XTSE:NNN.H Quarterly Report 10-Q Filing - 9/30/2012

Effective Date 9/30/2012

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

Commission File No. 000-54162

 

 

 

LOGO

(Exact name of registrant as specified in its charter)

 

 

 

Canada   61-1606563

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1160 Eugenia Pl, Suite 100, Carpinteria,

California USA 93013

  Tel: (805) 566 2900
(Address of principal executive offices)   (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

69,834,396 shares, no par value, of the Registrant’s common stock were issued and outstanding as of October 22, 2012.

 

 

 


Table of Contents

INDEX

 

PART 1—FINANCIAL INFORMATION

     3   

ITEM 1.

   FINANCIAL STATEMENTS (UNAUDITED)      3   

ITEM 2.

   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      18   

ITEM 3.

   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      26   

ITEM 4.

   CONTROLS AND PROCEDURES      27   

PART II—OTHER INFORMATION

     28   

ITEM 1.

   LEGAL PROCEEDINGS      28   

ITEM 1A.

   RISK FACTORS      28   

ITEM 2.

   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS      28   

ITEM 3.

   DEFAULTS UPON SENIOR SECURITIES      28   

ITEM 4.

   MINE SAFETY DISCLOSURES      28   

ITEM 5.

   OTHER INFORMATION      28   

ITEM 6.

   EXHIBITS      29   

SIGNATURES

     30   

 

2


Table of Contents

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Interim Consolidated Financial Statements of

NIMIN ENERGY CORP.

As at and for the periods ended September 30, 2012 and 2011

Expressed in US dollars

 

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NiMin Energy Corp.

Consolidated Statement of Net Assets as of September 30, 2012 (Liquidation Basis)

Consolidated Balance Sheet as of December 31, 2011 (Going Concern Basis)

(Expressed in U.S. dollars)

(Unaudited)

 

     September 30,
2012
     December 31,
2011
 
Assets      

Current assets:

     

Cash and cash equivalents

   $ 79,204,306      $ 3,811,028  

Other accounts receivable

     50,905        —     

Trade accounts receivable

     —           3,131,004  

Restricted investments

     3,853,002        —     

Prepaid expenses and well costs

     —           311,922  

Crude oil inventory

     —           149,553  
  

 

 

    

 

 

 

Total current assets

     83,108,213        7,403,507  

Debt issuance costs

     —           3,497,867  

Restricted investments

     —           784,261  

Equipment, net

     —           287,918  

Crude oil and natural gas properties—full cost method

     

Proved properties, net

     —           78,077,780  

Unproved properties

     —           468,042  
  

 

 

    

 

 

 

Total assets

   $ 83,108,213      $ 90,519,375  
  

 

 

    

 

 

 
Liabilities and Stockholders’ Equity      

Current liabilities:

     

Accounts payable

   $ 52,382      $ 3,751,660  

Accrued liabilities

     25,919        1,253,855  

Accrued professional fees related to liquidation

     1,976,996        —     

Other costs related to liquidation

     228,237        —     

Income tax liability

     1,458,816        —     

Asset retirement obligations

     622,294        —     

Commodity derivative liability

     —           976,929  

Current portion of long-term debt

     —           4,050,000  
  

 

 

    

 

 

 

Total current liabilities

     4,364,644        10,032,444  

Long-term debt

     —           31,950,000  

Asset retirement obligations

     —           1,180,661  

Options

     —           136,773  

Warrants

     —           235,134  
  

 

 

    

 

 

 

Total liabilities

   $ 4,364,644      $ 43,535,012  
  

 

 

    

 

 

 

Commitments and contingencies

     

Stockholders’ equity:

     

Common stock, no par value, unlimited shares authorized, 69,834,396 issued and outstanding as of September 30, 2012 and 69,834,396 as of December 31, 2011

        108,758,460  

Additional paid in capital

        12,177,534  

Accumulated deficit

        (73,951,631 )
  

 

 

    

 

 

 

Total stockholders’ equity

        46,984,363  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $         $ 90,519,375  
     

 

 

 
  

 

 

    

 

 

 

Net assets in liquidation (Note 2)

   $ 78,743,569     
  

 

 

    

Net assets in liquidation per outstanding share

   $ 1.13     

See accompanying notes to consolidated financial statements.

 

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NiMin Energy Corp.

