
| (12 | ) | |
| (26 | ) |
| Balance, end of year | |
$ | 1,445 | | |
$ | 963 | |
| Current portion | |
$ | 186 | | |
$ | 98 | |
| Non-current portion | |
$ | 1,259 | | |
$ | 865 | |
The
Company’s minimum lease payments are as follows:
As at June 30
($ thousands) | |
2023 | |
| Within 1 year | |
$ | 186 | |
| Within 2 to 5 years | |
| 576 | |
| Later than 5 year | |
| 1,111 | |
| Minimum lease payments | |
| 1,873 | |
| Amounts representing finance charges | |
| (428 | ) |
| Present value of net minimum lease payments | |
$ | 1,445 | |
During
the year ended December 31, 2022, the Company entered a 7-year term finance lease for new office space, which has been recognized as
a right-of-use asset and lease liability at inception in the consolidated balance sheets. During the six months ended June 30, 2023,
the initial 7-year lease was extended an additional 3 years. The liability was remeasured at the present value of the remaining lease
payments discounted at the Company’s estimated incremental borrowing rate.
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 14 |
13.
FINANCING AND INTEREST
| | |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Accretion on long-term debt | |
$ | 4,870 | | |
$ | 21,398 | | |
$ | 19,714 | | |
$ | 43,703 | |
| Other interest | |
| 305 | | |
| 573 | | |
| 560 | | |
| 1,210 | |
| Accretion on decommissioning liabilities | |
| 223 | | |
| 189 | | |
| 440 | | |
| 348 | |
| Financing and interest expense | |
$ | 5,398 | | |
$ | 22,160 | | |
$ | 20,714 | | |
$ | 45,261 | |
14.
COMMITMENTS
The
following table summarized the Company’s estimated future unrecognized commitments as at June 30, 2023:
| ($ thousands) | |
Remaining
2023 | | |
2024 | | |
2025 | | |
2026 | | |
2027 | | |
Beyond
2027 | | |
Total | |
| Credit facility | |
| 9,784 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 9,784 | |
| Transportation | |
| 16,205 | | |
| 31,880 | | |
| 30,561 | | |
| 28,956 | | |
| 29,044 | | |
| 232,368 | | |
| 369,014 | |
| Total | |
$ | 25,989 | | |
$ | 31,880 | | |
$ | 30,561 | | |
$ | 28,956 | | |
$ | 29,044 | | |
$ | 232,368 | | |
$ | 378,798 | |
The
Company has commitments related to pipeline transportation services, and credit facility commitments associated with its pipeline transportation
commitments.
15.
SHARE CAPITAL AND WARRANTS
Share
capital
As
at June 30, 2023 the Company’s authorized share capital consists of an unlimited number of common shares and there was a total
of 8,951,624 common shares outstanding. The following table summarized changes to the Company’s common share capital:
| | |
Six months ended
June 30, 2023 | | |
Year ended
December 31, 2022 | |
| | |
Number of
shares | | |
Amount | | |
Number of
shares | | |
Amount | |
| Shares outstanding | |
| | |
| | |
| | |
| |
| Balance, beginning of period | |
| 8,951,624 | | |
$ | 14,516 | | |
| 8,951,624 | | |
$ | 14,516 | |
| Stock issued | |
| - | | |
| - | | |
| - | | |
| - | |
| Balance, end of period | |
| 8,951,624 | | |
$ | 14,516 | | |
| 8,951,624 | | |
$ | 14,516 | |
The
following table summarizes the Company’s weighted average shares outstanding:
| | |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Weighted average shares outstanding-basic | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | |
| Dilutive effect of warrants | |
| 3,939,320 | | |
| 3,927,353 | | |
| 3,937,227 | | |
| 3,756,130 | |
| Weighted average shares outstanding- diluted | |
| 12,890,944 | | |
| 12,878,977 | | |
| 12,888,851 | | |
| 12,707,754 | |
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 15 |
The
dilutive effect of warrants is reflective of the total specified number of shares issuable under the original warrant agreement, which
contemplates an adjustment for the number of performance warrants exercised.
Bondholder
warrants
As
at June 30, 2023, the Company had 312,500 Bondholder Warrants outstanding which entitled the holders of these warrants, in
aggregate, the right to purchase 25% of the Company’s issued and outstanding common shares commencing October 18, 2021 to a
maximum of 3,225,806 common shares at $0.01 per shares. Based on the issued and outstanding common shares of the Company,
Bondholders have the right to acquire 2,983,866 common shares at $0.01 per share.
The
table below summarizes the outstanding warrants as it equates to the total common shares issuable to bondholders:
| | |
Six months ended
June 30, 2023 | | |
Year ended
December 31, 2022 | |
| | |
Number of
warrants | | |
Exercise
price | | |
Number of
warrants | | |
Exercise
price | |
| Bondholder Warrants outstanding | |
| | |
| | |
| | |
| |
| Balance, beginning of period | |
| 312,500 | | |
$ | 0.01 | | |
| 312,500 | | |
$ | 0.01 | |
| Bondholder Warrants issued | |
| - | | |
| - | | |
| - | | |
| - | |
| Balance, end of period | |
| 312,500 | | |
$ | 0.01 | | |
| 312,500 | | |
$ | 0.01 | |
| Exchange ratio, end of period | |
| 9.55 | | |
| - | | |
| 9.55 | | |
| - | |
| Common shares issuable on exchange | |
| 2,983,866 | | |
| - | | |
| 2,983,866 | | |
| - | |
Performance
warrants
In
February 2022, the Company implemented a warrant plan as part of the Company’s long-term incentive plan for employees and
service providers, whereby up to 725,806 warrants (“Performance Warrants”) are issuable under the plan. These
Performance Warrants have both performance and time vesting criteria before there is the ability to exercise the option to purchase
one common share of the Company for each Performance Warrant. As of the date of these consolidated financial statements, the vesting
criteria was met for approximately 36,849 performance warrants, which can be converted into 36,849 common shares. All Performance
Warrants expire 10 years after issuance.
The
table below summarizes the outstanding warrants as it equates to the total common shares issuable to performance warrant holders:
| | |
Six months ended
June 30, 2023 | | |
Year ended
December 31, 2022 | |
| | |
Number of
warrants | | |
Weighted
Average
Exercise
price | | |
Number of
warrants | | |
Weighted
Average
Exercise
price | |
| Performance Warrants outstanding | |
| | |
| | |
| | |
| |
| Balance, beginning of period | |
| 712,930 | | |
$ | 15.79 | | |
| - | | |
$ | - | |
| Performance warrants issued | |
| 8,526 | | |
| 58.67 | | |
| 761,264 | | |
| 15.88 | |
| Performance warrants forfeited | |
| (3,528 | ) | |
| 14.18 | | |
| (48,334 | ) | |
| 17.12 | |
| Balance, end of period | |
| 716,878 | | |
$ | 16.26 | | |
| 712,930 | | |
$ | 15.79 | |
| Common shares issuable on exchange | |
| 716,878 | | |
| - | | |
| 712,930 | | |
| - | |
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 16 |
The
fair market value of the Performance Warrants was $10.7 million at the date of issuance. The fair value of each warrant was estimated
on its grant date using the Black Scholes Merton valuation model with the following assumptions:
| | |
2022
Assumptions | | |
2023
Assumptions | |
| Average risk-free interest rate | |
| 1.46 | % | |
| 3.55 | % |
| Average expected dividend yield | |
| - | | |
| - | |
| Average expected volatility1 | |
| 60.00 | % | |
| 57.00 | % |
| Average expected life (years) | |
| 3-5 | | |
| 2-5 | |
| 1 | Expected
volatility has been based on historical share volatility of similar market participants |
The
Performance Warrants expire 10 years after the issuance date. For the three and six months ended June 30, 2023, the Company recorded
$0.3 and $0.7 million of stock-based compensation in general and administrative expenses related to the performance warrant plan.
16.
SUPPLEMENTAL CASH FLOW INFORMATION
The
following table reconciles the net changes in non-cash working capital and other liabilities from the consolidated balance sheet to the
consolidated statement of cash flows:
| | |
Three months ended
June 30 | | |
Six months ended
June 30 | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Change in accounts receivable | |
$ | (667 | ) | |
$ | (502 | ) | |
$ | (2,203 | ) | |
$ | (38,330 | ) |
| Change in inventories | |
| 46 | | |
| (3,425 | ) | |
| 3,854 | | |
| 1,604 | |
| Change in prepaid expenses and deposits | |
| (376 | ) | |
| 196 | | |
| 903 | | |
| (3,558 | ) |
| Change in accounts payable and accrued liabilities | |
| 4,006 | | |
| 14,119 | | |
| (6,726 | ) | |
| 21,867 | |
| | |
| 3,009 | | |
| 10,388 | | |
| (4,172 | ) | |
| (18,417 | ) |
| Other items impacting changes in non-cash working capital: | |
| | | |
| | | |
| | | |
| | |
| Unrealized foreign exchange gain (loss) related to working capital | |
| (69 | ) | |
| (194 | ) | |
| (66 | ) | |
| 227 | |
| | |
| 2,940 | | |
| 10,194 | | |
| (4,238 | ) | |
| (18,190 | ) |
| Related to operating activities | |
| 2,095 | | |
| 9,808 | | |
| (3,130 | ) | |
| (21,334 | ) |
| Related to investing activities (accrued additions to PP&E) | |
| 845 | | |
| 386 | | |
| (1,108 | ) | |
| 3,144 | |
| Net change in non-cash working capital | |
| 2,940 | | |
| 10,194 | | |
| (4,238 | ) | |
| (18,190 | ) |
| Cash interest paid (included in operating activities) | |
$ | (878 | ) | |
$ | (2,856 | ) | |
$ | (18,308 | ) | |
$ | (27,470 | ) |
| Cash interest received (included in operating activities) | |
$ | 668 | | |
$ | 14 | | |
$ | 791 | | |
$ | 11 | |
| Greenfire Resources Inc. | 2023 Q2 Financial Statements | 17 |
Exhibit 99.2
This Management’s Discussion
and Analysis (“MD&A”) of the financial condition and
results of operations of Greenfire Resources Inc. (“Greenfire”
or the “Company”) is dated August 14, 2023, which is the date this MD&A was approved by the Board of
Directors of the Company, and should be read in conjunction with the Company’s unaudited
interim consolidated financial statements and notes for the period ended June 30, 2023, as well as the audited consolidated
financial statements and notes for the year ended December 31, 2022 and the 2022 annual MD&A. The financial statements,
including the comparative figures, were prepared in accordance with International
Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).
This MD&A contains forward
looking information based on the Company’s current expectations and projections. For information on the material factors
and assumptions underlying such forward-looking information, refer to the “Forward
Looking Statements” section within this MD&A.
Production volumes and
per unit statistics are presented throughout this MD&A on a “net of the Company’s working interest” and “before
royalty basis”.
Dollar per barrel ($/bbl) figures
are based upon sold bitumen barrels unless otherwise noted. The Company monitors and reviews financial information on a per barrel basis
for comparability to prior period results and to analyze the Company’s
competitiveness relative to its peer group.
All financial information included
in this MD&A is presented in Canadian dollars (“CAD”),
unless otherwise noted. Certain dollar amounts have been rounded to the nearest million dollars or thousand dollars, as noted, and tables
may not add due to rounding.
The Company’s non-GAAP Measures
are detailed in the non-GAAP Measures section of this report. They include Excess Cash Flow, adjusted EBITDA, adjusted EBITDA per barrel
($/bbl), adjusted funds flow, adjusted funds flow per barrel ($/bbl), adjusted working capital and net debt.
Key Factors Affecting Operating
Results
The Company believes its performance
depends on several factors that present significant opportunities for it but also pose risks and challenges.
Commodity Prices
Prices for crude oil, condensate
and natural gas have historically been volatile. This volatility is expected to continue due to the many uncertainties associated with
the global political and economic environment, including the supply of, and demand for, crude oil and natural gas and the availability
of other energy supplies, both regionally and internationally, as well as the relative competitive relationships of the various energy
sources in the view of consumers and other factors.
The market prices of
crude oil, condensate and natural gas impact the amount of cash generated from Greenfire’s
operating activities, which, in turn, impact Greenfire’s financial position and results of operations.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 2 |
Competition
The petroleum industry is competitive
in all its phases. Greenfire competes with numerous other entities in the exploration, development, production and marketing of oil. Greenfire’s
competitors include oil and natural gas companies that have substantially greater financial resources, workforce and facilities than those
of Greenfire. Some of these companies not only explore for, develop and produce oil, but also carry on refining operations and market
oil and natural gas on an international basis. As a result of these complementary activities, some of these competitors may have greater
and more diverse competitive resources to draw on than Greenfire. Greenfire’s
ability to increase its reserves in the future will depend not only on its ability to explore and develop its present properties,
but also on its ability to select and acquire other suitable producing properties or prospects for exploratory drilling. Competitive factors
in the distribution and marketing of oil include price, process, and reliability of delivery and storage.
Greenfire also faces competition
from companies that supply alternative resources of energy, such as wind or solar power. Other factors that could affect competition in
the marketplace include additional discoveries of hydrocarbon reserves by Greenfire’s
competitors, changes in the cost of production, and political and economic factors and other factors outside of Greenfire’s
control.
The petroleum industry is characterized
by rapid and significant technological advancements and introductions of new products and services utilizing new technologies that may
increase the viability of reserves or reduce production costs. Other companies may have greater financial, technical and personnel resources
that allow them to implement and benefit from such technological advantages. Greenfire may not be able to respond to such competitive
pressures and implement such technologies on a timely basis, or at an acceptable cost. If Greenfire does implement such technologies,
Greenfire may not do so successfully. One or more of the technologies currently utilized or implemented in the future by Greenfire may
become obsolete or uneconomic. If Greenfire is unable to employ the most advanced commercially available technology, or is unsuccessful
in implementing certain technologies, its business, financial condition and results of operations could also be adversely affected in
a material way.
Royalty Regimes
Greenfire pays royalties in accordance
with the established royalty regime in the Province of Alberta. Greenfire’s
royalties are paid to the Crown, which are based on government pre and post payout royalty rates determined on sliding scales and
dependent on commodity prices. The Government of Alberta may adopt new royalty regimes, or modify the existing royalty regime, which may
have an impact on the economics of Greenfire’s projects. An increase
in royalties would reduce Greenfire’s earnings and could make future
capital investments, or Greenfire’s operations, less economic. For
more information see the subsection 4.4 Royalties.
Impact of COVID-19
The COVID-19 pandemic, which
began in early 2020, continues to create uncertainty and negatively impact the commodity price environment by suppressing the continued
recovery in global economic activity and demand for hydrocarbon product. It continues to be difficult to forecast and account for the
risk posed by the COVID-19 pandemic.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 3 |
CONTENTS
| |
1. |
BACKGROUND AND HISTORY |
6 |
| |
2. |
OUTLOOK AND OBJECTIVES |
6 |
| |
3. |
PERFORMANCE HIGHLIGHTS |
7 |
| |
4. |
RESULTS OF OPERATIONS |
12 |
| |
|
4.1 |
Production |
12 |
| |
|
4.2 |
Commodity Prices |
12 |
| |
|
4.3 |
Oil Sales |
15 |
| |
|
4.4 |
Royalties |
16 |
| |
|
4.5 |
Risk Management Contracts |
17 |
| |
|
4.6 |
Diluent Expense |
19 |
| |
|
4.7 |
Transportation and Marketing Expense |
19 |
| |
|
4.8 |
Operating Expenses |
20 |
| |
|
4.9 |
Production Costs |
21 |
| |
|
4.10 |
General & Administrative Expenses |
22 |
| |
|
4.11 |
Interest and Finance Expenses |
22 |
| |
|
4.12 |
Depletion and Depreciation |
23 |
| |
|
4.13 |
Exploration Expenses |
24 |
| |
|
4.14 |
Other (Income) and Expense |
24 |
| |
|
4.15 |
Foreign Exchange Loss (Gain) |
24 |
| |
|
4.16 |
Decommissioning Liability |
25 |
| |
|
4.17 |
Net Income (Loss) and Comprehensive Income (Loss) and Adjusted EBITDA |
25 |
| |
5. |
CAPITAL RESOURCES AND LIQUIDITY |
26 |
| |
|
5.1 |
Long Term Debt |
27 |
| |
|
5.2 |
Term Loan |
27 |
| |
|
5.3 |
Working Capital (Deficit) and Adjusted Working Capital(1) |
28 |
| |
|
5.4 |
Restricted Cash and Letter of Credit Facilities |
28 |
| |
|
5.5 |
Expansion Marketing Contract |
29 |
| |
|
5.6 |
Demo Marketing Contract |
29 |
| |
|
5.7 |
Share Capital and Warrants |
29 |
| |
|
5.8 |
Cash Flow Summary |
31 |
| |
|
5.9 |
Property, Plant and Equipment Expenditures |
32 |
| |
|
5.10 |
Cash Provided by Operating Activities and Adjusted Funds Flow(1) |
33 |
| |
6. |
NON-GAAP MEASURES |
34 |
| |
7. |
COMMITMENTS AND CONTINGENCIES |
38 |
| |
8. |
ACCOUNTS RECEIVABLE |
38 |
| |
9. |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES |
38 |
| |
10. |
OFF-BALANCE SHEET ARRANGEMENTS |
39 |
| |
11. |
FORWARD LOOKING STATEMENTS |
39 |
| |
12. |
ADDITIONAL INFORMATION |
40 |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 4 |
FIGURES
| Figure 1: |
Financial & Operational Highlights |
11 |
| Figure 2: |
Liquidity and Balance Sheet |
11 |
| Figure 3: |
Production and Steam-Oil Ratio |
12 |
| Figure 4: |
Benchmark Pricing |
15 |
| Figure 5: |
Oil Sales |
16 |
| Figure 6: |
Royalties |
16 |
| Figure 7: |
Financial Management Contracts |
17 |
| Figure 8: |
Outstanding Financial Risk Management Contracts at June 30, 2023 |
18 |
| Figure 9: |
Outstanding Physical Contracts at June 30, 2023 |
18 |
| Figure 10: |
Realized and Unrealized Gain (Loss) on Commodity Price Risk Management Contracts |
19 |
| Figure 11: |
Diluent Expense |
19 |
| Figure 12: |
Transportation and Marketing Expenses |
20 |
| Figure 13: |
Operating Expenses |
21 |
| Figure 14: |
Production Costs |
22 |
| Figure 15: |
General & Administrative Expenses |
22 |
| Figure 16: |
Interest and Finance Expenses |
23 |
| Figure 17: |
Depletion and Depreciation Expense |
24 |
| Figure 18: |
Exploration Expenses |
24 |
| Figure 19: |
Other (Income) and Expense |
24 |
| Figure 20: |
Foreign Exchange Loss (Gain) |
25 |
| Figure 21: |
Reconciliation of Decommissioning Liability |
25 |
| Figure 22: |
Net Income (Loss) and Comprehensive Income (Loss) and Adjusted EBITDA |
26 |
| Figure 23: |
Reconciliation of Working Capital (Deficit) to Adjusted Working Capital(1) |
28 |
| Figure 24: |
Outstanding Common Shares |
30 |
| Figure 25: |
Weighted Average Shares Outstanding |
30 |
| Figure 26: |
Bondholder Warrants Outstanding |
31 |
| Figure 27: |
Performance Warrants Outstanding |
31 |
| Figure 28: |
Cash Flow Summary |
32 |
| Figure 29: |
Property, Plant and Equipment Expenditures |
33 |
| Figure 30: |
Reconciliation of Cash Provided by Operating Activities to Adjusted Funds Flow(1) |
34 |
| Figure 31: |
Reconciliation of Change in Cash and Cash Equivalents to Excess Cash Flow |
35 |
| Figure 32: |
Reconciliation of Long-Term Debt to Net Debt |
36 |
| Figure 33: |
Summary of Quarterly Results |
37 |
| Figure 34: |
Commitments |
38 |
| Figure 35: |
Accounts Receivable |
38 |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 5 |
1. BACKGROUND
AND HISTORY
Greenfire and its subsidiaries
are based in Canada. The Company’s registered office is located in Calgary,
Alberta. The Company’s principal business is the sustainable production and development of upstream energy resources from
the oil sands in Canada, using in situ thermal oil production extraction techniques such as steam assisted gravity
drainage (“SAGD”). Since 2020, Greenfire has acquired multiple assets through a sequence of business combinations and
amalgamations. The assets acquired pursuant to such acquisitions are currently held in a newly formed partnership structure within Greenfire.
Greenfire
Hangingstone Operating Corporation (“GHOPCO”) was an unaffiliated corporation that acquired the Hangingstone Demonstration
Facility (the “Demo Asset”)
from Japan Canada Oil Sands Limited (“JACOS”) in 2018. Prior
thereto, JACOS operated the Demo Asset since 1999, before shutting down operations in 2016 during the wildfires in Alberta that year.
The Demo Asset is a SAGD bitumen production facility with an estimated debottlenecked capacity of 7,500 barrels
per day (“bbls/d”), located approximately 50 kilometers
southwest of Fort McMurray, Alberta, Canada. GHOPCO successfully restarted production in 2018 and operated the facility until May 2020,
when GHOPCO shutdown operations subsequent to the onset of the COVID-19 global pandemic and formally filed for insolvency on October 8,
2020.
Greenfire Acquisition Corporation
(“GAC”), was incorporated on November 2, 2020 for the purpose
of acquiring the Demo Asset out of GHOPCO’s insolvency proceedings.
On April 5, 2021, GAC closed the acquisition of the Demo Asset from GHOPCO. The majority of former GHOPCO employees were successfully
retained as part of the acquisition and transition through the insolvency process. GAC was subsequently amalgamated with Greenfire Resources
Operating Corporation, a wholly owned subsidiary of the Company.
On September 17, 2021, Greenfire
closed the acquisition of JACOS. JACOS’s primary asset was a 75%
working interest in the Hangingstone Expansion Facility (the “Expansion
Asset”). The majority of former JACOS employees were successfully
retained as part of the acquisition and subsequent integration of operations. The Expansion Asset is a SAGD bitumen production facility
with an estimated debottlenecked capacity of 35,000 bbls/d, located approximately five kilometers to the southeast of the Demo Asset.
Greenfire is currently an intermediate
sized and low-cost oil sands producer focused on responsible energy development in Canada. Greenfire remains an operationally focused
company, with an emphasis on an entrepreneurial environment and employee ownership. Greenfire continues to seek a range of attractive
investment opportunities in the oil and gas sector in Canada.
2.
OUTLOOK AND OBJECTIVES
Greenfire plans to continue to
sustainably increase production at the Expansion Asset by optimizing the site’s
existing infrastructure, while employing a safe, efficient, and capital-disciplined operating approach that the Company has demonstrated
at the Demo Asset. Leveraging its oil sands operating expertise, Greenfire expects that over time these improvements should lead to an
enhancement in profitability.
Supported by operational strength
and based on current forecasted prices, Greenfire plans to further deleverage its balance sheet in the near term, while in the mid to
longer term, the Company will continue to evaluate potential avenues for capital acceleration to attain additional step change growth,
whether internally or externally.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 6 |
During the three months ended
June 30, 2022, the Company amended its indenture governing the “Notes”(1)
(please see subsection 5.1 Long Term Debt) to allow for an incremental US$60 million in capital investment to be spent over a period of
24 months, which is expected to be directed toward further debottlenecking the
Company’s existing surface facilities to sustain higher production rates. This capital plan includes alleviating current
restrictions on water handling, as well as a reduction in inlet pressure and temperature to facilitate greater drawdown on existing wells
at the Expansion Asset. Additionally, capital will be spent on debottlenecking non- condensable gas (“NCG”)
co-injection capability at the Expansion Asset, providing additional cooling to the production emulsion stream at the Demo Asset
and the Expansion Asset, a partial recommissioning of an existing plant at the Demo Asset to increase oil handling capacity, as well as
an expansion of pipeline egress capacity at the Expansion Asset. Furthermore, the aforementioned capital plan will include investment
in drilling five redevelopment infill wells(2) (“Refill
Wells”) at the Expansion Asset that are anticipated to have higher
production rates, combined with lower produced water ratios relative to existing producing wells. Additionally, the Company expects to
recognize savings on drilling, wellhead, and facilities costs on the Refill Wells, compared to standard infill producer wells.
In December 2022, the Company
and M3-Brigade Acquisition III Corp., a New York Stock Exchange listed special purpose
acquisition company, entered into a definitive agreement for a business combination (the “Business Combination”),
which valued Greenfire at US$950 million total enterprise value. Following completion of the Business Combination,
Greenfire Resources Ltd. (the “Combined Company”) is expected to continue to be managed by Greenfire’s current executive
team. On April 21, 2023, we filed a Registration Statement on Form F- 4 with the United States Securities and Exchange Commission related
to the Business Combination. We currently anticipate the completion of the Business Combination in the third quarter of 2023 and commencement
of trading on the New York Stock Exchange. The Combined Company expects to remain focused on optimizing Greenfire’s existing production
and facilities, with the objective of further enhancing its adjusted funds flow(3), deleverage its balance sheet in the near
term and return capital to its stakeholders over time.
3.
PERFORMANCE HIGHLIGHTS
For the three months ended June 30,
2023, operational and financial highlights include:
| ● | The Company achieved production of 18,036 bbls/d with a steam-oil ratio(4) of 4.16 for
the three months ended June 30, 2023, compared to 21,740 bbls/d with a steam-oil ratio(4) of 3.45 from the same period of
2022. The decrease in production during the three months ended June 30, 2023, relative to the same period in 2022, was due to a
combination of declining reservoir pressure resulting from short-term limitations of NCG availability for reservoir injection and
unplanned downtime at the Expansion Asset. The Company’s current
capital plan includes debottlenecking NCG co-injection at the Expansion Asset to increase the reservoir pressure and drilling
of five Refill Wells. The decrease in production for the three months ended June 30, 2023 compared to the same period in 2022 was
partially offset by a slight increase in production at the Demo Asset, mainly due to the continued optimization of water disposal
wells that debottleneck water handling capabilities. |
| (1) | During the year ended December 31, 2021, the Company issued
US$312.5 million of senior secured notes (the “Notes”). |
| (2) | Re-enter the existing steam-assisted
gravity drainage (‘SAGD’) producers to drill new refill producers between two existing wellpairs to produce incremental pre-heated bitumen SAGD wellpairs. |
| (3) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
| (4) | Steam-oil ratio is the amount of steam used in operations for
injection into the bitumen reservoir divided by the amount of bitumen produced. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 7 |
| ● | Oil sales for the three months ended June 30, 2023 was $173.6
million, which was lower than $315.8 million in the same period of 2022, was primarily due to lower Western
Canadian Select (“WCS”) benchmark oil prices and lower production, which was a result of declining reservoir pressure
resulting from short-term limitations of NCG availability for reservoir injection and unplanned downtime at the Expansion Asset. |
| ● | Operating expenses during the three months ended June 30,
2023 was $21.79/bbl compared to $22.89/bbl in the same period in 2022. The lower operating expenses per barrel in the second quarter
of 2023 relative to the same period in 2022, was primarily the result of lower natural gas prices in 2023, partially offset by the recognition
of higher greenhouse gas emission fees of $1.21/bbl and lower sales volumes in 2023. |
| ● | Cash provided by operating activities during the three months
ended June 30, 2023 was $23.6 million, compared to cash provided by operating activities of $67.5 million in the same period of 2022.
Cash provided by operating activities in the three months ended June, 30 2023 was less than cash provided by operating activities in
the same period of 2022, primarily due to lower oil sales and WCS benchmark oil prices. Lower oil sales was a result of declining reservoir
pressure resulting from short-term limitations of NCG availability for reservoir injection and unplanned downtime at the Expansion Asset.
Cash provided by operating activities is the most directly comparable GAAP measure for adjusted funds flow(1), which is a
non-GAAP measure. |
| o | Adjusted funds flow(1) for the three months ended
June 30, 2023 was $19.6 million, compared to $50.0 million from the same period
in 2022. The decrease in adjusted funds flow(1) during the second quarter of 2023 was primarily the result of lower oil sales
and WCS benchmark oil prices. Lower oil sales was a result of declining reservoir pressure resulting from short-term limitations of NCG
availability for reservoir injection and unplanned downtime at the Expansion Asset. The decrease in adjusted funds flow(1)
was partially offset by lower property, plant and equipment spend during the three months ended June 30, 2023. |
| ● | Net income (loss) and comprehensive income (loss) is the
most directly comparable GAAP measure for adjusted EBITDA(1), which is a non-GAAP
measure. See the section entitled “Non-GAAP Measures and Other
Performance Measures” for a discussion of adjusted EBITDA(1) and other non-GAAP measures. Adjusted EBITDA(1)
for the three months ended June 30, 2023 was $34.4 million compared to $70.5 million in the same period of 2022. The decrease in
adjusted EBITDA(1) in the second quarter of 2023, relative to the same period in 2022, was primarily the result of lower oil
sales and lower WCS benchmark oil prices. Lower oil sales was a result of declining reservoir pressure resulting from short-term limitations
of NCG availability for reservoir injection and unplanned downtime at the Expansion Asset. |
| ● | Property, plant and equipment expenditures were $1.9 million
for the three months ended June 30, 2023 compared to $7.7 million in the same period of 2022. |
| o | Of the total property, plant and equipment expenditures during the three months ended June 30, 2023,
$1.0 million was spent on initiating a Refill Well program at the Expansion asset which is designed to allow incremental
bitumen production. Additionally, $0.4 million in property, plant and equipment expenditures was spent to refurbish and restart oil handling
equipment at the Demo Asset in order to process greater production volume. |
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 8 |
| ● | Change in cash and cash equivalents during the three months
ended June 30, 2023 was an increase of $14.5 million, compared to a decrease of $10.4 million in the same period in 2022. Despite higher
commodity prices and production during the three months ended June 30, 2022, relative to the same period in 2023, change in cash and
cash equivalents was higher in the second quarter of 2023 primarily due to a debt principal repayment on May 26, 2022 of approximately
$60.7 million whereas there was no debt principal repayment in the second quarter of 2023. In addition, change in cash and cash equivalents
during the second quarter of 2023 was depressed by lower oil sales and lower WCS benchmark oil prices. Lower oil sales was a result of
declining reservoir pressure resulting from short-term limitations of NCG availability for reservoir injection and unplanned downtime
at the Expansion Asset. Change in cash and cash equivalents is the most directly comparable GAAP measure to excess cash flow(1)(2),
which is a non-GAAP measure. Excess cash flow(1)(2) was $22.5 million during the three months ended June 30, 2023, compared
to $58.4 million in the same period in 2022, primarily due to lower oil sales and lower WCS benchmark oil prices. Lower oil sales was
a result of declining reservoir pressure resulting from short-term limitations of NCG availability for reservoir injection and unplanned
downtime at the Expansion Asset. |
For the six months ended June 30, 2023,
operational and financial highlights include:
| ● | The Company achieved production of 19,304 bbls/d with a steam-oil
ratio(3) of 3.94 for the six months ended June 30, 2023, compared to 22,321 bbls/d with a steam-oil ratio(3) of
3.35 from the same period in 2022. The decrease in production during the six months ended June 30, 2023, was due to a combination declining
reservoir pressure resulting from short-term limitations of NCG availability for reservoir injection and unplanned downtime at
the Expansion Asset. The Company’s current capital plan includes debottlenecking NCG co-injection at the Expansion Asset
to increase the reservoir pressure and drilling of five Refill Wells. The decrease in production for the six months ended June 30, 2023
compared to the same period in 2022 was partially offset by a slight increase in production at the Demo Asset, mainly due to the continued
optimization of water disposal wells that debottleneck water handling capabilities. |
| ● | Oil sales for the six months ended June 30, 2023 was $353.3
million, which was lower than $608.6 million in the same period of 2022, primarily due to lower oil sales and lower WCS benchmark oil
prices. Lower oil sales was a result of declining reservoir pressure resulting from short-term limitations of NCG availability for reservoir
injection and unplanned downtime at the Expansion Asset. |
| ● | Operating expenses during the six months ended June 30, 2023
was $21.29/bbl compared to $20.04/bbl in the same period of 2022. The higher operating expenses per barrel in the six months ended June
30, 2023 relative to the same period of 2022, was primarily the result of the recognition of higher greenhouse gas emission fees of $1.25/bbl,
as well as lower sales volumes, partially offset by lower natural gas prices in 2023. |
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
| (2) | If the Company and its Restricted Subsidiaries have excess cash
flow for any six-month period, then, within 65 days after the end of any such applicable period, the Company will be required to redeem
the maximum principal amount of Notes that may be redeemed with 75% of such excess cash flow for such period. |
| (3) | Steam-oil ratio is the amount of steam used in operations for
injection into the bitumen reservoir divided by the amount of bitumen produced. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 9 |
| ● | Cash provided by operating activities during the six months
ended June 30, 2023 was $19.1 million, compared to cash provided by operating activities of $98.2 million in the same period of 2022.
Cash provided by operating activities in the six months ended June, 30 2023 was less than cash provided by operating activities in the
same period in 2022, primarily due to lower oil sales and lower WCS benchmark oil prices. Lower oil sales was a result of declining reservoir
pressure resulting from short-term limitations of NCG availability for reservoir injection and unplanned downtime at the Expansion Asset.
Cash provided by operating activities is the most directly comparable GAAP measure for adjusted funds flow(1), which is a
non-GAAP measure. |
| o | Adjusted funds flow(1) for the six months ended
June 30, 2023 was $17.8 million, compared to $106.7 million from the same period in 2022. The decrease in adjusted funds flow(1)
during the six months ended June 30, 2023, compared to the same period in 2022, was primarily the result of lower oil sales and
lower WCS benchmark oil prices. Lower oil sales was a result of declining reservoir pressure resulting from short-term limitations of
NCG availability for reservoir injection and unplanned downtime at the Expansion Asset. The decrease was partially offset by lower property,
plant and equipment spend during the six months ended June 30, 2023. |
| ● | Net income (loss) and comprehensive income (loss) is the
most directly comparable GAAP measure for adjusted EBITDA(1), which is a non-GAAP
measure. See the section entitled “Non-GAAP Measures and Other Performance
Measures” for a discussion of adjusted EBITDA(1) and other non-GAAP measures. Adjusted EBITDA(1) for
the six months ended June 30, 2023 was $47.4 million compared to $146.9 million in the same period of 2022. The decrease in adjusted
EBITDA(1) for the six months ended June 30, 2023, relative to 2022, was primarily the result of lower oil sales and lower
WCS benchmark oil prices. Lower oil sales was a result of declining reservoir pressure resulting from short-term limitations of NCG availability
for reservoir injection and unplanned downtime at the Expansion Asset. |
| ● | Property, plant and equipment expenditures were $4.4 million
for the six months ended June 30, 2023 compared to $12.9 million in the same period of 2022. |
| o | Of the total property, plant and equipment expenditures in
the six months ended June 30, 2023, $2.1 million was spent on various small projects at both the Expansion Asset and Demo Asset. Additionally,
$1.3 million was spent to refurbish and restart oil handling equipment at the Demo Asset in order to process greater production volume,
as well as $1.0 million was spent on initiating a Refill Well program at the Expansion asset that should facilitate incremental bitumen
production. |
| ● | Change in cash and cash equivalents during the six months
ended June 30, 2023 was an increase of $1.5 million, compared to an increase of $12.5 million in the same period in 2022. Change in cash
and cash equivalents was lower during the six months ended June 30, 2023 relative to the same period in 2022, primarily due to lower
oil sales and lower WCS benchmark oil prices. Lower oil sales was a result of declining reservoir pressure
resulting from short-term limitations of NCG availability for reservoir injection and unplanned downtime at the Expansion Asset. Change
in cash and cash equivalents is the most directly comparable GAAP measure to excess cash flow(1)(2), which is a non-GAAP measure.
Excess cash flow(1)(2) was $13.6 million during the six months ended June 30, 2023, compared to $86.5 million in the same period
in 2022, primarily due to lower oil sales and lower WCS benchmark oil prices. Lower oil sales was a result of declining reservoir pressure
resulting from short-term limitations of NCG availability for reservoir injection and unplanned downtime at the Expansion Asset. |
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
| (2) | If the Company and its Restricted Subsidiaries have excess cash
flow for any six-month period, then, within 65 days after the end of any such applicable period, the Company will be required to redeem
the maximum principal amount of Notes that may be redeemed with 75% of such excess cash flow for such period. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 10 |
Figure 1: Financial & Operational
Highlights
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Expansion | |
| | |
| | |
| | |
| |
| Bitumen production (bbls/d) | |
| 13,939 | | |
| 17,910 | | |
| 15,114 | | |
| 18,309 | |
| Demo | |
| | | |
| | | |
| | | |
| | |
| Bitumen production (bbls/d) | |
| 4,097 | | |
| 3,830 | | |
| 4,190 | | |
| 4,012 | |
| | |
| | | |
| | | |
| | | |
| | |
| Consolidated | |
| | | |
| | | |
| | | |
| | |
| Bitumen production (bbls/d) | |
| 18,036 | | |
| 21,740 | | |
| 19,304 | | |
| 22,321 | |
| Steam-oil ratio | |
| 4.16 | | |
| 3.45 | | |
| 3.94 | | |
| 3.35 | |
| Bitumen sales (bbls/d) | |
| 17,992 | | |
| 21,331 | | |
| 19,573 | | |
| 22,573 | |
| | |
| | | |
| | | |
| | | |
| | |
| Oil sales | |
| 173,605 | | |
| 315,794 | | |
| 353,273 | | |
| 608,558 | |
| Oil sales ($/bbl) | |
| 75.78 | | |
| 120.99 | | |
| 70.38 | | |
| 109.40 | |
| | |
| | | |
| | | |
| | | |
| | |
| Cash provided (used) by operating activities | |
| 23,640 | | |
| 67,553 | | |
| 19,144 | | |
| 98,241 | |
| Property, plant and equipment expenditures | |
| 1,911 | | |
| 7,706 | | |
| 4,428 | | |
| 12,906 | |
| Adjusted funds flow(1) | |
| 19,634 | | |
| 50,039 | | |
| 17,846 | | |
| 106,669 | |
| Change in cash and cash equivalents | |
| 14,479 | | |
| (10,399 | ) | |
| 1,519 | | |
| 12,506 | |
| Excess cash flow(1) | |
| 22,479 | | |
| 58,392 | | |
| 13,569 | | |
| 86,514 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net Income (loss) and Comprehensive Income (Loss) | |
| 24,355 | | |
| 45,592 | | |
| 7,677 | | |
| (56,953 | ) |
| Per share – basic | |
| 2.72 | | |
| 5.08 | | |
| 0.86 | | |
| (6.36 | ) |
| Per share – diluted | |
| 1.89 | | |
| 3.53 | | |
| 0.60 | | |
| (6.36 | ) |
| Adjusted EBITDA(1) | |
| 34,389 | | |
| 70,445 | | |
| 47,447 | | |
| 146,854 | |
| | |
| | | |
| | | |
| | | |
| | |
| Common shares outstanding, end of period | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | |
| Weighted average shares outstanding- diluted | |
| 12,890,944 | | |
| 12,878,977 | | |
| 12,888,851 | | |
| 12,707,754 | |
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
Figure 2: Liquidity and Balance
Sheet
| | |
As at | | |
As at | |
| | |
June 30, | | |
December 31, | |
| As at ($ thousands) | |
2023 | | |
2022 | |
| Cash and cash equivalents | |
| 36,882 | | |
| 35,363 | |
| Restricted cash | |
| 47,363 | | |
| 35,313 | |
| Face value of Long-term debt(1) | |
| 288,547 | | |
| 295,173 | |
| (1) | As at June 30, 2023, the Notes were translated in Canadian dollars
at the period end exchange rate of US$1.00 = CAD$1.3240 (As at December 31, 2022 –
US$1.00 = CAD$1.3544). |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 11 |
4. RESULTS OF OPERATIONS
4.1 Production
The Company’s
average bitumen production of 18,036 bbls/d for the three months ended June 30, 2023 was lower than 21,740 bbls/d from the same
period in 2022.
The Expansion Asset’s
average bitumen production of 13,939 bbls/d for the three months ended June 30, 2023 was lower than 17,910 bbls/d from the same period
in 2022, due to a combination of declining reservoir pressure resulting from short-term limitations and NCG availability for reservoir
injection and unplanned downtime at the Expansion Asset.
The Demo Asset’s
average bitumen production of 4,097 bbls/d for the three months ended June 30, 2023 was higher than 3,830 bbls/d from the same period
in 2022. The Company has been able to maintain relatively flat to slightly higher production levels at the Demo Asset primarily as a result
of its continued efforts in optimizing water disposal wells and facilities.
The
Company’s average bitumen production of 19,304 bbls/d for the six months ended June 30, 2023 was lower than 22,321 bbls/d
from the same period in 2022.
The
Expansion Asset’s average bitumen production of 15,114 bbls/d for the six months ended June 30, 2023 was lower than 18,309
bbls/d from the same period in 2022, due to a combination of declining reservoir pressure resulting from short-term limitations and NCG
availability for reservoir injection and unplanned downtime at the Expansion Asset.
The
Demo Asset’s average bitumen production of 4,190 bbls/d for the six months ended June 30, 2023 was higher than 4,012 bbls/d
from the same period in 2022. The Company has been able to maintain relatively flat to slightly higher production levels at the Demo Asset
primarily as a result of its continued efforts in optimizing water disposal wells and facilities.
Figure 3: Production and Steam-Oil
Ratio
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| (Average barrels per day, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Expansion | |
| | |
| | |
| | |
| |
| Bitumen production | |
| 13,939 | | |
| 17,910 | | |
| 15,114 | | |
| 18,309 | |
| Steam-oil ratio | |
| 3.81 | | |
| 2.95 | | |
| 3.54 | | |
| 2.90 | |
| Demo | |
| | | |
| | | |
| | | |
| | |
| Bitumen production | |
| 4,097 | | |
| 3,830 | | |
| 4,190 | | |
| 4,012 | |
| Steam-oil ratio | |
| 5.73 | | |
| 6.51 | | |
| 5.85 | | |
| 6.07 | |
| Consolidated | |
| | | |
| | | |
| | | |
| | |
| Bitumen production | |
| 18,036 | | |
| 21,740 | | |
| 19,304 | | |
| 22,321 | |
| Steam-oil ratio | |
| 4.16 | | |
| 3.45 | | |
| 3.94 | | |
| 3.35 | |
4.2 Commodity Prices
The prices received for Greenfire’s
crude oil production directly impact earnings, cash flow and financial position.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 12 |
WTI
The
price of West Texas Intermediate (“WTI”) is the current benchmark for mid-continent North American crude oil prices
at Cushing Oklahoma. Crude oil prices strengthened through the first half of 2022 as the global recovery from the Covid-19 pandemic continued,
and the price of WTI further increased after the Russia and Ukraine conflict began in February 2022, which disrupted global oil supplies
as a result of sanctions applied to Russian oil production and geopolitical uncertainty. In the second quarter of 2023, WTI prices declined
compared with the first quarter of 2023 and all quarters in 2022 due to concerns over a slowdown in the global economy and further increases
in interest rates in the United States and Europe. The average price of WTI for the three months ended June 30, 2023, was the lowest since
the outbreak of the Russia-Ukraine war after the conflict put upward pressure on commodity prices. WTI pricing weakened further in the
first half of 2023 due to these recessionary concerns and the potential negative impact on oil demand as a result. The average US$ WTI
benchmark price dropped to US$73.78/bbl for the three months ended June 30, 2023 compared to US$108.41/bbl in the same period in 2022.
For the six months ended June 30, 2023 the average US$ WTI benchmark price dropped to US$74.95/bbl compared to US$101.35/bbl in the same
period in 2022.
WCS
Canadian heavy oil trades at
a discount to WTI, with WCS the broadly used benchmark that reflects heavy oil prices at Hardisty, Alberta. WCS differentials(1)
for Canadian oil prices relative to WTI fluctuate from period to period based on production, inventory levels, infrastructure egress capacity,
and refinery demand in Canada and the United States, among other factors. Year over year, the WCS heavy oil price decreased to US$58.64/bbl
during the three months ended June 30, 2023 from US$95.61/bbl in the same period in 2022. For the six months ended June 30, 2023, the
WCS heavy oil price decreased to US$54.94 compared to US$87.68/bbl in the same period in 2022.
The primary factor for the lower
WCS oil price during the three months ended June 30, 2023 was weaker WTI pricing. In the six months ended June 30, 2023 the WTI-WCS differential
widened to US$20.01/bbl compared to US$13.67/bbl in the same period in 2022 largely as a result of reduced demand due to Strategic Petroleum
Reserve releases, and unplanned refinery outages. The WCS differential to WTI of US$15.14/bbl during the three months ended June 30, 2023
was wider than the differential of US$12.80/bbl during the same period in 2022. Strong refinery demand, limited Enbridge mainline apportionment
and demand for heavy oil in the US Gulf Coast contributed to the strength in the WCS differential in the three months ended June 30, 2022.
WCS differentials were reasonably strong in the second quarter of 2023 as reduced apportionment, increased Gulf Coast demand and refineries
returning from unplanned shutdowns helped improve the market for Canadian heavy compared to the winter months.
WDB
Greenfire produces Western Canada
Dilbit Blend (“WDB”) at the Expansion Asset. WDB as a blended stream
was introduced in late 2017, and is a blend comprised of Sunrise Dilbit Blend (“SDB”), Hangingstone Dilbit Blend (“HDB”),
and Leismer Corner Blend (“LCB”). These streams are produced using SAGD in-situ extraction methods from the Athabasca
region and transported to Enbridge’s Edmonton Terminal where it is blended. WDB is not part of the Enbridge Pooling Program and is a heavier
blend than WCS. WDB typically trades at a differential below the WCS benchmark price
and has generally correlated with WCS differential movements. The WDB price was US$56.30/bbl for the three months ended June 30, 2023,
compared to US$93.92/bbl during the same period in 2022. The WDB price was US$52.34/bbl for the six months ended June 30, 2023, compared
to US$85.84/bbl during the same period in 2022.
| (1) | WCS Differential represents the benchmark for diluted bitumen
produced out of the oil sands and trades in reference to the WTI benchmark price. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 13 |
Condensate
In order to facilitate pipeline
transportation of bitumen, the Company uses condensate as diluent for blending at the Expansion Asset. Condensate is locally sourced at
Edmonton and delivered to the Expansion facility via the Inter Pipeline Polaris Pipeline. The price of condensate has generally correlated
with the price of WTI and on average is within +5%/-5% of the WTI price. There has been less seasonality in recent pricing, however, demand
for condensate as a diluent has generally been higher in the winter months due to increased diluent requirements in colder temperatures
relative to warmer summer months. The Edmonton Condensate (C5+) price for the three months ended June 30, 2023 was US$72.40/bbl, compared
to US$108.33/bbl during the same period in 2022. The C5+ price for the six months ended June 30, 2023 was US$76.19/bbl, compared to US$102.35/bbl
during the same period in 2022. The lower condensate pricing for the second quarter and the first half of 2023 relative to 2022 was primarily
a result of lower WTI pricing combined with a reduction in international demand.
Non-Diluted Bitumen
Greenfire produces non-diluted
bitumen at the Demo Asset. Each barrel can be transported from the Demo Asset to several locations, including both pipeline and rail sales
points, depending on the economics of each option at the time of sale. At pipeline connected sales points, the Demo Asset bitumen is blended
with diluent to reach pipeline specifications. At rail connected terminals, the Demo Asset bitumen is moved into railcars and transported
to its final sales destination, generally without the need to blend with diluent. The pricing of the Demo Asset sales bitumen is dependent
on quality differentials, condensate pricing, pipeline and rail transportation costs and trucking distance that apply at each sales point.
In mid-October 2022, the Company commissioned the bitumen truck off-loading facility
(“Truck Rack”) at the Expansion Asset that can receive up to approximately 5,000 bbls/d of bitumen production from
the Demo Asset that is then transported via pipeline. In the three months ended June 30, 2023, the Company transported 3,134 bbls/d to
the Expansion Asset Truck Rack at more favourable economics than transporting to long-haul pipeline connected destinations due to reduced
transportation costs.
Natural Gas
Natural gas is a primary
energy input cost for the Company, which is used as fuel to generate steam for SAGD operations.
Greenfire purchases Alberta Energy Company (“AECO”) gas, which is the Western Canadian benchmark for natural gas.
The AECO Hub gas storage facility in southern Alberta is one of the largest natural gas trading hubs in North America, with its substantial
production and storage capability and extensive network of export pipelines. This hub serves as the reference point for establishing
the NOVA Inventory Transfer (“AB- NIT”)
price for users of the transmission pipelines in the province. Gas prices are often quoted in terms of the basis differential
between AECO prices and Henry Hub prices in Louisiana, United States. The AECO natural gas price
decreased to $2.32 per gigajoule (“GJ”) during the three months ended June 30, 2023, compared to $6.86 per GJ during
the same period in 2022. The AECO natural gas price also decreased to $2.67 per GJ during the six months ended June 30 2023, compared
to $5.68 per GJ during the same period in 2022. The decrease in gas prices was primarily due to lower global gas prices after a warmer-than-forecasted
winter of 2022/2023 and anticipated high storage inventories during the 2023 inventory building season.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 14 |
Power
Electric power prices impact energy
operating expenses. The Alberta power pool price increased to $159.87 per megawatt
hour (“MWH”) during the three months ended June 30, 2023 compared to $121.51 per MWH during the same period in 2022.
Power pool prices also increased to $150.64 per MWH during the six months ended June 30, 2023 compared to $105.99 per MWH during the same
period in 2022. The return of Power Purchase Agreements (“PPAs”)
to suppliers in 2019 has allowed generators to more competitively tender their power, higher carbon tax costs, and the average
power demands for Alberta have been increasing while traditional supply sources such as coal have been retired, which has resulted in
higher prices overall. Wind comprises approximately one-third of the current power generation market in Alberta and reduced supply may
also continue to have a meaningful impact on power prices.
Figure 4: Benchmark Pricing
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| Benchmark Pricing | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Crude oil (US$/bbl) | |
| | |
| | |
| | |
| |
| WTI(1) | |
| 73.78 | | |
| 108.41 | | |
| 74.95 | | |
| 101.35 | |
| WCS differential to WTI | |
| (15.14 | ) | |
| (12.80 | ) | |
| (20.01 | ) | |
| (13.67 | ) |
| WCS(2) | |
| 58.64 | | |
| 95.61 | | |
| 54.94 | | |
| 87.68 | |
| WDB(3) | |
| 56.30 | | |
| 93.92 | | |
| 52.34 | | |
| 85.84 | |
| Condensate at Edmonton | |
| 72.40 | | |
| 108.33 | | |
| 76.19 | | |
| 102.35 | |
| | |
| | | |
| | | |
| | | |
| | |
| Natural gas ($/GJ) | |
| | | |
| | | |
| | | |
| | |
| AECO 5A | |
| 2.32 | | |
| 6.86 | | |
| 2.69 | | |
| 5.68 | |
| | |
| | | |
| | | |
| | | |
| | |
| Electricity ($/MWh) | |
| | | |
| | | |
| | | |
| | |
| Alberta power pool | |
| 159.87 | | |
| 121.51 | | |
| 150.64 | | |
| 105.99 | |
| | |
| | | |
| | | |
| | | |
| | |
| Foreign exchange rate(4) | |
| | | |
| | | |
| | | |
| | |
| US$:CAD$ | |
| 1.3430 | | |
| 1.2766 | | |
| 1.3475 | | |
| 1.2714 | |
| (1) | As per NYMEX oil futures contract |
| (2) | Reflects heavy oil prices at Hardisty, Alberta |
| (3) | Blend stream comprised of Sunrise Dilbit Blend, Hangingstone
Dilbit Blend, and Leismer Corner Blend. |
| (4) | Annual or quarterly average exchange rates as per the Bank of
Canada. |
4.3 Oil
Sales
Oil Sales
Greenfire’s
oil sales include WDB from the Expansion Asset and non-diluted bitumen sales from the Demo Asset. Commencing in the fourth
quarter of 2022, a portion of the Demo Asset’s bitumen
production was sold into the WDB stream via the newly commissioned Truck Rack with the balance trucked to other pipeline connected
sales streams.