Consolidated Statements of Operations and Comprehensive Loss (Going Concern Basis)

For the six months ended June 30, 2012 and the three and nine months ended September 30, 2011

(Expressed in U.S. dollars)

(Unaudited)

 

     Six months
ended June 30
    Three months
ended Sept. 30
    Nine months
ended Sept. 30
 
     2012     2011     2011  

Crude oil and natural gas revenues

   $  10,985,590      $ 6,465,744      $  17,402,120   

Expenses:

      

Operating costs

     4,257,619        3,826,968        8,731,503   

General and administrative

     6,043,260        1,833,516        5,943,582   

Liquidation related expenses

     7,537,423        0        0   

Depreciation, depletion, amortization, and accretion

     1,697,361        951,079        2,521,067   

(Gain)/Loss on crude oil derivative contract

     (189,507     (2,589,821     (1,456,512
  

 

 

   

 

 

   

 

 

 
     19,346,156        4,021,742        15,739,640   
  

 

 

   

 

 

   

 

 

 

Income (loss) before other items

     (8,360,566     2,444,002        1,662,480   
  

 

 

   

 

 

   

 

 

 

Interest income

     10,673        10,331        37,501   

Interest expense

     (6,443,178     (1,382,432     (4,013,122

Foreign exchange gain (loss)

     (438     74,969        239,558   

Change in fair value of options

     296,519        386,090        449,266   

Change in fair value of warrants

     235,134        2,083,820        689,766   

Other

     (22,818     25,232        (69,826

Other Reclamation Costs

     (659,115     0        0   

Gain on sale of oil & gas properties and equipment

     46,280,232        0        0   
  

 

 

   

 

 

   

 

 

 
     39,697,009        1,198,010        (2,666,857
  

 

 

   

 

 

   

 

 

 

Income (loss) before taxes

     31,336,443        3,642,012        (1,004,377

Income tax expense

     2,478,263       —          —     
  

 

 

   

 

 

   

 

 

 

Net income (loss) and comprehensive income (loss)

     28,858,180        3,642,012        (1,004,377
  

 

 

   

 

 

   

 

 

 

Basic and diluted income/(loss) per share

   $ 0.41     $ 0.05     $ (0.02 )
  

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

 

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NiMin Energy Corp.

Consolidated Statements of Cash Flows (Going Concern Basis)

For the six months ended June 30, 2012 and nine months ended September 30, 2011

(Expressed in U.S. dollars)

(Unaudited)

 

     Six Months
Ended June 30,
2012
    Nine Months
Ended September 30,
2011
 

Cash flows from operating activities:

    

Net lncome (loss)

   $ 28,858,180      $ (1,004,377

Adjustments to reconcile net lncome (loss)by (used in) operating activities:

    

Depreciation, depletion, amortization, and accretion

     1,697,361        2,521,067   

Change in fair value of options

     (296,519     (449,266

Change in fair value of warrants

     (235,134     (689,766

Unrealized foreign exchange (gain) loss

     —          88,436   

Gain on sale of oil & gas properties

     (46,377,296     —     

Stock-based compensation

     2,289,567        1,861,058   

Unrealized (gain) loss on crude oil derivative contracts

     82,731        (2,317,383

Write down of fixed assets

     97,064       —     

Non-cash interest expense

     3,497,867        648,125   

(Increase) decrease in assets:

    

Trade accounts receivable

     1,061,589        (1,917,254

Prepaid expenses

     311,922        (98,582

Crude oil inventory

     149,553        127,014   

Increase (decrease) in liabilities:

    

Accounts payable and accrued liabilities

     7,850,251        507,578   

Asset retirement obligation

     659,114       —     
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (353,750     (723,350
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase of and expenditures on crude oil and natural gas properties

     (1,579,255     (17,769,293

Sale of oil & gas properties

     119,245,819       —     

Purchase of equipment

     —          (68,564

Increase in restricted investments

     (3,143,741     19,689   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     114,522,823        (17,818,168
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Repayment of long-term debt

     (36,000,000     —     

Repurchase of options

     (29,108     —     

Exercise of warrants and options

     —          8,181,848   

Proceeds from issuance of common shares (net of costs)

     —          3,609,819   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (36,029,108     11,791,667   
  

 

 

   

 

 

 

Change in cash and cash equivalents during the period

     78,139,964        (6,749,851

Cash and cash equivalents at beginning of the period

     3,811,028        9,490,005   

Foreign exchange on cash and cash equivalents

     —          (112,004
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 81,950,992      $ 2,628,150   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid for interest

   $ 2,945,444      $ 3,365,753   

Cash paid for income tax expense

   $ —        $ —     

See accompanying notes to consolidated financial statements.