During the three
months ended June 30, 2023, the Company recorded oil sales of $173.6 million, compared to $315.8 million during the same period in
2022. Lower oil sales was a result of lower WCS benchmark prices and lower production, due to a combination of declining reservoir
pressure resulting from short-term limitations and NCG availability for reservoir injection and unplanned downtime at the Expansion
Asset.
During the six months ended June 30,
2023, the Company recorded oil sales of $353.3 million, compared to
$608.6 million during the same
period in 2022. Lower oil sales was a result of lower WCS benchmark prices and lower production, due to a combination of declining reservoir
pressure resulting from short-term limitations and NCG availability for reservoir injection and unplanned downtime at the Expansion Asset.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 15 |
Figure 5: Oil Sales
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Oil Sales | |
| 173,605 | | |
| 315,794 | | |
| 353,273 | | |
| 608,558 | |
| - ($/bbl) | |
| 75.78 | | |
| 120.99 | | |
| 70.38 | | |
| 109.40 | |
4.4 Royalties
Royalties paid by the Company are
crown royalties to the Province of Alberta. Alberta oil sands royalty projects are based on government prescribed pre and post payout(1)
royalty rates, which are determined on a sliding scale using the Canadian dollar equivalent WTI benchmark price.
Royalties for a pre-payout project
are based on a monthly calculation that applies a royalty rate (ranging from one percent to nine percent, based on the Canadian dollar
equivalent WTI benchmark price) to the gross revenues from the project. Gross revenues are a function of sales revenues less diluent costs
and transportation costs. The Expansion Asset is a pre-payout project.
Royalties for a post-payout project
are based on an annualized calculation that uses the greater of: (1) the gross revenues multiplied by the applicable royalty rate (one
percent to nine percent, based on the Canadian dollar equivalent WTI benchmark price); or (2) the net revenues of the project multiplied
by the applicable royalty rate (25 percent to 40 percent, based on the Canadian dollar equivalent WTI benchmark price). Net revenues are
a function of sales revenues less diluent costs, transportation costs, and allowable operating and capital costs. While the Demo Asset
is a post-payout project, due to the carry forward of previous years costs, it is currently assessed under scenario (1) discussed above.
The Company’s Demo Asset may become assessable under scenario (2)
in 2024, depending on actual production performance, oil prices and costs.
Royalties for the three months
ended June 30, 2023 of $3.54/bbl were lower compared to the same period in 2022 at $9.68/bbl, primarily due to lower WTI benchmark oil
prices.
Royalties for the six months ended
June 30, 2023 of $2.91/bbl were lower compared to the same period in 2022 at
$7.50/bbl, primarily due to lower WTI
benchmark oil prices.
Figure 6: Royalties
| | |
Three months ended
June 30, | | |
Six months ended
June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Royalties | |
| 5,793 | | |
| 18,788 | | |
| 10,295 | | |
| 30,628 | |
| - ($/bbl) | |
| 3.54 | | |
| 9.68 | | |
| 2.91 | | |
| 7.50 | |
| (1) | The payout status will either be pre-payout (when cumulative
costs exceed cumulative revenues) or post-payout (once cumulative revenues first equal or exceed cumulative costs). |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 16 |
4.5 Risk Management Contracts
The Company utilizes risk management
contracts to manage commodity price risk on oil sales and operating expenses. The calculated fair value of the risk management contracts
relies on external observable market data including quoted forward commodity prices. The resulting fair value estimates may not be indicative
of the amounts realized at settlement and as such are subject to measurement uncertainty.
During
the three months ended September 30, 2022, the Company’s obligations under its Notes, as outlined in subsection 5.1 Long
Term Debt, were updated to include a requirement to implement a 12-month (previously 18- month) forward commodity price risk management
program encompassing not less than 50% (previously 75%) of the hydrocarbon output under the proved developed producing reserves forecast
in the most recent reserves report, as determined by a qualified and independent reserves evaluator. This obligation is tested at the
end of every fiscal quarter for the duration of time that the Notes remain outstanding.
The
Company’s commodity price risk management program does not involve margin accounts that require posting of margin with increased
volatility in underlying commodity prices. Financial risk management contracts are measured at fair value, with gains and losses on re-measurement
included in the consolidated statements of comprehensive income (loss) in the period in which they arise.
Financial contracts
The
Company’s financial risk management contracts are subject to master netting agreements that create the legal right to settle
the instruments on a net basis. The fair value of the risk management contracts resulted in a net current liability of $10.8 million at
June 30, 2023.
The
following table summarizes the gross asset and liability positions of the Company’s
individual risk management contracts that are offset in the consolidated balance sheets:
Figure 7: Financial Management Contracts
| |
As at June 30, | |
As at December 31, | |
| | |
2023 | | |
2022 | |
| ($ thousands) | |
Asset | | |
Liability | | |
Asset | | |
Liability | |
| Gross amount | |
| 104 | | |
| (10,951 | ) | |
| (21,375 | ) | |
| (48,379 | ) |
| Amount offset | |
| (104 | ) | |
| 104 | | |
| 21,375 | | |
| 21,375 | |
| Risk management contracts | |
| - | | |
| (10,847 | ) | |
| - | | |
| (27,004 | ) |
Financial contracts settled in the
period result in realized gains or losses based on the market price compared to the contract price and the notional volume outstanding.
Changes in the fair value of unsettled financial contracts are reported as unrealized gains or losses in the period as the forward markets
for commodities fluctuate and as new contracts are executed.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 17 |
Figure 8: Outstanding Financial
Risk Management Contracts at June 30, 2023
| |
Natural Gas- Fixed Price Swap | |
| Term | |
Volume (GJ/day) | | |
Swap Price ($/GJ) | |
| Q4 2023 | |
| 305,000 | | |
| 2.97 | |
| Q1 2024 | |
| 455,000 | | |
| 2.97 | |
| (1) | Presented as weighted average prices. |
| | |
WTI- Put Options | | |
| | |
WTI- Costless Collar | |
| Term | |
Volume
(bbls) | | |
Strike Price (US$/bbl) | | |
Volume
(bbls) | | |
Put Strike Price (US$/bbl) | | |
Call Strike Price (US$/bbl) | |
| Q3 2023 | |
| 1,278,551 | | |
$ | 50.00 | | |
| - | | |
| - | | |
| - | |
| Q4 2023 | |
| 371,169 | | |
$ | 50.00 | | |
| 742,337 | | |
$ | 50.00 | | |
$ | 108.25 | |
| Q1 2024 | |
| - | | |
| - | | |
| 877,968 | | |
$ | 60.00 | | |
$ | 77.00 | |
| Q2 2024 | |
| - | | |
| - | | |
| 877,968 | | |
$ | 60.00 | | |
$ | 74.55 | |
Physical delivery purchase and sales
contracts
The Company has entered into forward,
fixed-priced, physical delivery, purchase and sales contracts to manage commodity price risk. These contracts are not considered to be
derivatives and therefore not recorded at fair value. They are considered purchase
and sales contracts for the Company’s own use and are recorded at cost at the time of transaction. Greenfire’s
outstanding physical contracts are summarized in Figure 9.
Figure 9: Outstanding Physical Contracts
at June 30, 2023
| | |
WCS Differential- Fixed Price Swap | | |
AECO- Fixed Price Swap | |
| Term | |
Volume
(bbls) | | |
Swap Price(1) US$/bbl | | |
Volume (GJ/day) | | |
Swap Price ($/GJ) | |
| Q3 2023 | |
| 379,000 | | |
$ | (14.92 | ) | |
| - | | |
| - | |
| (1) | Presented as weighted average prices. |
Realized and Unrealized Risk Management
Contracts
In the three months ended June 30,
2023, we recorded total risk management contract gains of $4.4 million compared to total risk management contract losses of $29.1 million
for the same period in 2022. The realized risk management contracts loss for the three months ended June 30, 2023 of $6.8 million ($57.3
million realized loss in the same period of 2022) was primarily a result of the market prices for WTI settling at levels above those set
in the Company’s risk management contracts outstanding during the quarter,
partially offset by gains due to the widening of WCS differentials. The unrealized gain on risk management contracts of $11.1 million
for the three months ended June 30, 2023 ($28.2 million unrealized gain in the same period of 2022) was primarily a result of the settlement
of the risk management contracts realized during the second quarter of 2023.
In the six months ended June 30, 2023,
we recorded total risk management contract gains of $9.2 million compared to total risk management contract losses of $205.5 million for
the same period in 2022. The realized risk management contracts loss for the six months ended June 30, 2023 of $7.0 million ($91.0 million
realized loss in the same period of 2022) was primarily a result of the market prices for WTI settling at levels above those set in the
Company’s risk management contracts outstanding during the first six months of 2022, partially offset by gains due to the
widening of WCS differentials. The unrealized gain on risk management contracts of $16.2 million for the six months ended June 30, 2023
($114.4 million unrealized loss in the same period of 2022) was primarily a result of the settlement of the risk
management contracts realized during the first and second quarter of 2023. Please see subsection 4.5 Risk Management Contracts.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 18 |
Figure 10: Realized and Unrealized
Gain (Loss) on Commodity Price Risk Management Contracts
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Realized gain (loss) | |
| (6,777 | ) | |
| (57,263 | ) | |
| (6,957 | ) | |
| (91,043 | ) |
| Unrealized gain (loss) | |
| 11,134 | | |
| 28,182 | | |
| 16,157 | | |
| (114,411 | ) |
| Risk management contracts gains (losses) | |
| 4,357 | | |
| (29,081 | ) | |
| 9,200 | | |
| (205,454 | ) |
Realized gain (loss) ($/bbl) | |
| (4.14 | ) | |
| (29.50 | ) | |
| (1.96 | ) | |
| (22.28 | ) |
| Unrealized gain (loss) ($/bbl) | |
| 6.80 | | |
| 14.52 | | |
| 4.56 | | |
| (28.00 | ) |
| Risk management contracts gains (losses) ($/bbl) | |
| 2.66 | | |
| (14.98 | ) | |
| 2.60 | | |
| (50.28 | ) |
4.6 Diluent Expense
In order to facilitate pipeline transportation
of bitumen, the Company uses condensate as diluent for blending at the Expansion Asset and for trucked volumes from the Demo Asset that
are delivered to the Truck Rack that is located at Expansion. Greenfire’s
diluent expense includes the cost of diluent plus the pipeline transportation of the diluent from Edmonton to the Expansion facility
via the Inter Pipeline Polaris Pipeline.
Figure
11 shows the Company’s diluent expense for the three months
and six months ended June 30, 2023 at $14.96/bbl and $20.31/bbl, respectively, which was higher than the comparative periods in 2022
at $12.49/bbl and $13.36/bbl, respectively. The factors driving the cost of diluent pricing are discussed in subsection 4.2
Commodity Prices.
Figure 11: Diluent Expense
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Diluent expense | |
| 74,027 | | |
| 105,195 | | |
| 175,883 | | |
| 216,176 | |
| - ($/bbl) | |
| 14.96 | | |
| 12.49 | | |
| 20.31 | | |
| 13.36 | |
4.7 Transportation and Marketing Expense
Transportation expense at the Expansion
Asset includes the costs to move production from the facility to the sales point in Edmonton, Alberta, via the Enbridge Lateral Pipeline
and Enbridge Waupisoo Pipeline. At the Demo Asset, transportation expenses relate to the trucking of bitumen from the facility to various
pipeline and rail sales points, including to the Truck Rack commissioned at the Expansion facility on October 12, 2022.
The
Company’s Petroleum Marketer(1) provided debtor in possession financing
during GHOPCO’s insolvency process, which the Company assumed the outstanding balance as a term loan upon the closing of
the acquisition of the Demo Asset on April 5, 2021. The petroleum marketing contract with the Petroleum Marketer were for the exclusive
petroleum production marketing rights over the production at the Demo Asset, whereby in addition to marketing fees, additional costs associated
with the marketing contract include royalty incentive and performance fees, which are oil price
and production volume dependent for the term of three years, ending on April 1, 2024.
| (1) | The
Company entered into an arrangement whereby a large reputable international energy marketing company (“Petroleum Marketer”)
would market and sell all production as per defined terms of agreement outlined in section 5.2 Term Loan, section 5.5 Expansion
Marketing Contract, and section 5.6 Demo Marketing Contract. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 19 |
The Company also entered into a marketing
contract with the Petroleum Marketer following the acquisition of JACOS for the exclusive petroleum production marketing rights of the
production at the Expansion Asset’s marketing services, including
the facilitation of all pipeline transportation and storage costs. This marketing contract has a term of five years after the first delivery
of blend, which occurred in October 2021. Please see subsection 5.5 Expansion Marketing Contract for further discussion on the
Company’s petroleum marketing contracts.
The
Company’s transportation and marketing expense for the three months and six months ended June 30, 2023 was $8.30/bbl and
$8.36/bbl, respectively, which was lower than the comparative periods in 2022 of $8.97/bbl and $8.80/bbl, respectively. The decrease was
primarily due to lower oil transportation costs at the Demo Asset from utilizing the Truck Rack during the first and second quarters of
2023, which materially reduced trucking distances.
Figure 12: Transportation and Marketing
Expenses
| | |
Three
months ended
June 30, | | |
Six
months ended
June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Marketing fees(1) | |
| 3,005 | | |
| 3,306 | | |
| 6,005 | | |
| 6,863 | |
| Oil transportation expense | |
| 10,581 | | |
| 14,103 | | |
| 23,594 | | |
| 29,073 | |
| Transportation and marketing | |
| 13,586 | | |
| 17,409 | | |
| 29,600 | | |
| 35,936 | |
Marketing fees(1) ($/bbl) | |
| 1.84 | | |
| 1.70 | | |
| 1.70 | | |
| 1.68 | |
| Oil transportation expense ($/bbl) | |
| 6.46 | | |
| 7.27 | | |
| 6.66 | | |
| 7.12 | |
| Transportation and marketing ($/bbl) | |
| 8.30 | | |
| 8.97 | | |
| 8.36 | | |
| 8.80 | |
| (1) | Marketing fees include marketing fees paid to the Petroleum
Marketer and terminal fees. |
4.8 Operating Expenses
Operating expenses include energy operating
expenses and non-energy operating expenses. Energy operating expenses reflect
the cost of natural gas to generate steam and electricity to operate the Company’s facilities. Non-energy operating expenses
relate to production-related operating activities, including staff, contractors and associated travel and camp costs, chemicals and treating,
insurance, property tax, greenhouse gas fees, equipment rentals, maintenance and site administration, among other costs.
The
Company’s energy operating expenses for the three months and six months ended June 30, 2023 were $8.72/bbl and
$8.86/bbl, respectively, which was lower than the comparative periods in 2022 of $12.89/bbl and $10.86/bbl, respectively. The lower
per barrel energy operating expenses in 2023, were primarily related to lower natural gas prices as prices were high in 2022 due to
the onset of the conflict in Ukraine, which was partially offset by higher power prices in 2023. Please see subsection 4.2 Commodity
Prices for a discussion on energy costs.
The
Company’s non-energy operating expenses for the three months and six months ended June 30, 2023 were $13.06/bbl and
$12.43/bbl, respectively, which was higher than the comparative periods in 2022 of $10.00/bbl and $9.18/bbl, respectively. The
higher per barrel non-energy operating expenses in 2023 was primarily due to the recognition of greenhouse gas emission fees of
$1.21/bbl for the three months ended June 30, 2023 and $1.25/bbl for the six months ended June 30, 2023, as well as inflationary
pressures on the costs of goods and services combined with lower sales volumes.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 20 |
Figure 13: Operating Expenses
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Operating expenses - energy | |
| 14,285 | | |
| 25,020 | | |
| 31,396 | | |
| 44,392 | |
| Operating expenses - non-energy | |
| 21,389 | | |
| 19,416 | | |
| 44,043 | | |
| 37,498 | |
| Operating expenses | |
| 35,675 | | |
| 44,436 | | |
| 75,439 | | |
| 81,890 | |
Operating expenses - energy ($/bbl) | |
| 8.72 | | |
| 12.89 | | |
| 8.86 | | |
| 10.86 | |
| Operating expenses - non-energy ($/bbl) | |
| 13.06 | | |
| 10.00 | | |
| 12.43 | | |
| 9.18 | |
| Operating expenses ($/bbl) | |
| 21.79 | | |
| 22.89 | | |
| 21.29 | | |
| 20.04 | |
4.9 Production Costs
Production costs include operating
expenses as set forth above but excludes ad valorem, severance, and similar production related taxes.
The Company’s
energy production costs for the three months and six months ended June 30, 2023 were $8.72/bbl and $8.86/bbl, respectively, which
was lower than the comparative periods in 2022 of $12.89/bbl and $10.86/bbl, respectively. The lower per barrel energy production costs
in 2023, was primarily related to lower natural gas prices compared to 2022, which saw the onset of the conflict in Ukraine and was partially
offset by higher power prices in 2023. Please see subsection 4.2 Commodity Prices for a discussion on energy costs.
The
Company’s non-energy production costs for the three months and six months ended June 30, 2023 were $11.48/bbl and
$11.99/bbl, respectively, which was higher than the comparative periods in 2022 of $9.64/bbl and $8.82/bbl, respectively. The higher
per barrel non-energy operating expenses in 2023 was primarily due to the recognition of greenhouse gas emission fees of $1.21/bbl
for the three months ended June 30, 2023 and $1.25/bbl for the six months ended June 30, 2023, as well as inflationary pressures on
the costs of goods and services combined with lower sales volumes.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 21 |
Figure 14: Production Costs
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Production costs – energy | |
| 14,285 | | |
| 25,020 | | |
| 31,396 | | |
| 44,392 | |
| Production costs – non-energy | |
| 20,603 | | |
| 18,707 | | |
| 42,471 | | |
| 36,045 | |
| Production costs(1) | |
| 34,888 | | |
| 43,726 | | |
| 73,867 | | |
| 80,437 | |
Production costs – energy ($/bbl) | |
| 8.72 | | |
| 12.89 | | |
| 8.86 | | |
| 10.86 | |
| Production costs – non-energy ($/bbl) | |
| 11.48 | | |
| 9.64 | | |
| 11.99 | | |
| 8.82 | |
| Production costs(1) ($/bbl) | |
| 20.20 | | |
| 22.53 | | |
| 20.85 | | |
| 19.69 | |
| (1) | Production costs excludes ad valorem, severance, and similar
production related taxes. |
4.10 General & Administrative Expenses
General and administrative (“G&A”)
expenses include head office and corporate costs such as salaries and employee benefits, office rent, independent third-party audit and
engineering services, and administrative recoveries earned for operating exploration and development activities on behalf of the
Company’s working interest partners, among other costs. G&A expenses primarily fluctuates with head office staffing levels
and the level of operated exploration and development activity during the period. G&A may also include expenses related to corporate
strategic initiatives, if any.
G&A expenses of $1.62/bbl for the
three months ended June 30, 2023, were higher than $1.03/bbl for the comparative period in 2022. The increase in G&A was primarily
due to the Company going through cost allocation amendments in the second quarter of 2022 between G&A and operating costs, which resulted
in lower G&A costs in the second quarter of 2022, compared to subsequent periods. Additionally, the increase in G&A was due to
the company recording $0.3 million of stock-based compensation related to the performance warrant plan, as well as lower sales volumes
in the second quarter of 2023 compared to the same period in 2022.
G&A expenses of $1.55/bbl for the
six months ended June 30, 2023, were higher than $1.31/bbl for the comparative period in 2022. The increase was primarily due to the Company
recording $0.7 million of stock-based compensation related to the performance warrant plan, as well as lower sales volumes in the six
months ended June 30, 2023 compared to the same period in 2022.
Figure 15: General & Administrative
Expenses
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| General and administrative expenses | |
| 2,657 | | |
| 2,008 | | |
| 5,483 | | |
| 5,350 | |
| - ($/bbl) | |
| 1.62 | | |
| 1.03 | | |
| 1.55 | | |
| 1.31 | |
4.11 Interest and Finance Expenses
Interest and finance expenses includes
coupon interest, amortization of debt issue costs, issuer discount and the equity related to the bondholder warrants, redemption premiums
on long term debt, interest on letter of credit facilities and other interest charges. Coupon interest and required redemption premiums
related to long term debt are accrued and paid according to the indenture that governs the Notes.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 22 |
In the three months and six months
ended June 30, 2023, total interest and finance expenses were $5.4 million and $20.7 million, respectively, compared
to $22.2 million and $45.3 million in the comparative periods in 2022. The decrease was primarily related to the Company revising the
estimated timing of the future debt principal repayments that resulted in lower amortization of debt issuance costs, debt issuer discount
and bondholder warrant equity. Additionally, there was lower interest incurred on the Notes from less outstanding debt as a result of
debt principal repayments on May 26, 2022 and November 28, 2022.
Refer to section 5 Capital Resources
and Liquidity in this MD&A for more details of Greenfire’s long-term
debt and letter of credit facilities.
Figure 16: Interest and Finance
Expenses
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Accretion on long-term debt | |
$ | 4,870 | | |
$ | 21,398 | | |
$ | 19,714 | | |
$ | 43,703 | |
| Other interest | |
| 305 | | |
| 573 | | |
| 560 | | |
| 1,210 | |
| Accretion of decommissioning obligations | |
| 223 | | |
| 189 | | |
| 440 | | |
| 348 | |
| Total interest and finance expenses | |
$ | 5,398 | | |
$ | 22,160 | | |
$ | 20,714 | | |
$ | 45,261 | |
4.12 Depletion and Depreciation
The Company depletes crude oil properties
on a unit-of-production basis over estimated total recoverable proved plus probable (2P) reserves. The depletion base consists of the
historical net book value of capitalized costs, plus the estimated future costs required to develop the Company’s estimated recoverable
proved plus probable reserves. The depletion base excludes exploration and the cost of assets that are not yet available for use.
The unit-of-production rate accounts
for expenditures incurred to date, together with estimated future development expenditures required to develop those proved reserves.
This rate, calculated at a facility level, is then applied to sales volume to determine depletion each period. The Company believes that
this method of calculating depletion charges each barrel of crude oil equivalent sold with its proportionate share of the cost of capital
invested over the total estimated life of the related asset as represented by 2P reserves.
The
Company’s depletion and depreciation expense for the three and six months ended June 30, 2023 were $10.46/bbl and
$10.74/bbl, respectively, which was higher than the comparative periods in 2022 of $8.92/bbl and $8.73/bbl, respectively. The higher
per barrel depletion and depreciation expense in 2023, was primarily due to the capitalization of the planned major turnarounds at
both the Expansion Asset and the Demo Asset that were completed during mid-to-late September 2022 and early October 2022, which
resulted in higher depletion and depreciation expense in 2023. Additionally, depletion and depreciation expense increased in the
three months and six months ended June 30, 2023 due to an increase in future development costs as represented by 2P reserves in the
Company’s most recent reserve report, relative to the prior reserve report.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 23 |
Figure 17: Depletion and Depreciation
Expense
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Depletion and depreciation expense | |
| 17,120 | | |
| 17,312 | | |
| 38,035 | | |
| 35,674 | |
| - ($/bbl) | |
| 10.46 | | |
| 8.92 | | |
| 10.74 | | |
| 8.73 | |
4.13 Exploration Expenses
In the three months ended June 30,
2023, exploration expenses was $1.0 million, compared to $0.3 million for the comparative period in 2022. The increase was primarily due
to the escalating mineral lease rentals, amongst other items.
In the six months ended June 30, 2023,
exploration expenses was $2.8 million, compared to $0.7 million for the comparative period in 2022. The increase was primarily due to
higher escalating mineral lease rentals during the first and second quarter of 2023, amongst other items.
Figure 18: Exploration Expenses
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Exploration expenses | |
| 1,026 | | |
| 250 | | |
| 2,819 | | |
| 681 | |
4.14 Other (Income) and Expense
In the three months ended June 30,
2023, other (income) and expense was income of $0.5 million, compared to an expense of $0.6 million for the comparative period in 2022.
The difference in other (income) and expense was mainly due to income of $0.6 million in interest earnings from savings accounts and short-term
investments during the second quarter of 2023, as well as an expense of $0.6 million, incurred after the JACOS acquisition during the
same period in 2022, amongst other items.
In the six months ended June 30, 2023,
other (income) and expense was income of $0.7 million, compared to an expense of $1.4 million for the comparative period in 2022. The
difference in other (income) and expense was mainly due to income of $0.8 million in interest earnings from savings accounts and short-term
investments during the second quarter of 2023, as well as an expense of $1.3 million, incurred after the JACOS acquisition during the
same period in 2022, amongst other items.