 

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NiMin Energy Corp.

Consolidated Statements of Stockholders’ Equity (Going Concern Basis)

Six months ended June 30, 2012

(Expressed in U.S. dollars)

(Unaudited)

 

     Common Stock                    
     Shares      Amount     Additional
Paid in
Capital
    Accumulated
Deficit
    Total
Stockholders’
Equity
 

Balance at December 31, 2010

     61,690,977        93,107,905        9,861,010       (70,891,787     32,077,128  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Exercise of options

     29,999        59,411        (21,022       38,389  

Exercise of warrants

     5,354,800        8,483,372        —            8,483,372  

Reclassified from warrant liability

        4,258,164        —            4,258,164  

Reclassified to options liability

          (1,025,463     169,804       (855,659

Issuance of common stock

     2,758,620        3,166,057        844,488         4,010,545  

Stock issuance cost

        (316,449     (87,371       (403,820

Stock-based compensation expense

          2,605,892         2,605,892  

Net loss

          —          (3,229,648     (3,229,648
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

     69,834,396      $ 108,758,460      $ 12,177,534     $ (73,951,631   $ 46,984,363  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Options repurchased

        (29,108         (29,108

Exercise of warrants

              —     

Reclassified from warrant liability

              —     

Reclassified to options liability

          (188,467       (188,467

Issuance of common stock

              —     

Stock issuance cost

              —     

Stock-based compensation expense

          2,289,568         2,289,568  

Net Income

            28,858,180       28,858,180  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012 (Unaudited)

     69,834,396      $ 108,729,352      $ 14,278,635     $ (45,093,451   $ 77,914,536  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

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NiMin Energy Corp.

Consolidated Statement of Changes in Nets Assets in Liquidation as of September 30, 2012 (Liquidation Basis)

(Expressed in U.S. dollars)

(Unaudited)

 

Net Assets in Liquidation as of June 30, 2012

   $  77,914,535   

Increase(decrease) to net assets

  

Investment income from July 1, 2012 to September 30, 2012

     51,292   

Tax Adjustment from July 1, 2012 to September 30, 2012

     1,019,447   

Adjustments to assets from July 1, 2012 to September 30, 2012

     (21,729

Adjustments to Liquidation accruals from July 1, 2012 to September 30, 2012

     (134,721

Costs incurred from July 1, 2012 to September 30, 2012

     (85,255
  

 

 

 

Net increase to net assets

     829,034   
  

 

 

 

Net Assets in Liquidation as of September 30, 2012

   $ 78,743,569   
  

 

 

 

See accompanying notes to consolidated financial statements.

 

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NiMin Energy Corp.

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. dollars)

 

1 Description of the Business

NiMin Energy Corp. (the “Company” or “NiMin”) was incorporated under the name NiMin Capital Corp. under the Business Corporations Act (Alberta) on May 31, 2007. The Company changed its name to NiMin Energy Corp. on September 3, 2009, and consolidated its shares on the basis of one new post-consolidation share (“Common Shares”) for each three existing common shares.

The principal business of the Company was conducted through its wholly owned subsidiary, Legacy Energy, Inc. (“Legacy”), a Delaware corporation that was engaged in the exploration, development, and production of crude oil and natural gas properties in the states of California and Wyoming until the sale of its assets in June 2012.

The annual and special meeting (the “Special Meeting”) of holders (“Shareholders”) of common shares of the Company (“Common Shares”) was held on June 26, 2012. At the Special Meeting, in addition to annual items of business, shareholders were asked to consider and vote on, among other things, special resolutions approving the proposed sale of all or substantially all of the Company’s assets (the “Sale of Assets”) including those assets held by NiMin’s wholly-owned subsidiary, Legacy pursuant to purchase and sale agreements with respect to its Wyoming based assets and California based assets.

At the Special Meeting, the Shareholders were also asked to consider and vote on the voluntary winding up and dissolution of the Company pursuant to the laws of the Business Corporations Act (Alberta) (the “Winding Up”) and the distribution to Shareholders of the net proceeds of the Sale of Assets (less the settlement of obligations of Legacy) and cash on hand, as part of such liquidation and dissolution after satisfaction of all liabilities of the Company, by way of a reduction of the stated capital of the Common Shares of the Company.