Figure 19: Other (Income) and Expense
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Other (income) and expenses | |
| (458 | ) | |
| 620 | | |
| (666 | ) | |
| 1,385 | |
4.15 Foreign Exchange Loss (Gain)
The Company’s foreign exchange loss
(gain) is driven by fluctuations in the US dollar to Canadian dollar exchange rate, as it relates to its long-term debt that is denominated
in US dollars and is primarily related to the note principal and interest components
of the Company’s US dollar denominated debt.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 24 |
In the three months ended June 30,
2023, foreign exchange loss (gain) was a gain of $6.2 million, compared to a loss of $13.1 million for the comparative period in 2022.
The difference in foreign exchange loss (gain) during the second quarter of 2023, compared to the same period in 2022, was mainly due
to the Canadian dollar strengthening relative to the US dollar.
In the six months ended June 30, 2023,
foreign exchange loss (gain) was a gain of $6.5 million, compared to a loss of $7.1 million for the comparative period in 2022. The difference
in foreign exchange loss (gain) during the first and second quarter of 2023, compared to the same period in 2022, was mainly due to the
Canadian dollar strengthening relative to the US dollar.
Figure 20: Foreign Exchange Loss
(Gain)
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Realized foreign exchange loss (gain) | |
| - | | |
| 1,512 | | |
| - | | |
| 1,509 | |
| Unrealized foreign exchange loss (gain) | |
| (6,226 | ) | |
| 11,550 | | |
| (6,529 | ) | |
| 5,567 | |
| Foreign exchange loss (gain) | |
| (6,226 | ) | |
| 13,062 | | |
| (6,529 | ) | |
| 7,076 | |
4.16 Decommissioning Liability
The
Company’s decommissioning liabilities result from net ownership interests in oil assets including well sites, gathering systems
and processing facilities. The Company estimates the total undiscounted inflated amount of cash flows required to settle its decommissioning
liabilities to be approximately $206.5 million (December 31, 2022- $206.5 million). A credit-adjusted discount rate of 12% (December 31,
2022 - 12%) and an inflation rate of 2.0% (December 31, 2022 - 2.0%) were used to calculate the decommissioning liabilities. A 1.0% change
in the credit-adjusted discount rate would impact the discounted value of the decommissioning liabilities by approximately $1.1 million
with a corresponding adjustment to PP&E. The decommissioning liabilities are estimated to be settled in periods up to year 2071.
Figure 21: Reconciliation of Decommissioning
Liability
| | |
Three months
ended | | |
Year ended | |
| | |
June 30, | | |
December 31, | |
| ($ thousands) | |
2023 | | |
2022 | |
| Balance, beginning of period | |
| 7,543 | | |
| 5,517 | |
| Revaluation | |
| - | | |
| 1,283 | |
| Accretion expense | |
| 440 | | |
| 743 | |
| Balance, end of period | |
| 7,983 | | |
| 7,543 | |
4.17 Net Income (Loss) and Comprehensive Income (Loss) and Adjusted EBITDA(1)
During the three
months and six months ended June 30, 2023, the Company recorded net income of $24.4 million and $7.7 million, respectively, compared
to net income of $45.5 million and net loss of $57.0 million, respectively, during the comparative periods in 2022. The decrease in
net income in the first half and second quarter of 2023, relative to 2022, was primarily the result of lower oil sales and lower WCS
benchmark oil prices. Lower oil sales was a result of declining reservoir pressure resulting from short-term limitations of NCG
availability for reservoir injection and unplanned downtime at the Expansion Asset. Net income (loss) and comprehensive income
(loss) is an IFRS measure, which is the most directly comparable GAAP measure to adjusted EBITDA(1), which is a non-GAAP
measure. During the three months and six months ended June 30, 2023, Greenfire recorded adjusted EBITDA(1) of $34.4
million and $47.4 million, respectively, compared to $70.4 million and $146.9 million, respectively, during the same periods in
2022. The decrease in adjusted EBITDA(1) in the first and second quarter of 2023, relative to 2022, was primarily the
result of lower oil sales and lower WCS benchmark oil prices. Lower oil sales was a result of declining reservoir pressure resulting
from short-term limitations of NCG availability for reservoir injection and unplanned downtime at the Expansion Asset.
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 25 |
The following table is a reconciliation
of net income (loss) net income (loss) and comprehensive income (loss) to adjusted EBITDA(1):
Figure 22: Net Income (Loss) and
Comprehensive Income (Loss) and Adjusted EBITDA(1)
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Net income (loss) and comprehensive income (loss) | |
| 24,355 | | |
| 45,473 | | |
| 7,677 | | |
| (56,953 | ) |
| Add (deduct): | |
| | | |
| | | |
| | | |
| | |
| Income tax recovery | |
| 3,095 | | |
| - | | |
| (518 | ) | |
| - | |
| Unrealized (gain) loss risk management contracts | |
| (11,134 | ) | |
| (28,182 | ) | |
| (16,157 | ) | |
| 114,410 | |
| Transaction costs | |
| 1,914 | | |
| - | | |
| 4,241 | | |
| - | |
| Stock based compensation | |
| 325 | | |
| - | | |
| 650 | | |
| - | |
| Depletion and depreciation | |
| 17,120 | | |
| 17,312 | | |
| 38,035 | | |
| 35,674 | |
| Financing and interest | |
| 5,398 | | |
| 22,160 | | |
| 20,714 | | |
| 45,261 | |
| Foreign exchange loss | |
| (6,226 | ) | |
| 13,062 | | |
| (6,529 | ) | |
| 7,076 | |
| Gain on acquisitions | |
| - | | |
| - | | |
| - | | |
| - | |
| Other income and expenses | |
| (458 | ) | |
| 620 | | |
| (666 | ) | |
| 1,386 | |
| Adjusted EBITDA(1) | |
| 34,389 | | |
| 70,445 | | |
| 47,447 | | |
| 146,854 | |
Net
income (loss) and comprehensive income (loss) ($/bbl) | |
| 14.88 | | |
| 23.43 | | |
| 2.17 | | |
| (13.94 | ) |
| Add (deduct): | |
| | | |
| | | |
| | | |
| | |
| Income tax recovery ($/bbl) | |
| 1.89 | | |
| - | | |
| (0.15 | ) | |
| - | |
| Unrealized (gain) loss risk management contracts ($/bbl) | |
| (6.80 | ) | |
| (14.52 | ) | |
| (4.56 | ) | |
| 28.00 | |
| Transaction costs ($/bbl) | |
| 1.17 | | |
| - | | |
| 1.20 | | |
| - | |
| Stock based compensation ($/bbl) | |
| 0.20 | | |
| - | | |
| 0.18 | | |
| - | |
| Depletion and depreciation ($/bbl) | |
| 10.46 | | |
| 8.92 | | |
| 10.74 | | |
| 8.73 | |
| Financing and interest ($/bbl) | |
| 3.30 | | |
| 11.42 | | |
| 5.85 | | |
| 11.08 | |
| Foreign exchange loss ($/bbl) | |
| (3.80 | ) | |
| 6.73 | | |
| (1.84 | ) | |
| 1.73 | |
| Gain on acquisitions ($/bbl) | |
| - | | |
| - | | |
| - | | |
| - | |
| Other income and expenses ($/bbl) | |
| (0.28 | ) | |
| 0.32 | | |
| (0.19 | ) | |
| 0.34 | |
| Adjusted EBITDA(1) ($/bbl) | |
| 21.02 | | |
| 36.30 | | |
| 13.40 | | |
| 35.94 | |
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
5. CAPITAL RESOURCES AND LIQUIDITY
The
Company’s capital management objective is to maintain financial flexibility and sufficient liquidity to execute on
planned capital programs, while meeting short and long-term commitments, including servicing and repaying long term debt. The
Company strives to actively manage its capital structure in response to changes in economic conditions and further deleverage its
balance sheet.
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 26 |
At June 30, 2023, the
Company’s capital structure summarized in Figure 2 primarily comprised of cash and cash equivalents, restricted cash and
long-term debt.
Management believes its current capital
resources and its ability to manage cash flow and working capital levels will allow the Company to meet its current and future obligations,
to make scheduled interest and principal payments, and to fund the other needs of the business.
5.1 Long Term Debt
During the year ended December 31,
2021, the Company issued US$312.5 million of senior secured Notes. The Notes had an original issuer discount of 3.5% and bear interest
at the fixed rate of 12.00% per annum, payable semi-annually, and mature on August 15, 2025. The Notes are secured by a first priority
lien on substantially all the assets of the Company and its wholly owned subsidiaries.
The proceeds of the Notes were used
to purchase 100% of the outstanding share capital of JACOS in September 2021, as well as for general working capital purposes.
The Company is obligated to redeem
a portion of the outstanding Notes equal to 75% of excess cash flow(1) in every six-month period at a price equal to 106% of
the principal, plus accrued and unpaid interest (the “Excess Cash Flow
Redemption”). In accordance with the indenture governing the Notes, the Company has up to 65 days after the end of each six-month
period to affect the Excess Cash Flow Redemption, with a 30-day notice period.
The first Excess Cash
Flow Redemption period began on March 31, 2022. The Company issued its first Excess Cash Flow Redemption on May 26, 2022,
approximating $64.3 million, of which $60.7 million was principal repayment. A second Excess Cash Flow Redemption was issued on
November 28, 2022, approximating $66.7 million, of which $62.9 million was principal repayment. There was no Excess Cash Flow
Redemption for the period from October 1, 2022 to March 30, 2023. The current Excess Cash Flow Redemption period will be from April
1, 2023 to September 30, 2023, with an estimated redemption of $61.2 million. The forecasted Excess Cash Flow Redemptions
during the subsequent twelve months are recorded on the Company’s financial statements as a current liability.
Greenfire is in compliance with all
debt covenants under the indenture governing the Notes at June 30, 2023.
5.2 Term Loan
On April 5, 2021, via a court supervised
insolvency process, GAC acquired the Demo Asset from GHOPCO and assumed the associated debtor-in-possession financing amount of $19.7
million (the “Term Loan”).
The Term Loan was underwritten by the Petroleum Marketer and incurred interest of LIBOR plus 9.0% that was payable monthly, as well as
an equal monthly principal amortization of $714,286. The Petroleum Marketer was provided exclusive petroleum
production marketing rights over the Company’s production at the Demo Asset for a term of three years, ending April 1, 2024.
This petroleum production marketing contract includes marketing, royalty, incentive and performance fees, some of which are oil price
dependent. In December 2022, the Company entered into an agreement to amend the petroleum marketing contract, which extended the term
of the contract by one year, contingent upon the closing of the proposed transaction with M3-Brigade Acquisition III Corp.
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 27 |
On August 6, 2021, GAC received an
additional advance of $9.0 million under the Term Loan that was used to purchase a US$7.0 million compound put option with a hedging counterparty
to facilitate the closing of the issuance of the Notes. Between April 5, 2021 and September 17, 2021, the date that the Company closed
the acquisition of JACOS, the Company made principal repayments under the Term Loan of $2.3 million. On September 17, 2021, the remaining
principal balance of $26.7 million under the Term Loan was redeemed in exchange for an aggregate principal amount of Notes of US$22 million.
5.3 Working Capital (Deficit) and Adjusted Working Capital(1)
Working capital (deficit) is a GAAP
measure that is the most directly comparable measure to adjusted working capital(1). Adjusted working capital(1)
is comprised of current assets less current liabilities on the Company’s
balance sheet, and excludes the current portion of long-term debt and current portion of risk management contracts. Adjusted working
capital(1) is included within the non-GAAP measures because it is a less volatile measure of current assets and current liabilities,
after isolating for current portion of long-term debt and current portion of risk management contracts. A surplus of adjusted working
capital(1) will result in a future net cash inflow to the business. Available
funding allows management and other users to evaluate the Company’s short-term liquidity, and its capital resources available
at a point in time.
As at June 30, 2023, working capital
increased to $22.5 million from a working capital deficit of $13.4 million as at December 31, 2022, a difference of $35.9 million, primarily
due to an increase in cash balances and inventories in 2023 from higher WCS benchmark oil prices, as well as a decrease to the current
portion of risk management contracts.
As at June 30, 2023, adjusted working
capital increased to $94.5 million from $76.9 million as at December 31, 2022, a difference of $17.6 million, primarily due to an increase
in cash balances and inventories in 2023 from higher WCS benchmark oil prices.
Figure 23: Reconciliation of Working
Capital (Deficit) to Adjusted Working Capital(1)
| | |
Three months
ended | | |
Year
ended | |
| | |
June 30, | | |
December 31, | |
| ($ thousands) | |
2023 | | |
2022 | |
| Current assets | |
| 134,542 | | |
| 123,527 | |
| Current liabilities | |
| (112,032 | ) | |
| (136,921 | ) |
| Working capital (deficit) | |
| 22,510 | | |
| (13,394 | ) |
| Current portion of risk management contracts | |
| 10,847 | | |
| 27,004 | |
| Current portion of long-term debt | |
| 61,156 | | |
| 63,250 | |
| Adjusted working capital(1) | |
| 94,513 | | |
| 76,860 | |
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
5.4 Restricted Cash and Letter of Credit Facilities
As at December 31,
2021, the Company had a $51.5 million credit facility with the Petroleum Marketer
(“Credit Facility”) that was used to issue $51.5 million in letters of credit related to the Company’s
long-term pipeline transportation agreements. Under the terms of the Credit Facility, over a period of 24 months and
beginning in October 2021, the Company is required to contribute cash to a cash-collateral
account (“Reserve Account”) until the balance of the Reserve Account is equal to 105% of the aggregate face value
of the Credit Facility.
| (1) | Non-GAAP measures do not have any standardized meaning prescribed
by IFRS and may not be comparable with the calculation of similar measures presented by other entities. Refer to the Non-GAAP Measures
section in this MD&A for further information. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 28 |
During the year ended December 31,
2022, the Company obtained a $15.0 million cash-collateralized, demand revolving
credit facility (“Demand Facility”), to be exclusively used for issuing letters of credit, and bears interest at 1.5%.
During the year ended December 31, 2022, the Company transferred $4.7 million in letters of credit and restricted cash collateral from
the Credit Facility and the Reserve Account to the Demand Facility. There was no net change in restricted cash nor a change in unrestricted
cash as a result of this transfer.
As at June 30, 2023, the Credit Facility
had $46.8 million letter of credit outstanding, with restricted cash- collateral of $39.3 million, and the Demand Facility had $8.1 million
in issued letters of credit and $8.1 million of restricted cash collateral, which consisted of $4.7 million transferred from the Credit
Facility, and $3.4 million related to the Company’s credit cards and other
operational commitments.
5.5 Expansion Marketing Contract
Following the acquisition of JACOS,
an agreement was signed with the Petroleum Marketer for exclusive marketing services at the Expansion Asset, including:
| ● | The purchase of all WDB produced by the Expansion Asset |
| ● | The supply of diluent to the facility; and |
| ● | The facilitation of all pipeline transportation and storage
costs. |
This petroleum contract has a term
of five years after the first delivery of blend, which occurred in October 2021. In December 2022, the Company entered into an agreement
to amend the petroleum marketing contract, which extended the term of the contract by one year, contingent upon the closing of the proposed
transaction with M3- Brigade Acquisition III Corp.
5.6 Demo Marketing Contract
Following the acquisition of the Demo
Asset, an agreement was signed with the Petroleum Marketer for exclusive marketing services at the Demo Asset, including:
| ● | The purchase of all bitumen produced by the Demo Asset |
| ● | The facilitation of all bitumen transportation |
This petroleum marketing contract has
a term to April 2024. In December 2022, the Company entered into an agreement to amend the petroleum marketing contract, which extended
the term of the contract by one year, contingent upon the closing of the proposed transaction with M3-Brigade Acquisition III Corp.
5.7 Share Capital and Warrants
Share Capital
At December 31, 2020,
GAC had 1,000 issued and outstanding common shares held by the founding shareholders. The Company was subsequently incorporated on
June 18, 2021 with the founding shareholders being issued 1,000 common shares, which were subsequently split to 7,500,000 common
shares of the Company. Following the incorporation of the Company, GAC was amalgamated with Greenfire Resources Operating
Corporation (a wholly owned subsidiary of the Company) pursuant to which the 1,000 common shares of GAC were cancelled and the
founding shareholders were issued an additional 10 common shares in the Company. On September 16, 2021 an employee private placement
resulted in 1,451,614 common shares being issued by the Company to employees and service providers of the Company. At June 30, 2023 and
as at the date hereof, the Company’s authorized share capital consists of an unlimited number of common shares and
there was a total of 8,951,624 common shares outstanding.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 29 |
Figure 24: Outstanding Common Shares
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Shares outstanding | |
| | |
| | |
| | |
| |
| Balance, beginning of period | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | |
| Stock issued | |
| - | | |
| - | | |
| - | | |
| - | |
| Balance, end of period | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | |
Figure 25: Weighted Average Shares
Outstanding
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Weighted average shares outstanding- basic | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | | |
| 8,951,624 | |
| Dilutive effect of warrants | |
| 3,939,320 | | |
| 3,927,353 | | |
| 3,937,227 | | |
| 3,756,130 | |
| Weighted average shares outstanding- diluted | |
| 12,890,944 | | |
| 12,878,977 | | |
| 12,888,851 | | |
| 12,707,754 | |
Bondholder Warrants
As at June 30, 2023, the Company had
312,500 Bondholder Warrants outstanding that entitled the holders of these warrants,
in aggregate, the right to purchase 25% of the Company’s issued and outstanding common shares up to a maximum of 3,225,806
common shares at $0.01 per share. The Bondholder Warrants were exercisable and detachable 30 days post the closing of the JACOS acquisition.
The Notes and Bondholder Warrants were separated on October 18, 2021. Based on the issued and outstanding common shares of the Company,
bondholders have the right to acquire 2,983,866 common shares at $0.01 per share.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 30 |
Figure
26: Bondholder Warrants Outstanding
| | |
Six months ended | | |
Year ended | |
| | |
June 30, 2023 | | |
December 31, 2022 | |
| | |
Number of warrants | | |
Exercise price | | |
Number of warrants | | |
Exercise price | |
| Bondholder warrants outstanding | |
| | |
| | |
| | |
| |
| Balance, beginning of period | |
| 312,500 | | |
$ | 0.01 | | |
| 312,500 | | |
$ | 0.01 | |
| Warrants Issued | |
| - | | |
| - | | |
| - | | |
| - | |
| Balance, end of period | |
| 312,500 | | |
$ | 0.01 | | |
| 312,500 | | |
$ | 0.01 | |
| Exchange ratio, end of year | |
| 9.55 | | |
| - | | |
| 9.55 | | |
| - | |
| Common shares issuable on exchange | |
| 2,983,866 | | |
| - | | |
| 2,983,866 | | |
| - | |
Performance
Warrants
In
February 2022, the Company implemented a warrant plan as part of the Company’s long-term incentive plan for employees and service
providers, whereby up to 725,806 warrants (“Performance Warrants”) are issuable under the plan. These Performance Warrants
have both performance and time vesting criteria before there is the ability to exercise the option to purchase one common share of the
Company for each Performance Warrant. As of the date of these consolidated financial statements, the vesting criteria was met for approximately
36,849 performance warrants, which can be converted into 36,849 common shares. All Performance Warrants expire 10 years after issuance.
Figure
27: Performance Warrants Outstanding
| | |
Six months ended | | |
Year ended | |
| | |
June 30, 2023 | | |
December 31, 2022 | |
| | |
Number of warrants | | |
Weighted Average Exercise price | | |
Number of warrants | | |
Weighted Average Exercise price | |
| Performance warrants outstanding | |
| | |
| | |
| | |
| |
| Balance, beginning of period | |
| 712,930 | | |
$ | 15.79 | | |
| - | | |
$ | - | |
| Performance warrants issued | |
| 8,526 | | |
| 58.67 | | |
| 761,264 | | |
| 15.88 | |
| Performance warrants forfeited | |
| (3,528 | ) | |
| 14.18 | | |
| (48,334 | ) | |
| 17.12 | |
| Balance, end of period | |
| 716,878 | | |
$ | 16.26 | | |
| 712,930 | | |
$ | 15.79 | |
| Common shares issuable upon vesting | |
| 716,878 | | |
| - | | |
| 712,930 | | |
| - | |
5.8
Cash Flow Summary
Cash
Flow – Operating Activities
During
the three months ended June 30, 2023, cash provided by operating activities was $23.6 million compared to $67.6 million in the same period
in 2022, a decrease of $44.0 million, and was primarily due to lower oil sales and lower WCS benchmark oil prices. Lower oil sales was
a result of declining reservoir pressure resulting from short-term limitations of NCG availability for reservoir injection and unplanned
downtime at the Expansion Asset.
During
the six months ended June 30, 2023, cash provided by operating activities was $19.1 million compared to $98.2 million in the same
period in 2022, a decrease of $79.1 million, and was primarily due to lower oil sales and lower WCS benchmark oil prices. Lower oil
sales was a result of declining reservoir pressure resulting from short- term limitations of NCG availability for reservoir
injection and unplanned downtime at the Expansion Asset.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 31 |
Based
on current and forecasted production levels, operating expenses, property, plant and equipment expenditures, existing commodity price
risk management contracts and current outlook for commodity prices, the Company expects cash from operating activities will be sufficient
to cover its operational commitments and financial obligations under its Notes and letters of credit in the next 12 months.
Cash
Flow – Financing Activities
During
the three months ended June 30, 2023, cash used by financing activities was nil compared to $60.7 million in the same period in 2022,
a difference of $60.7 million, and was due to a debt principal repayment of $60.7 million in the three months ended June 30, 2022.
During
the six months ended June 30, 2023, cash used by financing activities was nil compared to $60.7 million in the same period in 2022, a
difference of $60.7 million, and was due to a debt principal repayment of $60.7 million in the six months ended June 30, 2022.
Cash
Flow – Investing Activities
During
the three months ended June 30, 2023, cash used in investing activities was $9.1 million compared to $15.4 million in the same period
in 2022, a difference of $6.4 million, and was primarily due to a deferment of property, plant, and equipment expenditures commencing
in current and preceding periods, which was in turn a result of lower commodity prices.
During
the six months ended June 30, 2023, cash used in investing activities was $17.6 million compared to $23.1 million in the same period
in 2022, a difference of $5.5 million, and was primarily due to a deferment of property, plant, and equipment expenditures in current
and preceding periods, which was in turn a result of lower commodity prices.
Figure
28: Cash Flow Summary
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands, unless otherwise noted) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Cash provided by (used in): | |
| | |
| | |
| | |
| |
| Operating activities | |
| 23,640 | | |
| 67,553 | | |
| 19,144 | | |
| 98,241 | |
| Financing activities | |
| (6 | ) | |
| (60,709 | ) | |
| (12 | ) | |
| (60,709 | ) |
| Investing activities | |
| (9,066 | ) | |
| (15,420 | ) | |
| (17,586 | ) | |
| (23,079 | ) |
| Exchange rate impact on cash and cash equivalents held in foreign currency | |
| (89 | ) | |
| (1,823 | ) | |
| (27 | ) | |
| (1,947 | ) |
| Change in cash and cash equivalents | |
| 14,479 | | |
| (10,399 | ) | |
| 1,519 | | |
| 12,506 | |
5.9
Property, Plant and Equipment Expenditures
Total
property, plant and equipment expenditures for the three months ended June 30, 2023 was $1.9 million (2022 - $7.7
million), consisting primarily of the following;
| ● | Refill
Well Program - $1.0 million was spent on initiating a Refill Well program at the Expansion asset which will allow incremental bitumen
production. |
| ● | Demo
Asset Plant 1 - $0.4 million in capital spend for a project which is part of the overall capital program to debottleneck the Demo Asset
facility to process additional production volumes by refurbishing and restarting an existing plant at the Demo Asset. The project’s
primary objective is to utilize existing oil handling equipment in order to process greater production volume. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 32 |
Total
property, plant and equipment expenditures for the six months ended June 30, 2023 was $4.4 million (2022 - $12.9
million), consisting primarily of the following;
| ● | Small
Projects and Sustaining Capital - $2.1 million for various capital projects at both Demo Asset and Expansion Asset. |
| ● | Demo
Asset Plant 1 - $1.3 million in capital spend for a project which is part of the overall capital program to debottleneck the Demo Asset
facility to process additional production volumes by refurbishing and restarting an existing plant at the Demo Asset. The project’s
primary objective is to utilize existing oil handling equipment in order to process greater production volume. |
| ● | Refill
Well Program - $1.0 million was spent on initiating a Refill Well program at the Expansion asset which will allow incremental bitumen
production. |
Figure
29 summarizes the Company’s property, plant and equipment expenditures:
Figure 29: Property, Plant and Equipment Expenditures
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Total property, plant and equipment expenditures | |
| 1,911 | | |
| 7,706 | | |
| 4,428 | | |
| 12,906 | |
| - $/bbl | |
| 1.17 | | |
| 3.97 | | |
| 1.25 | | |
| 3.16 | |
5.10
Cash Provided by Operating Activities and Adjusted Funds Flow(1)
During
the three months and six months ended June 30, 2023, the Company had cash provided by operating activities of $23.6 million and
$19.1 million, respectively, compared to cash provided by operating activities of $67.6 million and $98.2 million, during the
comparative periods in 2022. Cash provided by operating activities is the most directly comparable GAAP measure for adjusted funds
flow(1), which is a non-GAAP measure. During the three months and six months ended June 30, 2023, Greenfire recorded
adjusted funds flow(1) of $19.6 million and $17.8 million, respectively, compared to $50.0 million and $106.7 million,
during the same periods in 2022. The lower adjusted funds flow(1) during the first and second quarters of 2023, was
primarily a result of lower oil sales and lower WCS benchmark oil prices. Lower oil sales was a result of declining reservoir
pressure resulting from short-term limitations of NCG availability for reservoir injection and unplanned downtime at the Expansion
Asset, which was partially offset by lower property, plant and equipment expenditures.
| (1) | Non-GAAP
measures do not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures presented
by other entities. Refer to the Non-GAAP Measures section in this MD&A for further information. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 33 |
Figure
30: Reconciliation of Cash Provided by Operating Activities to Adjusted Funds Flow(1)
| | |
Three months ended June 30, | | |
Six months ended June 30, | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Cash provided by (used in) operating activities | |
| 23,640 | | |
| 67,553 | | |
| 19,144 | | |
| 98,241 | |
| Changes in non-cash working capital | |
| (2,095 | ) | |
| (9,808 | ) | |
| 3,130 | | |
| 21,334 | |
| Property, plant and equipment expenditures | |
| (1,911 | ) | |
| (7,706 | ) | |
| (4,428 | ) | |
| (12,906 | ) |
| Adjusted funds flow(1) | |
| 19,634 | | |
| 50,039 | | |
| 17,846 | | |
| 106,669 | |
Cash provided by (used in) operating activities ($/bbl) | |
| 14.44 | | |
| 34.80 | | |
| 5.40 | | |
| 24.04 | |
| Changes in non-cash working capital ($/bbl) | |
| (1.28 | ) | |
| (5.05 | ) | |
| 0.88 | | |
| 5.22 | |
| Property, plant and equipment expenditures ($/bbl) | |
| (1.17 | ) | |
| (3.97 | ) | |
| (1.25 | ) | |
| (3.16 | ) |
| Adjusted funds flow(1) ($/bbl) | |
| 11.99 | | |
| 25.78 | | |
| 5.04 | | |
| 26.11 | |
| (1) | Non-GAAP
measures do not have any standardized meaning prescribed by IFRS and may not be comparable with the calculation of similar measures presented
by other entities. Refer to the Non-GAAP Measures section in this MD&A for further information. |
6.