Both the Sale of Assets and the Winding Up were approved by the Shareholders at the Special Meeting. Legacy is a wholly owned subsidiary of NiMin and therefore, in order for the Company to complete the Winding Up, the appropriate corporate steps must also occur for the dissolution and liquidation of Legacy. Pursuant to the approval of the Sale of Assets, Legacy proceeded with the sale of the Wyoming oil and gas assets and the California oil and gas assets all as more particularly described below.

On June 28, 2012, Legacy completed its previously announced sale of its assets in Wyoming’s Big Horn Basin (the “Wyoming Assets”) to BreitBurn Operating L.P., a wholly-owned subsidiary of BreitBurn Energy Partners L.P. (NASDAQ: BBEP “BreitBurn”), for total cash consideration of approximately $93 million, being the original purchase price of approximately $98 million less approximately $5 million adjusted to account for preliminary purchase price adjustments. On August 30, 2012, Legacy completed its final settlement with BreitBurn and received approximately $2.3 million based on the final purchase price adjustments.

On June 29, 2012, Legacy completed its previously announced sale of its assets in California’s San Joaquin Basin (the “California Assets”) to Southern San Joaquin Production, LLC for total cash consideration of approximately $26 million, being the original purchase price of approximately $27 million, less approximately $1 million adjusted to account for preliminary purchase price adjustments. Pursuant to the terms of the purchase and sale agreement, $3 million of the $26 million purchase price paid on closing has been deposited with an escrow agent through December 31, 2012 in connection with various indemnities contained therein. On August 30, 2012, Legacy completed its final settlement with Southern San Joaquin Production LLC and received $347,938 based on the final purchase price adjustments.

The Winding Up and the dissolution and liquidation of Legacy contemplates the orderly disposition of the assets, the orderly discharge of all outstanding liabilities, including all outstanding debt, and after the establishment of appropriate reserves, the distribution of cash to shareholders in installments.

 

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NiMin Energy Corp.

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. dollars)

 

Upon completion of the disposition of all remaining assets of Legacy and the settlement of all liabilities of the Company and Legacy, the Company intends to distribute the net proceeds of the liquidation and dissolution of both Legacy and the Company to shareholders in multiple distribution installments.

On September 24, 2012, the Company’s board of directors declared an initial distribution to Shareholders of $1.01 per Common Share. The distribution will be made as a return of capital to Shareholders of record at the close of business on October 9, 2012, and the stated capital of the Company will be reduced accordingly. The distribution will be payable on October 22, 2012. On September 28, 2012, the Toronto Stock Exchange (“TSX”) determined that its “Due Bill” trading procedures will apply to the initial distribution to Shareholders.

Pursuant to the TSX’s “Due Bill” trading procedures, trades of Common Shares entered into from and including October 4, 2012 until and including October 22, 2012 will have a Due Bill attached which will allow the purchaser to receive the initial distribution instead of the seller, even if such trades are settled after the October 9, 2012 record date. Thus, any trades that are executed during the Due Bill process will be automatically flagged to ensure that purchasers receive the entitlement and sellers do not.

Investors who enter into trades to purchase Common Shares on or after the ex-distribution date of October 23, 2012 will not be entitled to the distribution. The Due Bills will be redeemed on October 25, 2012 once all trades with attached Due Bills entered into up to October 22, 2012 have settled.

The Company’s wholly-owned subsidiary, Legacy Energy, Inc., a Delaware corporation, dissolved in accordance with the laws of Delaware on September 17, 2012.

 

2 Basis of Presentation

The unaudited interim financial information of the Company has been prepared in accordance with Article 10 of the Securities and Exchange Commission’s, or the SEC, Regulation S-X. Accordingly, it does not include all of the information required by generally accepted accounting principles in the U.S., or U.S. GAAP, for complete financial statements. The consolidated balance sheet at December 31, 2011, was derived from the audited financial statements at that date and does not include all the disclosures required by U.S. GAAP. In the opinion of management, the accompanying financial information contains all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s unaudited consolidated financial statements of interim periods. These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, or the 2011 10-K. Operating results for any interim period, are not necessarily indicative of the results that may be expected for the full year.

As a result of the Shareholders’ approval of the Winding Up of the Company, the liquidation basis of accounting was adopted effective June 30, 2012. This basis of accounting is considered appropriate when, among other things, liquidation of a company is imminent and the net realizable values of assets are reasonably determinable. Under this basis of accounting, assets are valued at their net realizable values and liabilities are stated at their estimated settlement amounts. Further, all costs of liquidation are accrued as of September 30, 2012. Financial information presented as of and subsequent to June 30, 2012, includes a Consolidated Statement of Net Assets and a Consolidated Statement of Changes in Net Assets in Liquidation, as required under the liquidation basis of accounting. Financial information included for periods ending prior to June 30, 2012, is presented under the going concern basis of accounting. Therefore, financial information presented as of and for the three months ended September 30, 2012, is not comparable to financial information presented for prior periods.

 

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NiMin Energy Corp.

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. dollars)

 

Given that the respective property sales transactions closed on June 28, 2012 and June 29, 2012, the associated revenues are included in revenues and expenses for the period ended June 30, 2012. However, the purchase and sale agreements provide adjustments to the purchase price be made related to revenues and operating expenses for the period of April 1, 2012 through the closing date of the sale of the properties. As such, the purchase price of the sale of the properties in June 2012 was adjusted for revenues and operating expenses for the period of April 1 through closing date of the sale of the properties.

These unaudited interim consolidated financial statements of the Company are presented in U.S dollars.

The conversion to liquidation basis of accounting requires management to make significant estimates and judgments. In order to record assets at estimated net realizable value and liabilities at estimated settlement amounts under the liquidation basis of accounting, the Company recorded the following adjustments to record its assets at net realizable value as of September 30, 2012.

 

Adjust assets to net realizable value:

  

Write down of fixed assets (i)

   $ (82,731

Write off of other assets

     (152,070
  

 

 

 

Total as of June 30, 2012

   $ (234,801
  

 

 

 

Adjust assets to net realizable value:

  

Write off of other assets

     (21,729
  

 

 

 

Total as of September 30, 2012

   $ (256,530
  

 

 

 

 

  (i) Assets relating to the CMD technology were written down to the realizable value within general and administrative expenses.

Accrued Cost of Liquidation

Under the liquidation basis of accounting, the Company has accrued for the estimated costs to be incurred in liquidation, as follows:

 

Accrued Liquidation Costs

   Balances as
of June 30,
2012
     Adjustments
to accrual
    Payments     Balances as of
September 30,
2012
 

Lease obligation

   $ 62,943       $ —        $ (62,943   $ —     

Professional fees

     3,964,723         812,144        (2,799,871     1,976,996   

Payroll related costs

     3,009,757         34,222        (3,043,979     —     

Other

     500,000         (113,436     (158,327     228,237   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 7,537,423       $ 732,930      $ (6,065,120   $ 2,205,233   
  

 

 

    

 

 

   

 

 

   

 

 

 

The Company will continue to incur operating costs and receive income on its cash investments from June 30, 2012 through the liquidation of the Company (the “Liquidation Period”). On a regular basis, we evaluate our assumptions, judgments and estimates that can have a significant impact on our reported net assets in liquidation based on the most recent information available to us, and when necessary make changes accordingly. Actual costs and income may differ from our estimates, which might reduce net assets available in liquidation to be distributed to Shareholders.

 

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NiMin Energy Corp.

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. dollars)

 

The Winding Up and the dissolution and liquidation of Legacy continue to be assessed and the exact amount and timing of distributions to shareholders can only be determined upon completion of the orderly disposition of assets and orderly discharge of all liabilities. Once management of the Company have completed those required steps, current estimates will be revised to reflect actual numbers. The numbers reflected in the balance sheet and the estimated $1.13 net assets in liquidation per outstanding share include management estimates made as of September 30, 2012 and do not necessarily reflect the final dollars that may be available to the Company for distribution to shareholders. Any distribution amounts can only be calculated upon completion of all the dispositions, discharges and determinations of reserves. The amounts to be reserved will be based on a determination by the board of directors, derived from consultation with management and outside experts, if the board of directors determines that it is advisable to retain such experts, and a review of, among other things, estimated contingent costs of the Winding Up and the dissolution and liquidation of Legacy. The estimated $1.13 net assets in liquidation per outstanding share has not been reduced for the initial distribution of $1.01 per Common Share declared by the board of directors on September 24, 2012, payable on October 22, 2012 to Shareholders of record on October 9, 2012.