NON-GAAP MEASURES
In
this MD&A, we refer to certain specified financial measures (such as excess cash flow, adjusted EBITDA, adjusted EBITDA per barrel
($/bbl), adjusted funds flow and adjusted funds flow per barrel ($/bbl) which do not have any standardized meaning prescribed by IFRS.
While these measures are commonly used in the oil and natural gas industry, the Company’s determination of these measures may not
be comparable with calculations of similar measures presented by other reporting issuers. This MD&A also contains the terms “adjusted
working capital” and “net debt” which are non-GAAP measures. We believe that the inclusion of these specified financial
measures provides useful information to financial statement users when evaluating the financial results of Greenfire.
Non-GAAP
Financial Measures
Excess
Cash Flow
Change
in cash and cash equivalents is an IFRS measure in the Company’s consolidated statement of cash flows, which is the most directly
comparable financial statement measure to excess cash flow. A reconciliation from change in cash and cash equivalents to excess cash
flow has been provided in Figure 31 below. These measures are not intended to represent change in cash and cash equivalents, net earnings
or other measures of financial performance calculated in accordance with IFRS.
Excess
cash flow is a non-GAAP financial measure that allows the Company to determine the amount of scheduled bond principal repayments.
Under section 4.19 of the indenture that governs the Notes, the Company is obligated to redeem a portion of the outstanding 2025
Senior Secured Notes equal to 75% of its excess cash flow in every six-month period, with the first six-month period beginning on
the date the Company completed the acquisition of all the issued and outstanding shares of JACOS on September 17, 2021 (“JACOS
Closing Date”) and ending March 31, 2022. Figure 31 shows that the excess cash flow during the three months and six months
ended June 30, 2023 were $22.5 million and $13.6 million, respectively, compared to excess cash flow of $58.4 million and $86.5
million, respectively, during the comparative periods in 2022.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 34 |
Figure
31: Reconciliation of Change in Cash and Cash Equivalents to Excess Cash Flow
| | |
Three months ended June 30, | | |
Six months ended June 30 | |
| ($ thousands) | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Change in cash and cash equivalents | |
| 14,479 | | |
| (10,399 | ) | |
| 1,519 | | |
| 12,506 | |
| Change in restricted cash | |
| 8,000 | | |
| 8,100 | | |
| 12,050 | | |
| 13,317 | |
| Repayment of long-term debt | |
| - | | |
| 60,691 | | |
| - | | |
| 60,691 | |
| Excess cash flow | |
| 22,479 | | |
| 58,392 | | |
| 13,569 | | |
| 86,514 | |
Adjusted
EBITDA
Net
income (loss) and comprehensive income (loss) is the most directly comparable GAAP measure for adjusted EBITDA, which is a non-GAAP measure.
Adjusted EBITDA is calculated as net income (loss) before interest and financing expenses, income taxes, depletion, depreciation and
amortization, and is adjusted for certain non-cash items, or other items that are not considered part of normal business operations.
Adjusted EBITDA is used to measure Greenfire’s profitability from its underlying asset base on a continuing basis. This measure
is not intended to represent net income (loss) and comprehensive income (loss) in accordance with IFRS.
Please
see Figure 22 for a reconciliation of net income (loss) and comprehensive income (loss) to adjusted EBITDA.
Adjusted
Funds Flow
Cash
provided by operating activities is the most directly comparable GAAP measure for adjusted funds flow, which is a non-GAAP measure.
Management uses adjusted funds flow as an indicator of the efficiency and liquidity of Greenfire’s business, measuring its
funds after capital investment that is available to manage debt levels and return capital to stakeholders. This measure is not
intended to represent cash provided by operating activities, net earnings or other measures of financial performance calculated in
accordance with IFRS. We compute adjusted funds flow as cash provided by operating activities, excluding the impact of changes in
non-cash working capital, less property, plant and equipment expenditures. By removing the impact of current period property, plant
and equipment expenditures, management monitors Greenfire’s adjusted funds flow to inform its capital allocation
decisions.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 35 |
Please
see Figure 30 for a reconciliation of cash provided by operating activities to adjusted funds flow.
Adjusted
Working Capital
Working
capital (deficit) is a GAAP measure that is the most directly comparable measure to adjusted working capital. These measures are not
intended to represent current assets, net earnings or other measures of financial performance calculated in accordance with IFRS. Adjusted
working capital is comprised of current assets less current liabilities on the Company’s balance sheet, and excludes the current
portion of risk management contracts and current portion of long-term debt, the latter of which is subject to estimates in future commodity
prices, production levels and expenses, among other factors. See Figure 23 for a reconciliation of working capital (deficit) to adjusted
working capital. Adjusted working capital is included within the non-GAAP measures because it is a less volatile measure of current assets
and current liabilities, after isolating for current portion of long-term debt and current portion of risk management contracts, a surplus
of adjusted working capital will result in a future net cash inflow to the business that can be used by management to evaluate the Company’s
short-term liquidity and its capital resources available at a point in time. A deficiency of adjusted working capital will result in
a future net cash outflow, which may result in the Company not being able to settle short-term liabilities more than current assets.
Net
debt
Long-term
debt is a GAAP measure that is the most directly comparable financial statement measure to net debt. These measures are not intended
to represent long-term debt calculated in accordance with IFRS. Net debt is comprised of long-term debt, adjusted for current assets
and current liabilities on the Company’s balance sheet, and excludes the current portion of risk management contracts. See Figure
32 for a reconciliation of long-term debt to net debt. Management uses net debt to monitor the Company’s current financial position
and to evaluate existing sources of liquidity. Net debt is used to estimate future liquidity and whether additional sources of capital
are required to fund planned operations.
Figure
32: Reconciliation of Long-Term Debt to Net Debt
| | |
As at | | |
As at | |
| | |
June 30, | | |
December 31, | |
| ($ thousands) | |
2023 | | |
2022 | |
| Long-term debt | |
| (185,649 | ) | |
| (191,158 | ) |
| Current assets | |
| 134,542 | | |
| 123,527 | |
| Current liabilities | |
| (112,032 | ) | |
| (136,921 | ) |
| Current portion of risk management contracts | |
| 10,847 | | |
| 27,004 | |
| Net debt | |
| (152,292 | ) | |
| (177,548 | ) |
Non-GAAP Financial Ratios
Adjusted
EBITDA ($/bbl)
Net
income (loss) and comprehensive income (loss) is the most directly comparable GAAP measure for adjusted EBITDA ($/bbl), which is a non-GAAP
measure. Adjusted EBITDA ($/bbl) is used to measure Greenfire’s profitability from its underlying asset base on a continuing basis.
This measure is not intended to represent net income (loss) and comprehensive income (loss) in accordance with IFRS. Adjusted EBITDA
($/bbl) is calculated by dividing adjusted EBITDA by the Company’s total sales volume in a specified period.
Please
see Figure 22 for a reconciliation of net income (loss) and comprehensive income (loss) to adjusted EBITDA.
Adjusted
Funds Flow ($/bbl)
Cash
provided by operating activities is the most directly comparable GAAP measure for adjusted funds flow ($/bbl), which is a non-GAAP
measure. Management uses adjusted funds flow ($/bbl) as an indicator of the efficiency and liquidity of Greenfire’s business,
measuring its funds after capital investment that is available to manage debt levels and return capital to stakeholders. This
measure is not intended to represent cash provided by operating activities, net earnings or other measures of financial performance
calculated in accordance with IFRS. Adjusted funds flow ($/bbl) is calculated by dividing adjusted funds flow by the Company’s
total oil sales volume in a specified period.
Please see Figure 30 for a reconciliation of cash provided by operating activities to adjusted funds flow.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 36 |
Figure
33: Summary of Quarterly Results
| | |
2023 | |
2022 | |
2021(3) | |
| ($ thousands, unless otherwise noted) | |
Q2 | | |
Q1 | | |
Q4 | | |
Q3 | | |
Q2 | | |
Q1 | | |
Q4 | | |
Q3 | | |
Q2 | |
| BUSINESS ENVIRONMENT(1) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| WTI (US$/bbl) | |
| 73.78 | | |
| 76.13 | | |
| 82.65 | | |
| 91.55 | | |
| 108.41 | | |
| 94.29 | | |
| 77.19 | | |
| 70.56 | | |
| 66.07 | |
| WTI (CAD$/bbl) | |
| 99.09 | | |
| 102.93 | | |
| 112.21 | | |
| 119.54 | | |
| 138.39 | | |
| 119.38 | | |
| 97.25 | | |
| 88.91 | | |
| 81.11 | |
| WCS (CAD$/bbl) | |
| 78.75 | | |
| 69.29 | | |
| 77.05 | | |
| 93.48 | | |
| 122.04 | | |
| 100.96 | | |
| 78.67 | | |
| 71.77 | | |
| 66.96 | |
| AECO (CAD$/GJ) | |
| 2.32 | | |
| 3.05 | | |
| 4.85 | | |
| 3.95 | | |
| 6.86 | | |
| 4.49 | | |
| 4.41 | | |
| 3.41 | | |
| 2.93 | |
| FX (USD:CAD)(2) | |
| 1.343 | | |
| 1.352 | | |
| 1.358 | | |
| 1.306 | | |
| 1.277 | | |
| 1.266 | | |
| 1.26 | | |
| 1.26 | | |
| 1.228 | |
| Operational – Expansion | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Bitumen production (bbls/d) | |
| 13,939 | | |
| 16,302 | | |
| 15,710 | | |
| 14,926 | | |
| 17,910 | | |
| 18,714 | | |
| 19,155 | | |
| 2,076 | | |
| - | |
| Operational – Demo | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Bitumen production (bbls/d) | |
| 4,097 | | |
| 4,284 | | |
| 3,869 | | |
| 2,922 | | |
| 3,830 | | |
| 4,196 | | |
| 3,909 | | |
| 3,286 | | |
| 3,384 | |
| Operational – Consolidated | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Bitumen production (bbls/d) | |
| 18,036 | | |
| 20,586 | | |
| 19,579 | | |
| 17,848 | | |
| 21,740 | | |
| 22,909 | | |
| 23,064 | | |
| 5,362 | | |
| 3,384 | |
| Bitumen sales volumes (bbls/d) | |
| 17,992 | | |
| 21,171 | | |
| 19,501 | | |
| 17,727 | | |
| 21,331 | | |
| 23,829 | | |
| 22,614 | | |
| 5,465 | | |
| 3,344 | |
| Steam-oil ratio (SOR) | |
| 4.16 | | |
| 3.72 | | |
| 3.66 | | |
| 3.57 | | |
| 3.45 | | |
| 3.25 | | |
| 3.08 | | |
| 3.28 | | |
| 3.25 | |
| OPERATING RESULTS | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Oil sales | |
| 173,605 | | |
| 179,668 | | |
| 180,741 | | |
| 209,550 | | |
| 315,794 | | |
| 292,764 | | |
| 215,985 | | |
| 37,943 | | |
| 16,746 | |
| Net income (loss) | |
| 24,355 | | |
| (16,678 | ) | |
| 87,995 | | |
| 100,656 | | |
| 45,473 | | |
| (102,426 | ) | |
| (10,315 | ) | |
| 564,696 | | |
| 107,063 | |
| Cash flow provided by operating activities | |
| 23,640 | | |
| (4,495 | ) | |
| 17,322 | | |
| 49,164 | | |
| 67,553 | | |
| 30,688 | | |
| 41,129 | | |
| 27,546 | | |
| (1,358 | ) |
| Property, plant and equipment expenditures | |
| 1,911 | | |
| 2,518 | | |
| 12,361 | | |
| 14,325 | | |
| 7,706 | | |
| 5,200 | | |
| 2,399 | | |
| 1,509 | | |
| 687 | |
| FINANCIAL POSITION | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash and cash equivalents | |
| 36,882 | | |
| 22,403 | | |
| 35,363 | | |
| 99,822 | | |
| 73,375 | | |
| 83,774 | | |
| 60,869 | | |
| 32,019 | | |
| 277 | |
| Restricted cash | |
| 47,363 | | |
| 39,363 | | |
| 35,313 | | |
| 27,413 | | |
| 22,017 | | |
| 13,917 | | |
| 8,700 | | |
| 560 | | |
| 60 | |
| Total assets | |
| 1,153,021 | | |
| 1,147,984 | | |
| 1,174,258 | | |
| 1,158,367 | | |
| 1,174,634 | | |
| 1,182,168 | | |
| 1,129,080 | | |
| 1,107,261 | | |
| 163,480 | |
| Total debt | |
| 246,805 | | |
| 259,555 | | |
| 254,408 | | |
| 320,607 | | |
| 289,604 | | |
| 329,689 | | |
| 325,569 | | |
| 369,647 | | |
| 19,286 | |
| Shareholders’ equity | |
| 846,098 | | |
| 821,418 | | |
| 837,771 | | |
| 748,593 | | |
| 647,937 | | |
| 602,464 | | |
| 704,890 | | |
| 671,714 | | |
| 107,003 | |
| (1) | These
benchmark prices are not the Company’s realized sales prices and represent approximate values. |
| (2) | Annual
or quarterly average exchange rates as per the Bank of Canada. |
| (3) | Results
are from operations that began at the Expansion Asset after the acquisition of JACOS on September 17, 2021 and at the Demo Asset when
it was acquired on April 5, 2021. |
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 37 |
7.
COMMITMENTS AND CONTINGENCIES
The
Company has lease commitments related to pipeline transportation services, and credit facility commitments associated with its pipeline
transportation commitments. Future minimum amounts payable under these commitments are as follows:
Figure
34: Commitments
(thousands) | |
2023 | | |
2024 | | |
2025 | | |
2026 | | |
2027 | | |
Beyond 2027 | | |
Total | |
| Credit facility | |
| 9,784 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 9,784 | |
| Transportation | |
| 16,205 | | |
| 31,880 | | |
| 30,561 | | |
| 28,956 | | |
| 29,044 | | |
| 232,368 | | |
| 369,014 | |
| Total | |
| 25,989 | | |
| 31,880 | | |
| 30,561 | | |
| 28,956 | | |
| 29,044 | | |
| 232,368 | | |
| 378,798 | |
8.
ACCOUNTS RECEIVABLE
Credit
risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Company’s accounts receivable. The Company is primarily exposed to credit risk from
receivables associated with its oil sales. The Company manages its credit risk exposure by transacting with high-quality credit worthy
counterparties and monitoring credit worthiness and/or credit ratings on an ongoing basis. Trade receivables from oil sales are generally
collected on the 25th day of the month following production. Joint interest receivables are typically collected within one
to three months of the invoice being issued. For the period ended June 30, 2023, the Company had oil sales to a single counterparty and
has not previously experienced any material credit losses on the collection of accounts receivable.
At
June 30, 2023 credit risk from the Company’s outstanding accounts receivable and joint interest receivable balances was considered
low due to a history of collections and the receivables that were held by credit worthy counterparties. There were no overdue balances
at June 30, 2023.
Figure
35: Accounts Receivable
| | |
Three months ended | | |
Year
ended | |
| | |
June 30, | | |
December 31, | |
| ($ thousands) | |
2023 | | |
2022 | |
| Trade receivables | |
| 30,465 | | |
| 22,428 | |
| Joint interest receivables | |
| 6,046 | | |
| 11,880 | |
| Accounts receivable | |
| 36,511 | | |
| 34,308 | |
9.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The
Company’s critical accounting policies and estimates are those estimates having a significant impact on the financial position
and operations that require management to make judgements, assumptions and estimates in the application of IFRS. Judgements, assumptions
and estimates are based on the historical experience and other factors that management believes to be reasonable under current conditions.
As events occur and additional information becomes available, these judgements, assumptions and estimates may be subject to change. Detailed
disclosure of the significant accounting policies and the significant accounting estimates, assumptions and judgements can be found in
the Company’s financial statements for the period ended December 31, 2022.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 38 |
10.
OFF-BALANCE SHEET ARRANGEMENTS
We
do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our
financial condition, change in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital
resources.
11.
FORWARD LOOKING STATEMENTS
This
MD&A contains “forward-looking information” within the meaning of applicable Canadian securities laws (forward-looking
information being collectively hereinafter referred to as “forward-looking statements”). Such forward-looking statements
are based on expectations, estimates and projections as at the date of this MD&A. Any statements that involve discussions with respect
to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often but not always
using phrases such as “expects”, “is expected”, “anticipates”, “plans”, “budget”,
“scheduled”, “forecasts”, “estimates”, “believes” or “intends”, or variations
of such words and phrases (including negative and grammatical variations), or stating that certain actions, events or results “may”,
“could”, “would”, “should”, “might” or “will” be taken, occur or be achieved)
are not statements of historical fact and may be forward-looking statements and are intended to identify forward- looking statements.
These forward-looking statements include, but are not limited to, statements and information concerning: the intentions, plans and future
actions of the Company; Greenfire’s belief that there are a range of attractive investment opportunities in the oil and gas sector in
Canada; Greenfire’s plans to continue to sustainably increase production at the Expansion Asset by optimizing the site’s existing
infrastructure, while employing a safe, efficient, and capital-disciplined operating approach; Greenfire’s expectation that over time
optimization improvements will lead to an enhancement in profitability; Greenfire’s plans to further deleverage its balance sheet
in the near term, while in the mid to longer term, continuing to evaluate potential avenues for capital acceleration to attain additional
step change growth; management’s intent to actively manage the Company’s capital structure in response to changes in economic conditions
and its intention to further deleverage the Company’s balance sheet; management’s belief that the Company’s current capital resources
and its ability to manage cash flow and working capital levels will allow the Company to meet its current and future obligations, to
make scheduled interest and principal payments, and to fund the other needs of the business; the expectations relating to Excess Cash
Flow and related redemption of Notes; and statements relating to the business and future activities of the Company after the date of
this MD&A.
Forward-looking
statements are based on the beliefs of the Company’s management, as well as on assumptions, which such management believes to
be reasonable based on information available at the time such statements were made. In addition to other assumptions set out herein,
the forward-looking statements contained herein are based on the following assumptions: Greenfire’s ability to compete with other
companies; the anticipated future financial or operating performance of the Company; the expected results of operations; assumptions
as to future drilling results; assumptions as to costs and commodity prices; the timing and amount of funding required to execute
the Company’s business plans; assumptions about future capital expenditures; the effect on the Company of any changes to
existing or new legislation or policy or government regulation; the length of time required to obtain permits, certifications and
approvals; the availability of labor; estimated budgets; assumptions about future interest and currency exchange rates; requirements
for additional capital; the timing and possible outcome of regulatory and permitting matters; goals; strategies; future growth; and
the adequacy of financial resources. However, by their nature, forward-looking statements are based on assumptions and involve known
and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or implied by the forward- looking statements.
| Greenfire Resources Inc. | 2023 Q2 Management’s Discussion and Analysis | 39 |
Forward-looking
statements are subject to a variety of risks, uncertainties and other factors which could cause actual results, performance or achievements
to differ from those expressed or implied by the forward-looking statements, including, without limitation, a decline in oil prices or
widening of differentials between various crude oil prices; lower than expected reservoir performance, including, but not limited to,
lower oil production rates and/or higher SORs; the inability to recognize continued or increased efficiencies from the Company’s
production enhancement program and processing plant enhancements, debottlenecking and brownfield expansions; reduced access to or an
increase in the cost of diluent; an increase in the cost of natural gas; the reliability and maintenance of Greenfire’s facilities; supply
chain disruption and risks of increases costs relating to inflation; the safety and reliability of pipelines and trucking services that
transport Greenfire’s products; the need to replace significant portions of existing wells, referred to as “workovers”,
or the need to drill additional wells; the cost to transport bitumen, diluent and bitumen blend, and the cost to dispose of certain by-products;
the availability and cost of insurance and the inability to insure against certain types of losses; severe weather or catastrophic events
such as fires, lightning, earthquakes, extreme cold weather, storms or explosions; seasonal weather patterns and the corresponding effects
of the spring thaw on equipment on Greenfire’s properties; the availability of pipeline capacity and other transportation and storage
facilities for the Company’s bitumen blend; the cost of chemicals used in Greenfire’s operations, including, but not limited
to, in connection with water and/or oil treatment facilities; the impact of COVID-19 pandemic on the Company’s operations; the availability
of and access to drilling equipment and key personnel; risks of cybersecurity threats including the possibility of potential breakdown,
invasion, virus, cyber-attack, cyber-fraud, security breach, and destruction or interruption of the Company’s information technology
systems; Canadian heavy and light oil export capacity constraints and the resulting impact on realized pricing; negative economic impacts
as a result of the spread of COVID-19 (coronavirus); the Russia and Ukraine war including the resulting sanctions imposed on Russia and
the impact on commodity pricing, global stability and the world economy; changes in the political landscape and/or legal, tax, royalty
and regulatory regimes in Canada, and elsewhere; the cost of compliance with applicable regulatory regimes, including, but not limited
to, environmental regulation and Government of Alberta production curtailments, if any; the ability to attract or access capital as a
result of changing investor priorities and trends, including as a result of climate change, environmental, social and governance initiatives,
the adoption of decarbonization policies and the general stigmatization of the oil and gas industry; hedging risks; variations in foreign
exchange and interest rates; risks related to the Company’s indebtedness; failure to accurately estimate abandonment and reclamation
costs; the potential for management estimates and assumptions to be inaccurate; and general economic, market and business conditions
in Canada, the United States and globally.
The
lists of risk factors set out in this MD&A or in the Company’s other public disclosure documents are not exhaustive of the
factors that may affect any forward-looking statements of the Company. Forward-looking statements are statements about the future
and are inherently uncertain. Actual results could differ materially from those projected in the forward-looking statements as a
result of the matters set out in this MD&A generally and certain economic and business factors, some of which may be beyond the
control of the Company. In addition, the global financial and credit markets have experienced significant debt and equity market and
commodity price volatility which could have a particularly significant, detrimental and unpredictable effect on forward-looking
statements. The Company does not intend, and does not assume any obligation, to update any forward-looking statements, other than as
required by applicable law. For all of these reasons, the Company’s securityholders should not place undue reliance on
forward-looking statements.
| Greenfire
Resources Inc. |
2023
Q2 Management’s Discussion and Analysis | 40 |
Exhibit 99.3
Greenfire
Resources Ltd
CONDENSED
INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
AS
AT JUNE 30, 2023
(Presented
in Canadian Dollars)
Greenfire
Resources Ltd.
Condensed
Interim Consolidated Statement of Financial Position
(Unaudited)
As at
($CAD) | |
June 30,
2023 | | |
December 31,
2022 | |
| Assets | |
| | |
| |
| Current assets | |
| | |
| |
| Cash | |
$ | 1 | | |
$ | 1 | |
| Total assets | |
$ | 1 | | |
$ | 1 | |
| | |
| | | |
| | |
| Shareholder’s equity | |
| | | |
| | |
| Share capital | |
$ | 1 | | |
$ | 1 | |
| Total shareholder’s equity and liabilities | |
$ | 1 | | |
$ | 1 | |
The
accompanying notes are an integral part of the condensed interim consolidated financial statements
|
|
|
| David Phung, Director |
|
Robert Logan, President and CEO |
Greenfire
Resources Ltd.
Notes
to the Condensed Interim Consolidated Financial Statements
(In
Canadian dollars and Unaudited)
Greenfire
Resources Ltd. (the “Company”) was incorporated under the laws of Alberta on December 9, 2022. On December 14, 2022, the
Company entered into the Business Combination Agreement between Greenfire Resources Inc. and M3-Brigade Acquisition III Corp (“MBSC”).
In April 2023 the Company filed its Registration Statement with the United States Securities Exchange Commission. The Business Combination
is expected to close before the end of 2023, subject to customary closing conditions, including the receipt of necessary regulatory approvals.
The Company’s intended business activity is to engage in the exploration, development and operation of oil and gas properties,
and focus primarily in the Athabasca oil sands region of Alberta. To date, the Company has not had operations and is expected to commence
operations concurrent with the planned Business Combination. The Company’s registered address is 2400, 525 8 Ave SW, Calgary, Alberta
T2P 1G1.
During
2022, the Company incorporated 2476276 Alberta ULC and DE Greenfire Merger Sub Inc. There were no other activities in the subsidiaries
of the Company. As at June 30, 2023, the Company wholly-owns a direct interest in 2476276 Alberta ULC and DE Greenfire Merger Sub Inc.
and consolidates these entities.
These
interim consolidated financial statements were approved by the Board of Directors on September 4, 2023.
| 2. | MATERIAL
ACCOUNTING POLICY INFORMATION |
| a) | Statement
of Compliance |
These
unaudited condensed interim consolidated financial statements (“interim consolidated financial statements”) have been prepared
in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”) using International Accounting Standard IAS 34: “Interim Financial Reporting”. They are
condensed as they do not include all of the information required for full annual consolidated financial statements, and they should be
read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2022. Separate Statements
of Income and Comprehensive Income, Changes in Shareholder’s Equity and Cash Flows have not been presented as there have been no
activities for the Company to date other than its formation.
| b) | Functional
Currency and Presentation Currency |
These
financial statements are presented on Canadian dollars, which is the Company’s functional currency.
The
financial statements include the accounts of the Company and its consolidated subsidiaries, which are the entities over which the Company
has control. An investor controls an investee when it is exposed, or has rights to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over the investee.
The
Company issued one common share for $1.00 upon incorporation, the share is held by Greenfire Resources Inc. being the Company’s
ultimate parent and sole shareholder. As at June 30, 2023 and December 31, 2022, one common share with no par value was issued and outstanding,
and no preferred shares were outstanding. The authorized capital of the Company is an unlimited number of Common Shares and an unlimited
number of Preferred Shares, issuable in series.
| 4. | SUBSCRIPTION
AGREEMENTS |
Concurrently
with the Business Combination Agreement, the Company entered into subscription agreements whereby, contingent on certain events, it may
issue up to US$50,000,000 of 9% convertible notes due in 2028. The convertible notes will have an initial conversion rate of 76.923077
common shares per US$1,000 principal amount of convertible notes for a conversion price of US$13.00 per common share. The commitment
was entered into based on market terms.
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION
The following unaudited pro forma condensed consolidated
financial information presents the combination of the financial information of Greenfire Resources Ltd. (“New Greenfire”),
Greenfire Resources Inc. (“Greenfire”), and M3-Brigade Acquisition III Corp. (“MBSC”) adjusted to give effect
to the Business Combination and related transactions. Defined terms included below have the same meaning as terms defined and included
in the registration statement of Greenfire Resources Ltd. on Form F-4 (Registration No.: 333-271381), as filed with the SEC under the
Securities Act on April 23, 2023 and amendments thereto on Form F-4/A filed with the SEC on June 16, 2023, July 28, 2023 and July 11,
2023 (as amended, the “Registration Statement/Proxy Statement”).
The following unaudited pro forma condensed consolidated
financial information has been prepared in accordance with Article 11 of Regulation S-X.
New Greenfire is an Alberta corporation incorporated
on December 9, 2022. New Greenfire’s intended business activity is to engage in the exploration, development and operation
of oil and gas properties primarily focused in the Athabasca oil sands region of Alberta. To date, New Greenfire has not commenced operations
and is expected to commence operations concurrent with the planned Business Combination.
Greenfire is a Calgary-based energy company
focused on the sustainable production and development of thermal energy resources from the Athabasca region of Alberta, Canada.
MBSC is a blank check company incorporated as a
Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization
or similar business combination involving MBSC and one or more target businesses.
The historical financial information of New Greenfire was derived from
the unaudited condensed interim consolidated financial statements of New Greenfire as at June 30, 2023, and the audited financial statements
of New Greenfire as at December 31, 2022. The historical financial information of Greenfire was derived from the condensed interim
consolidated financial statements of Greenfire as at and for the six months ended June 30, 2023, and the audited consolidated financial
statements of Greenfire as at and for the year ended December 31, 2022. The historical financial information of MBSC was derived
from the unaudited financial statements of MBSC as at and for the six months ended June 30, 2023, and the audited financial statements
of MBSC as at and for the year ended December 31, 2022. Such unaudited and audited financial statements are included in the Registration
Statement/Proxy Statement. This information should be read together with New Greenfire’s, Greenfire’s and MBSC’s financial
statements and related notes, the sections titled “MBSC Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and “Greenfire Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and other financial information included in the Registration Statement/Proxy Statement.
The unaudited pro forma
condensed consolidated financial statements have been prepared based on the New Greenfire historical consolidated financial
statements, the Greenfire historical consolidated financial statements, and the MBSC historical financial statements, as adjusted to
give effect to the Transactions. The unaudited pro forma condensed consolidated statement of financial position gives pro forma
effect to the Transactions as if they had been consummated on June 30, 2023. The unaudited pro forma condensed consolidated
statement of profit (loss) and comprehensive profit (loss) for the six months ended June 30, 2023 and for the year ended
December 31, 2022 gives effect to the Transactions as if they had occurred on January 1, 2022.
The unaudited pro forma condensed consolidated financial
information has been presented for illustrative purposes only and is not necessarily indicative of the financial position and results
of operations that would have been achieved had the Business Combination and related transactions occurred on the dates indicated. Further,
the unaudited pro forma condensed consolidated financial information does not necessarily represent the future financial condition and
results of operations of the post-combination company. The actual financial position and results of operations may differ significantly
from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s
estimates based on information available as of the date of the unaudited pro forma condensed consolidated financial information and is
subject to change as additional information becomes available and analyses are performed.
Description of the Business Combination
On December 14, 2022, MBSC, Greenfire, New
Greenfire, DE Merger Sub and Canadian Merger Sub, entered into a Business Combination Agreement pursuant to which, among other things
and subject to the terms and conditions contained in the Business Combination Agreement and the Plan of Arrangement, (i) Canadian
Merger Sub will amalgamate with and into Greenfire pursuant to the Plan of Arrangement, except that the legal existence of Greenfire will
not cease and Greenfire will survive the Amalgamation, and Surviving Greenfire will become a direct, wholly-owned subsidiary of New
Greenfire, and (ii) DE Merger Sub will merge with and into MBSC, with MBSC continuing as the surviving corporation following the
Merger, as a result of which Surviving MBSC will become a direct, wholly-owned subsidiary of New Greenfire.
The transactions contemplated by the Transactions
are structured as follows:
| ● | prior to the effectiveness of the Merger, by way of a Plan of
Arrangement under the ABCA, Greenfire will complete a number of corporate steps as described below pursuant to the Plan of Arrangement,
whereby (i) the Greenfire Shareholders will receive a number of New Greenfire Common Shares as Share Consideration and a cash payment
equal to their pro rata share of the Cash Consideration, in exchange for their Greenfire shares, all as determined in accordance with
the Plan of Arrangement, (ii) a portion of the Greenfire Performance Warrants to purchase Greenfire Common Shares issued pursuant
to the Greenfire Equity Plan, whether vested or unvested, that are held by each Greenfire Performance Warrantholder will be deemed to
be cancelled in exchange for a cash payment from Greenfire equal to the pro rata share of the Cash Consideration payable to the Greenfire
Performance Warrantholders, as determined in accordance with the Plan of Arrangement, and the remaining Greenfire Performance Warrants
will be converted into New Greenfire Performance Warrants with substantially the same terms as the Greenfire Performance Warrants as
adjusted in accordance with the Plan of Arrangement, (iii) Canadian Merger Sub will amalgamate with and into Greenfire pursuant
to the Plan of Arrangement, except that the legal existence of Greenfire will not cease and Greenfire will survive the Amalgamation,
and (iv) Surviving Greenfire will become a wholly-owned subsidiary of New Greenfire; |
| ● | in accordance with the terms of the Greenfire Warrant Agreement,
as amended by the Greenfire Supplemental Warrant Agreement: (a) a portion of the Greenfire Bond Warrants held by each holder of
Greenfire Bond Warrants will be deemed to be cancelled in exchange for a cash payment from Greenfire equal to the pro rata share of the
Cash Consideration payable to holders of Greenfire Bond Warrants as determined in accordance with the Greenfire Supplemental Warrant
Agreement, following which (b) each remaining Greenfire Bond Warrant will be deemed to be exercised for Greenfire Common Shares
pursuant to the terms of the Greenfire Warrant Agreement as amended by the Greenfire Supplemental Warrant Agreement, and each former
holder of Greenfire Bond Warrants will, following the Amalgamation and in exchange for such Greenfire Common Shares, receive New Greenfire
Common Shares as determined in accordance with the Greenfire Supplemental Warrant Agreement; and |
| ● | on the Closing Date following the consummation of the transactions
described above, DE Merger Sub will merge with and into MBSC, with MBSC continuing as the surviving corporation following the Merger,
as a result of which Surviving MBSC will become a direct, wholly-owned subsidiary of New Greenfire, with the equity holders of MBSC
receiving consideration as described in the subsection entitled “The Business Combination — Disposition of Securities”
of the Registration Statement/Proxy Statement. |
Prior to the Merger Effective Time on the Closing
Date, the following transactions will occur pursuant to the Plan of Arrangement:
| ● | The Shareholders Agreement among Greenfire and certain Greenfire
Shareholders, dated August 5, 2021, will be terminated. |
| ● | Greenfire Shareholders exercising dissent rights pursuant to
the Plan of Arrangement will have their Greenfire Common Shares cancelled, and such Greenfire Shareholders will cease to have any rights
as Greenfire Shareholders other than the right to be paid fair value for such Greenfire Common Shares as set forth in the Plan of Arrangement. |
| ● | The Greenfire Founders will: (i) receive a dividend equal
to the pro rata share of the Cash Consideration payable to Greenfire Founders; (ii) have their Greenfire Common Shares consolidated,
and (iii) thereafter receive New Greenfire Common Shares, in exchange for their Greenfire Common Shares, all as determined in accordance
with the Plan of Arrangement. |
| ● | The Greenfire Employee Shareholders will: (i) through a
series of transactions, receive a cash payment from Greenfire equal to the pro rata share of the Cash Consideration payable to Greenfire
Employee Shareholders in consideration for a portion of the Greenfire Common Shares held by such Greenfire Employee Shareholders; and
(ii) receive New Greenfire Common Shares, in exchange for their Greenfire Common Shares, all as determined in accordance with the
Plan of Arrangement. |
| ● | The Greenfire Performance Warrantholders will have a portion
of their Greenfire Performance Warrants cancelled in exchange for a cash payment from Greenfire equal to the pro rata share of the Cash
Consideration payable to the Greenfire Performance Warrantholders, and the remaining Greenfire Performance Warrants will be converted
into New Greenfire Performance Warrants, in exchange for their Greenfire Common Shares, all as determined in accordance with the Plan
of Arrangement. |
| ● | Greenfire and Canadian Merger Sub will complete the Amalgamation
to form one corporate entity with the same effect as if they had amalgamated under the ABCA except that the separate legal existence
of Greenfire will not cease and Greenfire will survive the Amalgamation. |
| ● | Upon the Amalgamation, the Greenfire Equity Plan will be deemed
to be amended and restated by the New Greenfire Performance Warrant Plan. |
| ● | 5,000,000 New Greenfire Warrants, with an expiration date that
is five years from the Closing of the Business Combination, will be issued to the pre-Merger holders of New Greenfire Common
Shares and New Greenfire Performance Warrants in each case in the numbers determined in accordance with the Plan of Arrangement. |
| ● | The directors of New Greenfire immediately prior to the Merger
Effective Time will resign and be replaced by a slate of directors to be determined prior to the Merger Effective Time, each to hold
office until their respective term expires in accordance with the articles of incorporation of New Greenfire, or until their successors
are elected or appointed. |
Immediately prior to the Merger, the following will
occur:
| ● | If the amount of the New Greenfire Debt Financing issued at
the Closing exceeds $25,000,000, then 750,000 MBSC Class B Common Shares held by the MBSC Sponsor, will be forfeited and cancelled for
no consideration; |
| ● | 2,500,000 MBSC Class B Common Shares held by the MBSC Sponsor
will be forfeited and cancelled for no consideration (the bullet above and this bullet, together, the “MBSC Sponsor Class B Share
Forfeitures”); and |
| ● | 3,260,000 MBSC Private Placement Warrants held by the MBSC Sponsor
will be forfeited and cancelled for no consideration (the “MBSC Sponsor Warrant Forfeiture”). |
To the extent any units of MBSC issued in the MBSC
IPO (“MBSC Units”) remain outstanding and unseparated, immediately prior to the Merger Effective Time, the MBSC Class A Common
Shares and MBSC Public Warrants comprising each such issued and outstanding MBSC Unit immediately prior to the Merger Effective Time will
be automatically separated (the “Unit Separation”) and the holder of each MBSC Unit will be deemed to hold one MBSC Class
A Common Share and one-third (1/3) of one MBSC Public Warrant.
In addition, immediately prior to the Merger Effective
Time, but subsequent to the Unit Separation, MBSC will redeem all of the MBSC Public Warrants at $0.50 per MBSC Public Warrant (the “MBSC
Public Warrant Redemption”).
At the Merger Effective Time, by virtue of the Merger
and without any further action on the part of the parties or any other person, the following will occur:
| ● | each
issued and outstanding MBSC Class A Common Share, other than any Excluded MBSC Class A
Common Shares and after giving effect to the MBSC Stockholder Redemption and the amount of
PIPE Financing consisting of subscriptions for MBSC Class A Common Shares, if any, pursuant
to the Subscription Agreements, will be automatically converted into and exchanged for the
right to receive (i) if an amount in cash less than or equal to $100,000,000 is remaining
in the Trust Account after giving effect to the MBSC Stockholder Redemption, one New Greenfire
Common Share and (ii) if an amount in cash greater than $100,000,000 is remaining in
the Trust Account after giving effect to the MBSC Stockholder Redemption, (A) a fraction
of a New Greenfire Common Share equal to $100,000,000 divided by the amount
in the Trust Account after giving effect to the MBSC Stockholder Redemption, and (B) an
amount in cash equal to the quotient of (I) the amount in the Trust Account after giving
effect to the MBSC Stockholder Redemption that exceeds $100,000,000 minus the
MBSC Extension Amount at the Merger Effective Time divided by (II) the
number of MBSC Class A Common Shares (other than any Excluded MBSC Class A Common
Shares and after giving effect to the MBSC Stockholder Redemption and the amount
of PIPE Financing consisting of subscriptions for MBSC Class A Common Shares, if any,
pursuant to the Subscription Agreements); |
| ● | each issued and outstanding MBSC Class B Common Share (after
giving effect to the MBSC Sponsor Class B Share Forfeitures and any other transfers of MBSC Class B Common Shares in connection
with the Closing) will be automatically converted into and exchanged for the right to receive (i) one New Greenfire Common Share
and (ii) an amount in cash equal to the quotient of (A) the MBSC Working Capital plus the MBSC Extension Amount
at the Merger Effective Time divided by (B) the number of MBSC Class B Common Shares outstanding at the Closing; |
| ● | each MBSC Private Placement Warrant that is issued and outstanding
immediately prior to the Merger Effective Time (after giving effect to the MBSC Sponsor Warrant Forfeiture and any other forfeitures
of MBSC Warrants in connection with the Closing) will be automatically and irrevocably converted into one New Greenfire Warrant on the
same terms as were in effect immediately prior to the Merger Effective Time pursuant to the MBSC Private Warrant Agreement; |
| ● | each share of common stock, par value $0.01 per share, of DE
Merger Sub that is issued and outstanding immediately prior to the Merger Effective Time will convert automatically into one share of
common stock, par value $0.01 per share, of Surviving MBSC; and |
| ● | each Excluded MBSC Class A Common Share will be cancelled
for no consideration. |
For more information on the disposition of securities,
including of MBSC, in connection with the Business Combination see the subsection “The Business Combination — Disposition
of Securities” in the Registration Statement/Proxy Statement.
Anticipated Accounting Treatment
Given the substance of the transaction, the Business
Combination will be accounted for as a share-based payment transaction within the scope of IFRS 2 Share-based Payment (“IFRS
2”) as it relates to instruments issued to acquire the stock exchange listing service received and other assets acquired and liabilities
assumed, and under IAS 32 — Financial Instruments: Presentations (“IAS 32”) as it relates
to instruments issued in exchange of MBSC Private Placement Warrants. Greenfire will be treated as the “acquirer” and MBSC
will be treated as the “acquiree” for financial reporting purposes given that Greenfire’s operations will comprise the
operations of New Greenfire, Greenfire’s executive management will be the executive management of New Greenfire, Greenfire’s
director nominees will hold the majority of director seats of New Greenfire, and Greenfire’s existing shareholders will be the largest
shareholder group of New Greenfire.
As part of the Business Combination, there are a
portion of the MBSC Private Placement Warrants that are not forfeited which will be assumed by New Greenfire as part of the Business Combination.
As New Greenfire Public Warrants are issued as replacement of the MBSC Private Placement Warrants assumed, the exchange of warrants is
accounted for under IAS 32, as the New Greenfire Public Warrants were not issued to acquire goods or services and are not in the
scope of IFRS 2. Based on the information currently available, it is expected the fair value of MBSC Private Placement Warrants will have
similar fair value as those of New Greenfire Public Warrants as of the Closing, no material impact into profit or loss is expected.
The remaining instruments issued as part of the
Business Combination (i.e., common shares issued by New Greenfire) are accounted for in accordance with IFRS 2. IFRS 2 requires that the
difference in the fair value of the instruments issued as consideration for the acquisition of MBSC (i.e., common shares issued by New
Greenfire) over the fair value of the remaining identifiable net assets of MBSC (i.e., those identifiable net assets not accounted for
pursuant to IAS 32) will represent a service for the listing of New Greenfire and be recognized as a listing expense. The fair value of
the instruments issued as consideration for the acquisition of MBSC was determined using the price referenced in the Transaction Financing
of $10.10 per share.
Basis of Pro Forma Presentation
New Greenfire reports its historical financial information
in Canadian Dollars (“CAD$”), Greenfire reports its historical financial information in CAD$ and MBSC reports its historical
financial information in U.S. Dollars (“US$”). For purposes of this presentation, all US$ statement of financial
position amounts have been translated into CAD$ using an exchange rate of US$1.00 to CAD$1.32. All US$ statement of profit (loss) and
comprehensive profit (loss) amounts have been translated into CAD$ using an average exchange rate of US$1.00 to CAD$1.35 for the six months
ended June 30, 2023 and US$1.00 to CAD$1.30 for the year ended December 31, 2022. All amounts reported within this pro forma financial
information are CAD$ unless otherwise noted as US$.
The unaudited pro forma condensed consolidated financial
information has been prepared using the assumptions below with respect to the potential redemption into cash of MBSC Common Shares:
| ● | Assuming No Redemptions: This scenario assumes that no MBSC Public Stockholders exercise
redemption rights with respect to the MBSC Common Shares received in exchange for its MBSC Public Shares for a pro rata share of the
funds in the Trust Account. |
| ● | Assuming Maximum
Redemptions: This scenario assumes that 30,000,000 MBSC Class A Common Shares subject to redemption are redeemed
for an aggregate redemption payment of approximately CAD$412.5 million (US$311.5 million) based on an estimated per share redemption
price of approximately CAD$13.37 (US$10.10) that was calculated using the US$312 million of cash in the Trust Account divided by
30,000,000 MBSC Public Shares subject to redemption assuming the pro forma maximum redemption scenario pursuant to the Business Combination
Agreement. |
The following summarizes the pro forma ownership
of New Greenfire Common Shares following the Business Combination under the no redemption, 50% redemption and maximum redemption scenarios
(basic):
| |
|
Assuming
No
Redemptions |
|
|
% |
|
|
Assuming
50%
Redemptions |
|
|
% |
|
|
Assuming
Maximum
Redemptions |
|
|
% |
|
| Shares held by current MBSC Public Stockholders |
|
|
9,900,990 |
|
|
|
13 |
% |
|
|
9,900,990 |
|
|
|
13 |
% |
|
|
— |
|
|
|
— |
% |
| Shares held by the MBSC Sponsor(1) |
|
|
5,000,000 |
|
|
|
7 |
% |
|
|
5,000,000 |
|
|
|
7 |
% |
|
|
4,250,000 |
|
|
|
6 |
% |
| Shares held by current Greenfire Shareholders |
|
|
43,298,722 |
|
|
|
59 |
% |
|
|
43,298,722 |
|
|
|
59 |
% |
|
|
43,819,751 |
|
|
|
64 |
% |
| Shares held by current holders of Greenfire Bond Warrants |
|
|
15,579,591 |
|
|
|
21 |
% |
|
|
15,579,591 |
|
|
|
21 |
% |
|
|
15,767,066 |
|
|
|
23 |
% |
| Shares held by PIPE Investors(2) |
|
|
— |
|
|
|
— |
% |
|
|
— |
|
|
|
— |
% |
|
|
4,950,496 |
|
|
|
7 |
% |
| Total New Greenfire Common Shares, basic |
|
|
73,779,303 |
|
|
|
100.0 |
% |
|
|
73,779,303 |
|
|
|
100.0 |
% |
|
|
68,787,313 |
|
|
|
100 |
% |
Ownership is shown on a non-dilutive basis.