 

3 Restricted Investments

Restricted Investments at September 30, 2012 relate to approximately $853,002 held in bonds for the right to operate in the states of California and Wyoming. Management is currently working with the respective state agencies to reléase the bonds. Additionally, pursuant to the terms of the purchase and sale agreement for the California Assets, $3 million of the purchase price paid on closing has been deposited in escrow and is required to be held by the escrow agent through December 31, 2012 until various indemnities contained in the purchase and sale agreement have been fulfilled. The funds held by the escrow agent are invested in a money market account.

 

4 Senior Loan

On June 30, 2010, the Company entered into a senior secured loan (the “Senior Loan”) in the amount of $36 million from a U.S. based institutional private lender (the “Lender”). The Company borrowed $36 million subject to an original issuer discount of 7.5%, a commitment fee of 1%, a placement fee of 1% and a transaction fee of 3%. Debt issuance costs of $4.9 million were incurred and were being amortized to net income under the effective interest method. The Senior Loan had a 12.5% fixed interest rate and a term of five years. Interest was payable quarterly beginning September 30, 2010.

As part of the Winding Up of the Company, on June 28, 2012, the Company prepaid the entire amount of the Senior Loan and as a result, a prepayment penalty of 2% representing $707,705 was applied in addition to the accrued interest of $1,118,853 and principal of $36,000,000. The remaining unamortized debt issuance cost of $3.23 million as of June 28, 2012, related to the Senior Loan, was written off and is included in the period ended June 30, 2012 interest expense.

 

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NiMin Energy Corp.

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. dollars)

 

5 Share Capital

 

  a. Authorized and Outstanding

Common Shares

NiMin is authorized to issue an unlimited number of Common Shares. As of September 30, 2012, and December 31, 2011, 69,834,396 Common Shares were issued and outstanding.

Preferred Shares

NiMin is also authorized to issue an unlimited number of Preferred Shares issuable in series. As of September 30, 2012, no Preferred Shares have been issued.

 

  b. Stock Option Plan

The Company established a stock option plan as approved by the shareholders whereby options to purchase Common Shares may be granted to the Company’s directors, officers, employees and consultants. The exercise prices of stock options are denominated in Canadian dollars. The number of Common Shares issuable under the Company’s stock option plan cannot exceed 15% of the issued and outstanding common shares of the Company. The exercise price of each option equals the market price of the Company’s stock on the date of grant and the option has a maximum life of ten years. The vesting period is determined by the Board of Directors at the time of grant. Options issued by the Company generally vest one-third on the first, second, and third anniversary of the date of grant. Following the approval of the Winding Up of the Company, all outstanding unvested options became automatically vested and the Company recognized the remaining grant date fair value of approximately $1.7 million in the period ended June 30, 2012

Pursuant to Section 3.5 of the Company’s stock option plan, the Company completed the sale of all or substantially all of the Company’s assets and, as such, terminated all unexercised options under the plan in July of 2012.

The following table sets forth a reconciliation of the stock option activity for the period ended September 30, 2012, and December 31, 2011:

 

     Number of
shares
    Weighted
Average Exercise
Price (CDN$)
 

Stock options outstanding at December 31, 2010

     7,355,000        1.25   
  

 

 

   

 

 

 

Options exercised (i)

     (29,999     1.25   

Options forfeited

     (105,000     1.64   

Options issued

     2,000,000        1.44   
  

 

 

   

 

 

 

Stock options outstanding at December 31, 2011 (ii)

     9,220,001        1.24   
  

 

 

   

 

 

 

Options exercised

    

Options forfeited

     (60,000     1.61   

Options repurchased

     (600,000     1.00   

Options cancelled

     (8,560,001     1.29   
  

 

 

   

 

 

 

Stock options outstanding at September 30, 2012 (ii)

     —          —     
  

 

 

   

 

 

 

 

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NiMin Energy Corp.

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. dollars)

 

  (i) The intrinsic value of the exercised options during 2011 was CDN $33,299.

 

  (ii) The 2.70 million stock options relating to former employees were modified upon transition to a consulting role in 2011 and first quarter of 2012 to allow for continued vesting. The resulting $310,309 and $104,483 was recognized as incremental stock-based compensation expense during the year ended December 31, 2011 and the nine months ended September 30, 2012, respectively. As the related options are denominated in Canadian dollars, which is not the functional currency of the Company (which is the U.S. dollar), the vested options are classified as a liability on the balance sheet and recorded at their fair value at the end of each period and the change in fair value is recognized in earnings.