| (1) | An additional 750,000 MBSC Class B Common Shares will be
forfeited and cancelled for no consideration if New Greenfire Debt Financing at the Closing exceeds US$25 million. |
| (2) | Maximum redemption scenario contemplates PIPE Investment of
US$50 million to purchase 4,950,496 MBSC Class A Common Shares, which will be converted into New Greenfire Common Shares on
a 1:1 basis on the Closing Date. |
The following summarizes the pro forma ownership
of New Greenfire Common Shares following the Business Combination under the no redemption, 50% redemption and maximum redemption scenarios
(on a fully diluted basis, please see the subsection of the Registration Statement/Proxy Statement entitled “The Business Combination — Total
New Greenfire Common Shares to Be Issued in the Business Combination” and the section entitled “Unaudited Pro Forma
Condensed Consolidated Financial Information” for more information):
| | |
Assuming
No
Redemptions | | |
% | | |
Assuming
50%
Redemptions | | |
% | | |
Assuming
Maximum
Redemptions | | |
% | |
| Shares held by current MBSC Public Stockholders | |
| 9,900,990 | | |
| 11 | % | |
| 9,900,990 | | |
| 11 | % | |
| — | | |
| — | % |
| Shares held by the MBSC Sponsor, fully diluted(1) | |
| 7,526,667 | | |
| 9 | % | |
| 7,526,667 | | |
| 9 | % | |
| 6,776,667 | | |
| 8 | % |
| Shares held by current Greenfire Shareholders and holders of Greenfire Performance Warrants, fully diluted(2)(3) | |
| 50,497,143 | | |
| 60 | % | |
| 50,497,143 | | |
| 60 | % | |
| 51,059,667 | | |
| 61 | % |
| Shares held by current holders of Greenfire Bond Warrants, fully diluted(4) | |
| 16,829,591 | | |
| 20 | % | |
| 16,829,591 | | |
| 20 | % | |
| 17,017,066 | | |
| 20 | % |
| Shares held by PIPE Investors(5) | |
| — | | |
| — | % | |
| — | | |
| — | % | |
| 8,796,650 | | |
| 11 | % |
| Total New Greenfire Common Shares, fully diluted | |
| 84,754,391 | | |
| 100.0 | % | |
| 84,754,391 | | |
| 100.0 | % | |
| 83,650,050 | | |
| 100.0 | % |
| (1) |
As of June 30, 2023, 2022, MBSC had outstanding MBSC Private Placement Warrants of 7,526,667. Immediately prior to the Merger, 3,260,000 MBSC Private Placement Warrants held by the MBSC Sponsor and 1,740,000 MBSC Private Placement Warrants held by Cantor will be forfeited and cancelled for no consideration. The remaining 2,526,667 MBSC Private Placement Warrants will be converted into New Greenfire Warrants on a 1:1 basis, which have been included in the fully diluted New Greenfire Common Shares. |
| (2) |
On the Closing Date, 3,750,000 New Greenfire Warrants, including 2,910,123 New Greenfire Warrants to be held by Greenfire Founders and 839,877 New Greenfire Warrants to be held by Greenfire employees, have been included in the fully diluted New Greenfire Common Shares. |
| (3) |
On the Closing Date, the Greenfire Performance Warrantholders will have a portion of their Greenfire Performance Warrants cancelled in exchange for a cash payment from Greenfire equal to the pro rata share of the Cash Consideration payable to the Greenfire Performance Warrantholders, and the remaining Greenfire Performance Warrants will be converted into New Greenfire Performance Warrants. New Greenfire Performance Warrants of (i) 3,448,421 under the no redemption and 50% redemption scenarios and (ii) 3,489,916 under the maximum redemption scenario, respectively, have been included in the fully diluted New Greenfire Common Shares. |
| (4) |
On the Closing Date, 1,250,000 New Greenfire Warrants will be issued to the current holders Greenfire Bond Warrants, which have been included in the fully diluted New Greenfire Common Shares. |
| (5) |
Maximum redemption includes New Greenfire Debt Financing of US$50,000,000 aggregate principal amount of Convertible Notes, which may be converted into New Greenfire Common Shares at US$13 per share, equivalent to 3,846,154 New Greenfire Common Shares. |
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
AS AT JUNE 30, 2023
(in thousands, except share and per share amounts)
| | |
GRL (IFRS,
Historical), CAD | | |
Greenfire
(IFRS, Historical), CAD | | |
MBSC
(U.S. GAAP, Historical), USD | | |
IFRS
Conversion and Presentation Alignment, USD
(Note 2) | |
|
|
MBSC
as-adjusted (IFRS Conversion), USD | | |
MBSC
as-adjusted (IFRS Conversion), CAD | | |
Transaction
Accounting Adjustments, CAD
(Note
3) | |
| |
Combined
Pro Forma (Assuming No Redemption), CAD | | |
Additional
Pro Forma Transaction Adjustments (Assuming Max Redemption), CAD
(Note 3) | |
| |
Combined
Pro Forma (Assuming Max Redemption), CAD | |
| ASSETS | |
| | |
| | |
| | |
| |
|
|
| | |
| | |
| |
| |
| | |
| |
| |
| |
| Current | |
| | |
| | |
| | |
| |
|
|
| | |
| | |
| |
| |
| | |
| |
| |
| |
| Cash
and equivalents | |
| - | | |
| 36,882 | | |
| 498 | | |
| - | |
|
|
| 498 | | |
| 659 | | |
| 414,350 | |
A | |
| 30,796 | | |
| 132,400 | |
Q | |
| 30,796 | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| (281,951 | ) |
B | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| (33,198 | ) |
C | |
| | | |
| (132,400 | ) |
R | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| (6,620 | ) |
I | |
| | | |
| - | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| (99,300 | ) |
J | |
| | | |
| - | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| (26 | ) |
L | |
| | | |
| - | |
| |
| | |
| Restricted
cash | |
| - | | |
| 47,363 | | |
| - | | |
| - | |
|
|
| - | | |
| | | |
| - | |
| |
| 47,363 | | |
| - | |
| |
| 47,363 | |
| Accounts
receivable | |
| - | | |
| 36,511 | | |
| - | | |
| - | |
|
|
| - | | |
| | | |
| 2,573 | |
N | |
| 39,084 | | |
| - | |
| |
| 39,084 | |
| Inventories | |
| - | | |
| 10,714 | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| 10,714 | | |
| - | |
| |
| 10,714 | |
| Prepaid
expenses and other current assets | |
| - | | |
| 3,072 | | |
| 18 | | |
| - | |
|
|
| 18 | | |
| 24 | | |
| - | |
| |
| 3,096 | | |
| - | |
| |
| 3,096 | |
| Prepaid
insurance | |
| - | | |
| - | | |
| 160 | | |
| - | |
|
|
| 160 | | |
| 212 | | |
| - | |
| |
| 212 | | |
| - | |
| |
| 212 | |
| Prepaid
income taxes | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| - | | |
| - | |
| |
| - | |
| Total
Current | |
| - | | |
| 134,542 | | |
| 676 | | |
| - | |
|
|
| 676 | | |
| 895 | | |
| (4,172 | ) |
| |
| 131,265 | | |
| - | |
| |
| 131,265 | |
| Non-Current | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Property,
plant and equipment | |
| - | | |
| 930,280 | | |
| - | | |
| - | |
|
|
| - | | |
| | | |
| | |
| |
| 930,280 | | |
| - | |
| |
| 930,280 | |
| Prepaid
expenses and Deposits - long term portion | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
| - | | |
| | | |
| | |
| |
| - | | |
| - | |
| |
| - | |
| Investments
and marketable securities held in trust | |
| - | | |
| - | | |
| 312,953 | | |
| - | |
|
|
| 312,953 | | |
| 414,350 | | |
| (414,350 | ) |
A | |
| - | | |
| - | |
| |
| - | |
| Deferred
income taxes | |
| - | | |
| 88,199 | | |
| - | | |
| - | |
|
|
| - | | |
| | | |
| - | |
| |
| 88,199 | | |
| - | |
| |
| 88,199 | |
| Total
non-current | |
| - | | |
| 1,018,479 | | |
| 312,953 | | |
| - | |
|
|
| 312,953 | | |
| 414,350 | | |
| (414,350 | ) |
| |
| 1,018,479 | | |
| - | |
| |
| 1,018,479 | |
| TOTAL
ASSETS | |
| - | | |
| 1,153,021 | | |
| 313,629 | | |
| - | |
|
|
| 313,629 | | |
| 415,245 | | |
| (418,522 | ) |
| |
| 1,149,744 | | |
| - | |
| |
| 1,149,744 | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| LIABILITIES | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Current | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Accounts
payable and accrued liabilities | |
| - | | |
| 39,843 | | |
| 2,487 | | |
| - | |
|
|
| 2,487 | | |
| 3,293 | | |
| (3,104 | ) |
C | |
| 40,032 | | |
| - | |
| |
| 40,032 | |
| Current
portion of long-term debt | |
| - | | |
| 61,156 | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| 61,156 | | |
| - | |
| |
| 61,156 | |
| Current
portion of lease liabilities | |
| | | |
| 186 | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| 186 | | |
| - | |
| |
| 186 | |
| Due
to related parties | |
| - | | |
| - | | |
| 21 | | |
| - | |
|
|
| 21 | | |
| 28 | | |
| (26 | ) |
L | |
| 2 | | |
| - | |
| |
| 2 | |
| Risk
management contracts | |
| - | | |
| 10,847 | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| 10,847 | | |
| - | |
| |
| 10,847 | |
| Income
taxes payable | |
| | | |
| - | | |
| 1,355 | | |
| | |
|
|
| 1,355 | | |
| 1,794 | | |
| - | |
| |
| 1,794 | | |
| - | |
| |
| 1,794 | |
| Total
current | |
| - | | |
| 112,032 | | |
| 3,863 | | |
| - | |
|
|
| 3,863 | | |
| 5,115 | | |
| (3,130 | ) |
| |
| 114,017 | | |
| - | |
| |
| 114,017 | |
| Non-Current | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Long-term
debt | |
| - | | |
| 185,649 | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| 185,649 | | |
| - | |
| |
| 185,649 | |
| Lease
liabilities | |
| | | |
| 1,259 | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| 1,259 | | |
| - | |
| |
| 1,259 | |
| Risk
management contracts | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| - | | |
| - | |
| |
| - | |
| Decommissioning
liabilities | |
| - | | |
| 7,983 | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| 7,983 | | |
| - | |
| |
| 7,983 | |
| Deferred
underwriting fees | |
| - | | |
| - | | |
| 14,280 | | |
| - | |
|
|
| 14,280 | | |
| 18,907 | | |
| (18,907 | ) |
C | |
| - | | |
| - | |
| |
| - | |
| MBSC
Class A Common shares subject to possible redemption | |
| - | | |
| - | | |
| - | | |
| 311,540 | |
|
aa
|
| 311,540 | | |
| 412,480 | | |
| (412,480 | ) |
B | |
| - | | |
| - | |
| |
| - | |
| Warrants
liabilities | |
| - | | |
| - | | |
| - | | |
| 8,176 | |
|
bb
|
| 19,466 | | |
| 25,773 | | |
| (4,205 | ) |
E | |
| 37,324 | | |
| - | |
| |
| 37,324 | |
| | |
| | | |
| | | |
| | | |
| 11,290 | |
|
gg
|
| | | |
| - | | |
| (6,620 | ) |
I | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| - | | |
| (9,930 | ) |
H | |
| | | |
| | |
| |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| - | | |
| 32,306 | |
O | |
| | | |
| | |
| |
| | |
| Subscription
purchase agreement liability | |
| | | |
| | | |
| 1,924 | | |
| - | |
|
|
| 1,924 | | |
| 2,546 | | |
| (2,546 | ) |
P | |
| - | | |
| - | |
| |
| - | |
| Convertible
debt liabilities | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| - | | |
| 66,200 | |
Q | |
| 66,200 | |
| Total
Non-current liabilities | |
| - | | |
| 194,891 | | |
| 16,204 | | |
| 331,006 | |
|
|
| 347,210 | | |
| 459,706 | | |
| (422,382 | ) |
| |
| 232,215 | | |
| 66,200 | |
| |
| 298,415 | |
| Total
liabilities | |
| - | | |
| 306,923 | | |
| 20,067 | | |
| 331,006 | |
|
|
| 351,073 | | |
| 464,821 | | |
| (425,512 | ) |
| |
| 346,232 | | |
| 66,200 | |
| |
| 412,432 | |
| COMMITMENTS | |
| | | |
| | | |
| | | |
| | |
|
|
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
Class
A Common Stock subject to possible redemption, $0.0001 par value; 500,000,000 shares authorized; 30,000,000
issued and outstanding; | |
| - | | |
| - | | |
| 311,540 | | |
| (311,540 | ) |
|
aa
|
| - | | |
| - | | |
| - | |
| |
| - | | |
| - | |
| |
| - | |
| EQUITY | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| | |
| |
| - | | |
| - | |
| |
| - | |
| Share
capital - GRL | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| 130,562 | |
B | |
| 218,829 | | |
| 66,200 | |
Q | |
| 142,600 | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| - | | |
| - | | |
| 92,537 | |
F | |
| | | |
| (132,400 | ) |
R | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| - | | |
| - | | |
| 15 | |
G | |
| | | |
| (10,029 | ) |
S | |
| | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| - | | |
| - | | |
| (49,609 | ) |
K | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| - | | |
| - | | |
| 45,324 | |
M | |
| | | |
| | |
| |
| | |
| Share
capital - Greenfire | |
| | | |
| 15 | | |
| - | | |
| | |
|
|
| - | | |
| - | | |
| (15 | ) |
G | |
| - | | |
| | |
| |
| - | |
| Preference
shares, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| - | | |
| - | |
| |
| - | |
Class
A Common Stock, $0.0001 par value; 500,000,000 shares authorized (excluding 30,000,000
Shares subject to possible redemption) | |
| - | | |
| - | | |
| - | | |
| - | |
|
|
| - | | |
| - | | |
| - | |
| |
| - | | |
| - | |
| |
| - | |
Class
B Common Stock. $0.0001 par value, 50,000,000 shares authorized; 7,500,000 issued and outstanding
| |
| - | | |
| - | | |
| 1 | | |
| 24 | |
|
cc
|
| 25 | | |
| 33 | | |
| (33 | ) |
B | |
| - | | |
| - | |
| |
| - | |
Contributed
surplus
| |
| - | | |
| 45,324 | | |
| - | | |
| | |
|
|
| - | | |
| - | | |
| 7,766 | |
D | |
| 7,766 | | |
| | |
| |
| 7,766 | |
| | |
| | | |
| | | |
| | | |
| | |
|
|
| - | | |
| - | | |
| (45,324 | ) |
M | |
| | | |
| | |
| |
| | |
| Additional
paid in capital | |
| - | | |
| - | | |
| - | | |
| (8,176 | ) |
|
bb
|
| - | | |
| - | | |
| - | |
| |
| - | | |
| - | |
| |
| - | |
| | |
| | | |
| | | |
| | | |
| (24 | ) |
|
cc
|
| | | |
| - | | |
| | |
| |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| 542 | |
|
dd
|
| | | |
| - | | |
| | |
| |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| 18,948 | |
|
ee
|
| | | |
| - | | |
| | |
| |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| (11,290 | ) |
|
gg
|
| | | |
| - | | |
| | |
| |
| | | |
| | |
| |
| | |
| Retained
earnings (deficit) | |
| - | | |
| 800,759 | | |
| (17,979 | ) | |
| (542 | ) |
|
dd
|
| (37,469 | ) | |
| (49,609 | ) | |
| (11,188 | ) |
C | |
| 576,917 | | |
| 10,029 | |
S | |
| 586,946 | |
| | |
| | | |
| | | |
| | | |
| (20,092 | ) |
|
ee
|
| | | |
| - | | |
| (7,766 | ) |
D | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| (8,176 | ) |
|
ee
|
| | | |
| | | |
| 4,205 | |
E | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| 9,320 | |
|
ee
|
| | | |
| | | |
| (92,537 | ) |
F | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| 3,000 | |
|
ff
|
| | | |
| - | | |
| 9,930 | |
H | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| (3,000 | ) |
|
ff
|
| | | |
| - | | |
| (99,300 | ) |
J | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| 3,188 | |
|
ff
|
| | | |
| - | | |
| 49,610 | |
K | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| (3,188 | ) |
|
ff
|
| | | |
| - | | |
| 2,573 | |
N | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| 5,352 | |
|
ff
|
| | | |
| - | | |
| (32,307 | ) |
O | |
| | | |
| | |
| |
| | |
| | |
| | | |
| | | |
| | | |
| (5,352 | ) |
|
ff
|
| | | |
| - | | |
| 2,547 | |
P | |
| | | |
| | |
| |
| | |
| TOTAL
EQUITY | |
| - | | |
| 846,098 | | |
| (17,978 | ) | |
| (19,466 | ) |
|
|
| (37,444 | ) | |
| (49,576 | ) | |
| 6,990 | |
| |
| 803,512 | | |
| (66,200 | ) |
| |
| 737,312 | |
| TOTAL
LIABILITIES AND EQUITY | |
| - | | |
| 1,153,021 | | |
| 313,629 | | |
| - | |
|
|
| 313,629 | | |
| 415,245 | | |
| (418,522 | ) |
| |
| 1,149,744 | | |
| - | |
| |
| 1,149,744 | |
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF PROFIT (LOSS) AND COMPREHENSIVE PROFIT (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2023
(in thousands, except share and per share
amounts)
| | |
GRL
(IFRS, Historical), CAD | | |
Greenfire
(IFRS, Historical), CAD | | |
MBSC
(U.S. GAAP, Historical), USD | | |
IFRS
Conversion and Presentation Alignment, USD
(Note 2) | | |
MBSC
as-adjusted (IFRS, Conversion), USD | | |
MBSC
as-adjusted (IFRS Conversion), CAD | | |
Transaction
Accounting Adjustments, CAD
(Note 3) | | |
Combined
Pro Forma (Assuming No Redemption), CAD | | |
Additional
Pro Forma Transaction Adjustments (Assuming Max Redemption), CAD
(Note
3) | | |
Combined
Pro Forma (Assuming Max Redemption), CAD | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Oil
sales | |
| - | | |
| 353,273 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 353,273 | | |
| - | | |
| 353,273 | |
| Royalties | |
| - | | |
| (10,295 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (10,295 | ) | |
| - | | |
| (10,295 | ) |
| | |
| - | | |
| 342,978 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 342,978 | | |
| - | | |
| 342,978 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Realized
loss on risk management contracts | |
| - | | |
| (6,957 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (6,957 | ) | |
| - | | |
| (6,957 | ) |
| Initial
loss on subscription purchase agreement liability | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Unrealized
loss on risk management contracts | |
| - | | |
| 16,157 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 16,157 | | |
| - | | |
| 16,157 | |
| Unrealized
gain on marketable securities held in Trust Account | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Change
in fair value of forward purchase agreement liability | |
| - | | |
| | | |
| 339 | | |
| - | | |
| 339 | | |
| 457 | | |
| - | | |
| 457 | | |
| - | | |
| 457 | |
| Change
in fair value of subscription purchase agreement liability | |
| - | | |
| | | |
| (599 | ) | |
| - | | |
| (599 | ) | |
| (807 | ) | |
| - | | |
| (807 | ) | |
| - | | |
| (807 | ) |
| | |
| - | | |
| 352,178 | | |
| (260 | ) | |
| - | | |
| (260 | ) | |
| (350 | ) | |
| - | | |
| 351,828 | | |
| - | | |
| 351,828 | |
| Expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Diluent
expense | |
| - | | |
| 175,883 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 175,883 | | |
| - | | |
| 175,883 | |
| Transportation
and marketing | |
| - | | |
| 29,600 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 29,600 | | |
| - | | |
| 29,600 | |
| Operating
expenses | |
| - | | |
| 75,439 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 75,439 | | |
| - | | |
| 75,439 | |
| General
and administrative | |
| - | | |
| 5,483 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,483 | | |
| - | | |
| 5,483 | |
| Transaction
costs | |
| - | | |
| 4,241 | | |
| - | | |
| 917 | | i |
| 917 | | |
| 1,236 | | |
| (4,363 | ) | Bb |
| 1,114 | | |
| - | | |
| 1,114 | |
| | |
| | | |
| | | |
| | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| - | | |
| - | |
| Financing
and interest | |
| - | | |
| 20,714 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 20,714 | | |
| 3,032 | | Ee |
| 23,746 | |
| Depletion
and depreciation | |
| - | | |
| 38,035 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 38,035 | | |
| - | | |
| 38,035 | |
| Exploration
and other expenses | |
| - | | |
| 2,819 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,819 | | |
| - | | |
| 2,819 | |
| Other
income and expenses | |
| - | | |
| (666 | ) | |
| - | | |
| 5,352 | | ff |
| 5,352 | | |
| 7,213 | | |
| - | | |
| 6,547 | | |
| - | | |
| 6,547 | |
| Gain
on acquisitions | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Foreign
Exchange gain | |
| - | | |
| (6,529 | ) | |
| - | | |
| | | |
| - | | |
| (127 | )1 | |
| - | | |
| (6,656 | ) | |
| - | | |
| (6,656 | ) |
| Operating
and formation costs | |
| - | | |
| | | |
| 917 | | |
| (917 | ) | i |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Gain
on marketable securities (net), dividends and interest on cash and marketable securities held in Trust Account | |
| - | | |
| | | |
| (6,916 | ) | |
| - | | |
| (6,916 | ) | |
| (9,321 | ) | |
| 9,321 | | Aa |
| - | | |
| - | | |
| - | |
| | |
| - | | |
| 345,019 | | |
| (5,999 | ) | |
| 5,352 | | |
| (647 | ) | |
| (999 | ) | |
| 4,958 | | |
| 348,978 | | |
| 3,032 | | |
| 352,010 | |
| Net
Income (loss) and comprehensive income (loss) before tax | |
| - | | |
| 7,159 | | |
| 5,739 | | |
| (5,352 | ) | |
| 387 | | |
| 649 | | |
| (4,958 | ) | |
| 2,850 | | |
| (3,032 | ) | |
| (182 | ) |
| Income
tax (provision) recovery | |
| | | |
| 518 | | |
| (1,431 | ) | |
| - | | |
| (1,431 | ) | |
| (1,929 | ) | |
| (1,004 | ) | Cc |
| (486 | ) | |
| 697 | | Ff |
| 211 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,929 | | Dd |
| | | |
| | | |
| | |
| Net
Income (loss) and comprehensive income (loss) before tax | |
| - | | |
| 7,677 | | |
| 4,308 | | |
| (5,352 | ) | |
| (1,044 | ) | |
| (1,280 | ) | |
| (4,033 | ) | |
| 2,364 | | |
| (2,335 | ) | |
| 29 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net
income (loss) per share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| - | | |
| 0.86 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Diluted | |
| - | | |
| 0.60 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Class
A common stock subject to possible redemption | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Weighted
average shares outstanding, Class A Common shares | |
| | | |
| | | |
| 30,000,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic
and diluted net loss per share, Class A common Shares | |
| | | |
| | | |
| 0.15 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Class
B Common Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Weighted
average shares outstanding, Class B Common shares | |
| | | |
| | | |
| 7,500,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic
and diluted net loss per share, Class B common Shares | |
| | | |
| | | |
| (0.03 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Weighted
average number of common shares outstanding—basic and diluted | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 73,779,303 | | |
| | | |
| 68,787,313 | |
| Net
income (loss) per share - Basic and Diluted | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 0.03 | | |
| | | |
| 0.00 | |
| [1] | Foreign exchange impact of CAD$0.1 million for the period
ended June 30, 2023 |
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF PROFIT (LOSS) AND COMPREHENSIVE PROFIT (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2022
(in thousands, except share and per share
amounts)
| | |
GRL (IFRS,
Historical),
CAD | | |
Greenfire (IFRS,
Historical),
CAD | | |
MBSC
(U.S.
GAAP,
Historical),
USD | | |
IFRS
Conversion
and
Presentation
Alignment,
USD
(Note 2) | | |
MBSC
as-adjusted
(IFRS,
Conversion),
USD | | |
MBSC
as-adjusted
(IFRS
Conversion),
CAD | | |
Transaction
Accounting
Adjustments,
CAD
(Note 4) | |
| |
Combined
Pro Forma
(Assuming
No
Redemption),
CAD | | |
Additional
Pro Forma
Transaction
Adjustments
(Assuming
Max
Redemption),
CAD
(Note
4) | |
| |
Combined
Pro
Forma
(Assuming Max
Redemption),
CAD | |
| Revenues | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
| | |
| |
| |
| |
| Oil
sales | |
| - | | |
| 998,849 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 998,849 | | |
| - | |
| |
| 998,849 | |
| Royalties | |
| - | | |
| (50,064 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| (50,064 | ) | |
| - | |
| |
| (50,064 | ) |
| | |
| - | | |
| 948,785 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 948,785 | | |
| - | |
| |
| 948,785 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Realized
loss on risk management contracts | |
| - | | |
| (122,408 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| (122,408 | ) | |
| - | |
| |
| (122,408 | ) |
| Initial
loss on subscription purchase agreement liability | |
| - | | |
| - | | |
| (1,225 | ) | |
| - | | |
| (1,225 | ) | |
| (1,595 | ) | |
| - | |
| |
| (1,595 | ) | |
| - | |
| |
| (1,595 | ) |
| Unrealized
loss on risk management contracts | |
| - | | |
| 930 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 930 | | |
| - | |
| |
| 930 | |
| Unrealized
gain on marketable securities held in Trust Account | |
| - | | |
| | | |
| 561 | | |
| - | | |
| 561 | | |
| 730 | | |
| (730
| ) |
| AA |
| - | | |
| - | |
| |
| - | |
| Change
in fair value of forward purchase agreement liability | |
| - | | |
| | | |
| (339 | ) | |
| - | | |
| (339 | ) | |
| (441 | ) | |
| - | |
| |
| (441 | ) | |
| - | |
| |
| (441 | ) |
| Change
in fair value of subscription purchase agreement liability | |
| - | | |
| | | |
| (101 | ) | |
| - | | |
| (101 | ) | |
| (131 | ) | |
| - | |
| |
| (131 | ) | |
| - | |
| |
| (131 | ) |
| | |
| - | | |
| 827,307 | | |
| (1,104 | ) | |
| - | | |
| (1,104 | ) | |
| (1,437 | ) | |
| (730 | ) |
| |
| 825,140 | | |
| - | |
| |
| 825,140 | |
| Expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Diluent
expense | |
| - | | |
| 368,015 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 368,015 | | |
| - | |
| |
| 368,015 | |
| Transportation
and marketing | |
| - | | |
| 67,842 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 67,842 | | |
| - | |
| |
| 67,842 | |
| Operating
expenses | |
| - | | |
| 160,826 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 160,826 | | |
| - | |
| |
| 160,826 | |
| General
and administrative | |
| - | | |
| 11,019 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,766 | |
| DD |
| 18,785 | | |
| - | |
| |
| 18,785 | |
| Transaction
costs | |
| - | | |
| - | | |
| - | | |
| 2,792 | | i |
| 2,792 | | |
| 3,635 | | |
| 15,216 | |
| BB |
| 111,388 | | |
| (10,259 | ) |
| GG |
| 101,129 | |
| | |
| | | |
| | | |
| | | |
| - | | |
| - | | |
| - | | |
| 92,537 | |
| CC |
| | | |
| - | |
| |
| - | |
| Financing
and interest | |
| - | | |
| 77,074 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 77,074 | | |
| 5,859 | |
| HH |
| 82,933 | |
| Depletion
and depreciation | |
| - | | |
| 68,027 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 68,027 | | |
| - | |
| |
| 68,027 | |
| Exploration
and other expenses | |
| - | | |
| 1,825 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 1,825 | | |
| - | |
| |
| 1,825 | |
| Acquisition
transaction costs | |
| | | |
| 2,769 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| 2,769 | | |
| - | |
| |
| 2,769 | |
| Other
income and expenses | |
| - | | |
| (206 | ) | |
| - | | |
| 3,188 | | ff |
| 3,188 | | |
| 4,151 | | |
| - | |
| |
| 3,945 | | |
| - | |
| |
| 3,945 | |
| Gain
on acquisitions | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| - | | |
| - | |
| |
| - | |
| Foreign
Exchange loss | |
| - | | |
| 26,099 | | |
| - | | |
| | | |
| - | | |
| 169 | [1] | |
| - | |
| |
| 26,268 | | |
| - | |
| |
| 26,268 | |
| Operating
and formation costs | |
| - | | |
| | | |
| 2,792 | | |
| (2,792) | | i |
| - | | |
| - | | |
| - | |
| |
| - | | |
| - | |
| |
| - | |
| Interest
earned on marketable securities held in Trust Account | |
| - | | |
| | | |
| (3,827 | ) | |
| - | | |
| (3,827 | ) | |
| (4,982 | ) | |
| 4,982 | |
| AA |
| - | | |
| - | |
| |
| - | |
| Dividend
on cash and marketable securities held in Trust Account | |
| - | | |
| - | | |
| (100 | ) | |
| - | | |
| (100 | ) | |
| (130 | ) | |
| 130 | |
| AA |
| - | | |
| - | |
| |
| - | |
| | |
| - | | |
| 783,290 | | |
| (1,135 | ) | |
| 3,188 | | |
| 2,053 | | |
| 2,843 | | |
| 120,631 | |
| |
| 906,764 | | |
| (4,400 | ) |
| |
| 902,364 | |
| Net
Income (loss) and comprehensive income (loss) before tax | |
| - | | |
| 44,017 | | |
| 31 | | |
| (3,188 | ) | |
| (3,157 | ) | |
| (4,280 | ) | |
| (121,361 | ) |
| |
| (81,624 | ) | |
| 4,400 | |
| |
| (77,224 | ) |
| Income
tax (provision) recovery | |
| | | |
| 87,681 | | |
| (901 | ) | |
| - | | |
| (901 | ) | |
| (1,173 | ) | |
| 3,500 | |
| EE |
| 91,181 | | |
| 1,347 | |
| II |
| 92,528 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 1,173 | |
| FF |
| | | |
| | |
| |
| | |
| Net
Income (loss) and comprehensive income (loss) before tax | |
| - | | |
| 131,698 | | |
| (870 | ) | |
| (3,188 | ) | |
| (4,058 | ) | |
| (5,453 | ) | |
| (116,688 | ) |
| |
| 9,557 | | |
| 5,747 | |
| |
| 15,304 | |
| Net
income (loss) per share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Basic | |
| - | | |
| 14.71 | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Diluted | |
| - | | |
| 10.29 | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Class
A common stock subject to possible redemption | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Weighted
average shares outstanding, Class A Common shares | |
| | | |
| | | |
| 30,000,000 | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Basic
and diluted net loss per share, Class A common Shares | |
| | | |
| | | |
| (0.00 | ) | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Class
B Common Stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Weighted
average shares outstanding, Class B Common shares | |
| | | |
| | | |
| 7,500,000 | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Basic
and diluted net loss per share, Class B common Shares | |
| | | |
| | | |
| (0.11 | ) | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | |
| |
| | |
| Weighted
average number of common shares outstanding—basic and diluted | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| 73,779,303 | | |
| | |
| |
| 68,787,313 | |
| Net
income (loss) per share - Basic and Diluted | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| 0.13 | | |
| | |
| |
| 0.22 | |
| [1] | Foreign exchange impact of CAD$0.2 million for the year
ended December 31, 2022 |
Note 1. Basis of Presentation
The historical financial statements of New Greenfire
have been prepared in accordance with IFRS and in its presentation and reporting currency of Canadian Dollars (CAD$). The historical consolidated
financial statements of Greenfire have been prepared in accordance with IFRS and in its presentation and reporting currency of CAD$. The
historical financial statements of MBSC have been prepared in accordance with U.S. GAAP in its presentation and reporting currency
of US$.
The Business Combination will be accounted for as
a share-based payment transaction, with no goodwill or other intangible assets recorded. Under this method of accounting, MBSC will
be treated as the “accounting acquiree” and Greenfire as the “accounting acquirer” for financial reporting purposes.
Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of Greenfire issuing shares for the net
assets of MBSC, followed by a recapitalization by New Greenfire. The net assets of Greenfire will be stated at historical cost.
The unaudited pro forma condensed consolidated statement
of financial position as at June 30, 2023 gives effect to the Business Combination and related transactions as if they occurred on June
30, 2023. The unaudited pro forma condensed consolidated statements of profit (loss) and comprehensive profit (loss) for the six months
ended June 30, 2023 and for the year ended December 31, 2022 give effect to the Business Combination and related transactions as
if they occurred on January 1, 2022.
The pro forma adjustments reflecting the consummation
of the Business Combination and the related transaction are based on currently available information and certain assumptions and methodologies
that Greenfire management believes are reasonable under the circumstances. The pro forma adjustments, which are described in the accompanying
notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments
will differ from the pro forma adjustments, and it is possible that the difference may be material. Greenfire management believes that
its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination
and the related transactions based on information available to management at this time and that the pro forma adjustments give appropriate
effect to those assumptions and are properly applied in the unaudited pro forma condensed consolidated financial information.
The unaudited pro forma condensed consolidated financial
information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated
with the Business Combination. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of what
the actual results of operations and financial position would have been had the Business Combination and related transactions taken place
on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial statements
and notes thereto of New Greenfire, Greenfire and MBSC.
Pro forma combined reserve information that gives
effect to the Business Combination has been omitted from this pro forma presentation as MBSC does not control any mineral assets and any
pro forma reserve disclosure would be identical to the reserve disclosures of Greenfire provided in the Registration Statement/Proxy Statement
in accordance with the United States Financial Accounting Standards Board Topic 932 — “Extractive Activities — Oil
and Gas.”
The following table reconciles pro forma share ownership
of New Greenfire to historical Greenfire Common Shares issued and outstanding as at June 30, 2023, 2022 in the historical Greenfire financial
statements as at and for the year ended June 30, 2023.
| | |
Assuming No Redemption | |
| | |
Historical
as of
June 30,
2023 | | |
Settled as
part of
Business
Combination | | |
Greenfire
Exchange
Ratio | | |
Pro Forma
GRL Class
A Common
Shares | |
| Greenfire Founder Shares [1] | |
| 7,500,010 | | |
| 6,701,570 | | |
| 5.413 | | |
| 36,277,311 | |
| Greenfire Employees Common shares [2] | |
| 1,451,614 | | |
| 1,297,077 | | |
| 5.413 | | |
| 7,021,411 | |
| Total shares held by current Greenfire Shareholders | |
| | | |
| | | |
| | | |
| 43,298,722 | |
| | |
| | | |
| | | |
| | | |
| | |
| Shares held by current holders of Greenfire Bonds [3] | |
| 3,221,518 | | |
| 2,878,045 | | |
| 5.413 | | |
| 15,579,591 | |
| | |
| | | |
| | | |
| | | |
| | |
| Greenfire performance warrants [4] | |
| 716,878 | | |
| 637,033 | | |
| 5.413 | | |
| 3,448,421 | |
| | |
Assuming Max Redemption | |
| | |
Historical
as of
June 30,
2023 | | |
Settled as
part of
Business
Combination | | |
Greenfire
Exchange
Ratio | | |
Pro Forma
GRL Class
A Common
Shares | |
| Greenfire Founder Shares [1] | |
| 7,500,010 | | |
| 6,710,064 | | |
| 5.471 | | |
| 36,713,849 | |
| Greenfire Employees Common shares [2] | |
| 1,451,614 | | |
| 1,298,721 | | |
| 5.471 | | |
| 7,105,902 | |
| Total Pro Forma Ownership by GRL Shareholders | |
| | | |
| | | |
| | | |
| 43,819,751 | |
| | |
| | | |
| | | |
| | | |
| | |
| Greenfire Bond Warrants Exercise Shares [3] | |
| 3,221,518 | | |
| 2,881,693 | | |
| 5.471 | | |
| 15,767,066 | |
| | |
| | | |
| | | |
| | | |
| | |
| Greenfire performance warrants [4] | |
| 716,878 | | |
| 637,840 | | |
| 5.471 | | |
| 3,489,916 | |
Footnotes:
| [1] |
The Greenfire Founders will have a portion of their Greenfire Common Shares cancelled in exchange for a divdend payment from Greenfire equal to the pro rata share of the Cash Consideration payable to the Greenfire Founders, and the remaining Greenfire Common Shares held by the Founders will be converted into GRL Common Shares. |
| [2] |
The Greenfire Employees will have a portion of their Greenfire Common Shares cancelled in exchange for a cash payment from Greenfire equal to the pro rata share of the Cash Consideration payable to the Greenfire Employees, and the remaining Greenfire Common Shares held by the Employees will be converted into GRL Common Shares. |
| [3] |
The Greenfire Bond Warrantholders will have a portion of their Greenfire Bond Warrants cancelled in exchange for a cash payment from Greenfire equal to the pro rata share of the Cash Consideration payable to the Greenfire Bond Warrantholders, and the remaining Greenfire Bond Warrants will be exercised and converted into GRL Common Shares. |
| [4] |
The Greenfire Performance Warrantholders will have a portion of their Greenfire Performance Warrants cancelled in exchange for a cash payment from Greenfire equal to the pro rata share of the Cash Consideration payable to the Greenfire Performance Warrantholders, and the remaining Greenfire Performance Warrants will be converted into GRL Performance Warrants. |
Note 2. IFRS Policy and Presentation Alignment
The historical financial information of MBSC has
been adjusted to give effect to the differences between U.S. GAAP and IFRS for the purposes of the unaudited pro forma condensed
consolidated financial statements. The adjustment required to convert MBSC’s financial statements from U.S. GAAP to IFRS for
purposes of the unaudited pro forma condensed consolidated financial statements are as follows:
| (aa) | MBSC Class A Common Shares subject to possible redemption
balance of US$311.5 million classified as mezzanine equity under U.S. GAAP are reclassified to non-current liabilities
under IFRS because the right to redeem the MBSC Class A Common Shares is at the option of the holder. |
| (bb) | MBSC Public Warrants of US$8.2 million classified as
additional paid-in capital under U.S. GAAP are reclassified to derivative liabilities under IFRS because the MBSC Public Warrants
are deemed to settle in MBSC Class A Common Shares, which are classified as financial liabilities under IFRS. |
| (cc) | MBSC Class B Common Shares include an amount of US$0.02 million
recorded as additional paid-in capital under U.S. GAAP. This balance has been reclassified to share capital as a change in presentation
under IFRS. |
| (dd) | Transaction costs of US$0.5 million related to the issuance
of MBSC Private Warrants and MBSC Public Warrants are recorded against additional paid-in capital under U.S. GAAP and are expensed
in the statement of profit (loss) and comprehensive profit (loss) under IFRS. |
| (ee) | Transaction costs of US$20.1 million related to the
issuance of MBSC Class A Common Shares are recorded against mezzanine equity under U.S. GAAP and are expensed in the statement of profit
(loss) and comprehensive profit (loss) under IFRS. |
| | US$8.2 million initially allocated on a relative fair value basis to the MBSC Public Warrants under
U.S. GAAP is recorded through the statement of profit (loss) and comprehensive profit (loss) under IFRS to recognize the MBSC Class
A Common Shares classified as non-current liabilities at their redemption amount. |
| | The change in the redemption amount of the MBSC Class A Common Shares classified as mezzanine equity
under U.S. GAAP is recorded in accumulated deficit of US$9.3 million and additional paid-in capital of
US$18.9 million under U.S. GAAP, and is eliminated, as such an entry would not be recorded under IFRS. |
| (ff) | The change in the redemption amount of MBSC Class A Common Shares of US$3.0 million for the
year ended December 31, 2021, US$3.2 million for the year ended December 31, 2022, and US$5.4 million for six months
ended June 30, 2023 was recorded in mezzanine equity and accumulated deficit, respectively, under U.S. GAAP. Under IFRS, these
balances are recorded through the statement of profit (loss) and comprehensive profit (loss), inclusive of foreign exchange impact
of CAD$0.1 million, for the six months ended June 30, 2023, and CAD$0.2 million, for the year ended December 31,
2022. |
| (gg) | Reflects the reclassification of the MBSC Private Placement
Warrants of US$11.3 million from equity to derivative liabilities under IFRS because the MBSC Private Placement Warrants are deemed
to settle in MBSC Class A Common Shares, which are classified as financial liabilities under IFRS. |
Further, as part of the preparation of the unaudited
pro forma condensed consolidated financial statements, MBSC’s operating and formation costs of US$0.9 million, for the six months
ended June 30, 2023, and US$2.8 million, for the year ended December 31, 2022, were reclassified to align with the presentation of
Greenfire’s historical financial statements. Refer to adjustment (i).
Note 3. Adjustments to Unaudited Pro Forma Condensed Consolidated
Financial Information
Adjustments to Unaudited Pro Forma Condensed Consolidated Statement
of Financial Position
The adjustments included in the unaudited pro forma
condensed consolidated statement of financial position as at June 30, 2023, are as follows:
| A. | Reflects the reclassification of CAD$414.4 million (US$312.9 million)
held in the Trust Account to cash that becomes available at a closing of the Business Combination, assuming no redemptions. |
| B. | Reflects the cash payout of CAD$281.9 million (US$212.9 million)
from MBSC Trust Account to bring the balance of the Trust Account to CAD$132.4 million (US$100 million), as described above
under the heading “— Description of the Business Combination”, and reclassification of approximately
CAD$130.6 million (US$98.6 million) of MBSC Class A Common Shares that are subject to possible redemption and approximately
CAD$33,000 (US$25,500) of MBSC Class B Common Shares to New Greenfire share capital as a result of a series of transactions as part
of the Business Combination. |
| C. | Represents estimated transaction costs of approximately CAD$36.8 million
(US$27.8 million) in relation to the Business Combination. Of the CAD$36.8 million, CAD$18.9 million (US$14.3 million)
relates to the deferred underwriting fees incurred by MBSC, CAD$4.2 million (US$3.2 million) in costs accrued by Greenfire,
and CAD$2.5 million (US$1.9 million) accrued by MBSC. CAD$3.7 million (US$2.8 million) has been paid by Greenfire
as of December 31, 2022. |
| D. | Reflects the acceleration of share-based compensation
expense of CAD$7.8 million related to the expectation to accelerate vesting of unvested employee performance warrants in connection
with the Business Combination. |
| E. | Reflects the forfeiture of the MBSC’s public warrants
as part of the Business Combination. |
| F. | Represents the preliminary estimated expense recognized for
the stock exchange listing service received, in accordance with IFRS 2, for the excess of the fair value of New Greenfire Common
Shares issued to MBSC shareholders and the fair value of MBSC’s identifiable net assets at the date of the Business Combination,
resulting in a CAD$92.5 million (US$69.9 million) decrease to retained earnings under the no redemption scenario. The consideration
for the acquisition of MBSC was determined using the New Greenfire common share price referenced to the Transaction Financing at US$10.10
per share. A one percent change in the New Greenfire Common Share price would result in a change of CAD$2 million (US$1.5 million)
in the estimated expense under the no redemption scenario. The estimated IFRS 2 listing expense assuming the no redemption scenario is
further illustrated below: |
| | |
As of June 30, 2023 | |
| | |
Assuming No Redemption | |
| | |
C$ | | |
US$ | |
| | |
(in thousands except share
and per share amounts) | |
| Fair value of equity instruments deemed to have been issued by GRL | |
| | |
| |
| MBSC Share Consideration price | |
| 13.37 | | |
| 10.10 | |
| Total number of MBSC shares at Closing | |
| 14,900,990 | | |
| 14,900,990 | |
| | |
| | | |
| | |
| Total fair value of equity instruments issued to MBSC shareholders | |
| 199,262 | | |
| 150,500 | |
| | |
| | | |
| | |
| Fair value of identifiable net assets of MBSC | |
| | | |
| | |
| Cash and equivalents | |
| 659 | | |
| 498 | |
| Marketable securities held in Trust Account | |
| 414,350 | | |
| 312,953 | |
| Cash distribution to MBSC Class A Shareholders [1] | |
| (281,950 | ) | |
| (212,953 | ) |
| Prepaid expenses and deposits | |
| 236 | | |
| 178 | |
| Accounts payable and accrued liabilities | |
| (3,293 | ) | |
| (2,487 | ) |
| Due to affiliates | |
| (28 | ) | |
| (21 | ) |
| Income taxes payable | |
| (1,794 | ) | |
| (1,355 | ) |
| Subscription purchase agreement liability | |
| (2,548 | ) | |
| (1,924 | ) |
| Deferred underwriting fee payable | |
| (18,907 | ) | |
| (14,280 | ) |
| Fair value of identifiable net assets of MBSC | |
| 106,725 | | |
| 80,609 | |
| IFRS 2 listing expense | |
| 92,537 | | |
| 69,891 | |
| [1] | Cash distribution was made to MBSC Class A Shareholders
in order to bring the balance of Trust Account to $132.4 million (US$100 million). |
| G. | Reflects the elimination of Greenfire share capital. |
| H. | Reflects the impact of the forfeiture of 1,740,000 MBSC Private
Placement Warrants held by the underwriters and 3,260,000 MBSC Private Placement Warrants held by the MBSC Sponsors. |
| I. | Reflects the repurchase of outstanding 10 million MBSC
Public warrants at CAD$0.66 (US$0.50) per warrant as part of the Business Combination. |
| J. | Reflects the cash payment of CAD$99.3 million (US$75 million),
including a distribution of CAD$58.5 million (US$44.2 million) to Greenfire Founders, settlement of CAD$25.2 million (US$19 million)
Greenfire Bond Warrants, distribution of CAD$11.3 million (US$8.5 million) to Greenfire Employees and settlement of CAD$4.3 million
(US$3.3 million) Greenfire Performance Warrants. |
| K. | Reflects the elimination of MBSC’s historical accumulated
deficit of CAD$23.8 million (US$18 million) and the elimination of the IFRS conversion and presentation adjustments of CAD$25.8 million
(US$19.5 million), as set out in Notes (dd), (ee) and (ff). |
| L. | Reflects the repayment on the balance due to the sponsors
of MBSC. |
| M. | Reflects the reclassification of contributed surplus of CAD$45.3 million
due to the exercise of the Greenfire Bond Warrants. |
| N. | Reflects the estimated income tax impact using New Greenfire’s
statutory income tax rate of 23% due to the Business Combination in a no redemption scenario. |
| O. | Reflects 5,000,000 New Greenfire warrant derivative liabilities
issued to the founders, bondholders and employees of Greenfire as part of the Business Combination. The Black-Scholes model was
used to estimate the fair value of the warrant derivative liabilities, based on the most current inputs and assumptions. Those inputs
and assumptions are: exercise price of US$11.50, share price of US$10.10, risk free rate of 1.46%, volatility of 60%, and life expectancy
of 5 years. |
| P. | Reflects the derecognition of subscription purchase agreement
liability and forward purchase agreement liability as part of the Business Combination. Under the no redemption scenario, no MBSC Class
A Common Shares are issued under the PIPE Investment. Under the maximum redemption scenario, the liabilities are settled through the
issuance of MBSC Class A Common Shares under the PIPE Investment. |
| Q. | Reflects cash proceeds of CAD$132.4 million (US$100 million)
pursuant to the Transaction Financing of CAD$66.2 million (US$50 million) and principal amount of New Greenfire Convertible
Notes of CAD$66.2 million (US$50 million) in a max redemption scenario. |
| R. | Reflects the payment of cash to MBSC Class A Common
Shares in a maximum redemption scenario. |
| S. | Represents the preliminary estimated expense recognized for
the stock exchange listing service received, in accordance with IFRS 2, for the excess of the fair value of New Greenfire Common
Shares issued to MBSC shareholders and the fair value of MBSC’s identifiable net assets at the date of the Business Combination,
resulting in a CAD$82.5 million (US$62.3 million) decrease to retained earnings in a maximum redemption scenario. The adjustment
recorded of CAD$10 million (US$7.6 million) is an incremental increase to retained earnings relative to the no redemption scenario.
The consideration for the acquisition of MBSC was determined using the New Greenfire common share price referenced to the Transaction
Financing at US$10.10 per share. A one percent change in the New Greenfire Common Share price would result in a change of CAD$0.6 million
(US$0.4 million) in the estimated expense in a maximum redemption scenario. The estimated IFRS 2 listing expense assuming the maximum
redemption scenario is further illustrated below: |
| | |
As of June 30, 2023 | |
| | |
Assuming Maximum Redemption | |
| | |
C$ | | |
US$ | |
| | |
(in thousands except share
and per share amounts) | |
| Fair value of equity instruments deemed to have been issued by GRL | |
| | |
| |
| MBSC Share Consideration price | |
| 13.37 | | |
| 10.10 | |
| Total number of MBSC shares at Closing | |
| 4,250,000 | | |
| 4,250,000 | |
| | |
| | | |
| | |
| Total fair value of equity instruments issued to MBSC shareholders | |
| 56,833 | | |
| 42,925 | |
| | |
| | | |
| | |
| Fair value of identifiable net assets of MBSC | |
| | | |
| | |
| Cash and equivalents | |
| 659 | | |
| 498 | |
| Prepaid expenses and deposits | |
| 236 | | |
| 178 | |
| Accounts payable and accrued liabilities | |
| (3,293 | ) | |
| (2,487 | ) |
| Due to affiliates | |
| (28 | ) | |
| (21 | ) |
| Income taxes payable | |
| (1,794 | ) | |
| (1,355 | ) |
| Subscription purchase agreement liability | |
| (2,548 | ) | |
| (1,924 | ) |
| Deferred underwriting fee payable | |
| (18,907 | ) | |
| (14,280 | ) |
| Fair value of identifiable net assets of MBSC | |
| (25,675 | ) | |
| (19,392 | ) |
| IFRS 2 listing expense | |
| 82,508 | | |
| 62,317 | |
Adjustments to Unaudited Pro Forma Condensed Consolidated Statement
of Profit (Loss) and Comprehensive Profit (Loss) for the six months ended June 30, 2023
The adjustments included in the unaudited pro forma
condensed consolidated statement of profit (loss) and comprehensive profit (loss) for the six months ended June 30, 2023 are as follows:
| Aa. | Reflects elimination of investment income from the MBSC Trust
Account. |
| Bb. | This amount includes CAD$4.2 million (US$3.2 million) and
CAD$0.2 million (US$0.1 million) of transaction costs recognized in the unaudited financial statements for the six months ended June
30, 2023 of Greenfire and MBSC, respectively. The historical amounts have been reversed in the unaudited pro forma condensed consolidated
statements of profit (loss) and comprehensive profit (loss) for the six months ended June 30, 2023 to recognize all transaction costs
as of the beginning of the earliest period presented. |
| Cc. | Reflects the estimated income tax impact using New Greenfire’s
statutory income tax rate of 23% due to the Business Combination in a no redemption scenario. |
| Dd. | Reflects the elimination of income tax provision associated with the investment income on the MBSC
Trust Account. |
| Ee. | Reflects the interest expense recorded on the aggregate principal
amount of New Greenfire Convertible Notes in connection with the Transaction Financing in a maximum redemption scenario. |
| Ff. | Reflects the estimated income tax impact using New Greenfire’s
statutory income tax rate of 23% due to the Business Combination in a maximum redemption scenario. |
Note 4. Adjustments to Unaudited Pro Forma
Condensed Consolidated Financial Information
Adjustments to Unaudited Pro Forma Condensed
Consolidated Statement of Profit (Loss) and Comprehensive Profit (Loss) for the year ended December 31, 2022
The adjustments included in the unaudited pro forma
condensed consolidated statement of profit (loss) and comprehensive profit (loss) for the year ended December 31, 2022 are as follows:
| AA. | Reflects elimination of investment income from the MBSC Trust
Account. |
| BB. | Reflects estimated transaction costs of CAD$15.2 million
(US$11.7 million) in addition to the transaction costs included in the historical statements of profit (loss) and comprehensive
profit (loss) of MBSC and Greenfire. |
| CC. | Represents the preliminary estimated expense of CAD$92.5 million
(US$69.9 million) recognized for the stock exchange listing service received, in accordance with IFRS 2, for the excess of
the fair value of the New Greenfire Common Shares issued to MBSC shareholders over the net asset of MBSC in a no redemption scenario. |
| DD. | Reflects the acceleration of share-based compensation
expense of CAD$7.8 million related to the expectation to accelerate vesting of unvested employee Greenfire Performance Warrants
in connection with the Business Combination. |
| EE. | Reflects the estimated income tax impact using New Greenfire’s
statutory income tax rate of 23% due to the Business Combination in a no redemption scenario. |
| FF. | Reflects the elimination of income tax provision associated with the investment income on the MBSC
Trust Account. |
| GG. | Represents the preliminary estimated expense of CAD$82.5 million
(US$62.3 million) recognized for the stock exchange listing service received, in accordance with IFRS 2, for the excess of
the fair value of the New Greenfire Common Shares issued to MBSC shareholders over the net asset of MBSC in a maximum redemption scenario.
The adjustment recorded of CAD$10 million (US$7.6 million) is an incremental decrease to the transaction costs relative to
the no redemption scenario. |
| HH. | Reflects the interest expense recorded on the aggregate principal
amount of New Greenfire Convertible Notes in connection with the Transaction Financing in a maximum redemption scenario. |
| II. | Reflects the estimated income tax impact using New Greenfire’s
statutory income tax rate of 23% due to the Business Combination in a maximum redemption scenario. |
Note 5. Net Income (Loss) per Share
Net income (loss) per share was calculated using
the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination,
assuming the shares were outstanding since January 1, 2022. As the Business Combination and related transactions are being reflected
as if they had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic and
diluted net income (loss) per share assumes that the shares issuable in the Business Combination have been outstanding for the entirety
of all periods presented.
| | |
For the six months ended
June 30, 2023 [1] | | |
For the year ended
December 31, 2022 [1] | |
| | |
Pro Forma
Combined
(Assuming
No Redemption) | | |
Pro Forma
Combined
(Assuming
Maximum
Redemption) | | |
Pro Forma
Combined
(Assuming
No
Redemption) | | |
Pro Forma
Combined
(Assuming
Maximum
Redemption) | |
| Pro forma net income (loss) | |
$ | 2,364 | | |
$ | 29 | | |
$ | 9,557 | | |
$ | 15,304 | |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average shares outstanding - basic and diluted [2] | |
| 73,779,303 | | |
| 68,787,313 | | |
| 73,779,303 | | |
| 68,787,313 | |
| Pro Forma net income (Loss) Per Share - basic and diluted | |
$ | 0.03 | | |
$ | 0.00 | | |
$ | 0.13 | | |
$ | 0.22 | |
| [1] |
Pro forma net income (loss) per share includes the related pro forma adjustments as referred to within the section “Unaudited Pro Forma Condensed Consolidated Financial Information.” |
| [2] |
The effect of GRL Warrants, GRL Performance Warrants and GRL convertible senior note are not considered since the out-of-money securities are deemed non-exercised, which will not increase the weighted average shares outstanding under diluted scenario. |
Note 6. Potential Refinancing
New Greenfire is in negotiations to consummate a potential refinancing
of Greenfire’s 12.000% Senior Secured Notes due 2025 prior to or concurrently with the closing of the Business Combination. Such
potential refinancing, which as a result of the amendment to the Business Combination Agreement, may be used to satisfy the Business Combination
Agreement Obligation, or otherwise cancel or redeem any Convertible Notes that may be issuable under the maximum redemption scenario presented
above. The potential refinancing has not been reflected herein as it is subject to ongoing negotiations.
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