Following the approval of the Winding Up of the Company, the respective option liabilities described above were fair valued to zero with $296,519 recorded as a credit to the change in the fair value of options.

 

  c. Warrants

Each warrant is exercisable by the holder thereof to acquire one Common Share at any time before the expiration date, after which time the warrants expire and become null and void.

Each whole warrant issued in connection with the private placement is exercisable for a period of 36 months from September 1, 2011, at an exercise price of $1.60. The warrants were subject to a hold period of four months plus one day from the date of issue.

As a result of the approval of the Winding Up of the Company in July 2012, an aggregate of 2,188,970 unexercised warrants were terminated.

The following table sets forth a reconciliation of the warrant activity for the periods ended September 30, 2012, and December 31, 2011:

 

     Number of
Warrants
    Equity
Component
Amount
    Weighted
Average

Exercise
Price
(CDN$)
 

Warrants outstanding at December 31, 2010

     12,349,341        —          1.58   
  

 

 

   

 

 

   

 

 

 

Warrants exercised

     (5,354,800     —          1.55   

Warrants expired

     (6,087,951     —          1.55   

Warrants issued (i)

     1,379,310        844,488        1.65   
  

 

 

   

 

 

   

 

 

 

Warrants outstanding at December 31, 2011

     2,285,900        844,488        1.79   
  

 

 

   

 

 

   

 

 

 

Warrants exercised

     —          —          —     

Warrants expired

     —          —          —     

Warrants cancelled

     (2,188,970     (844,488     1.79   
  

 

 

   

 

 

   

 

 

 

Warrants outstanding at September 30, 2012

     96,930        —          1.72   
  

 

 

   

 

 

   

 

 

 

 

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NiMin Energy Corp.

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. dollars)

 

  (i) The weighted average exercise price of the warrants is $1.60 and is herein expressed in Canadian dollar equivalent using the closing foreign exchange rate at December 31, 2011.

During second and third quarters of 2012, pursuant to the Winding Up of the Company, the Company valued the warrants based on the expected cash distribution to shareholders as this represents management’s best estimate on the valuation of the underlying equity instruments as of June 30, 2012. As the warrants have an exercise price greater than the expected cash distribution to shareholders, the value of the warrants were determined to approximate zero.

The following table summarizes NiMin’s warrants exercisable at September 30, 2012:

 

Expiration Date

   Number of
Warrants
     Exercise
Price per  share
(CDN$)
 

March 10, 2016

     96,930         1.72   
  

 

 

    

 

 

 
     96,930         1.72   
  

 

 

    

 

 

 

 

  d. Per Share Amounts

Basic earnings (loss) per share are computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share are calculated using the treasury stock method to determine the dilutive effect of the stock options. The treasury stock method assumes that the proceeds received from the exercise of “in the money” stock options and warrants are used to repurchase commons shares at the average market price during the period. The weighted average number of shares assumed to be outstanding was as follows:

 

     Six months ended
June 30,
     Three months ended
September 30,
     Nine months  ended
September 30,
 
     2012      2011      2011  

Net income (loss)

   $ 28,858,180       $ 3,642,012       $ (1,004,377

Basic and diluted shares outstanding (i)

     69,834,396         67,851,314         66,407,689   

Income (loss) per basic and diluted share

   $ 0.41       $ 0.05       $ (0.02

 

(i) For the six months ended June 30, 2012, 10.8 million stock options and warrants were excluded from the diluted loss per share calculation. For the three and nine months ended September 30, 2011, 8,120,001 stock options and warrants were excluded from the diluted loss per share calculation. Potential common shares from the exercise of stock options and warrants were excluded from the diluted loss per share calculation because their effect was anti-dilutive as a result of the options and warrants being out of the money for the six months ended June 30, 2012 and the three and nine months ended September 30, 2011, and the Company’s net loss for the nine months ended September 30, 2011.

 

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NiMin Energy Corp.

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. dollars)

 

6 Income Taxes

At September 30, 2012, the Company had estimated an alternative minimum income tax liability of $1,458,816, for Federal and California purposes, relating to taxable gains resulting from the sale of its oil and gas properties in the current period. The Federal taxable income for regular income tax purposes was fully reduced by net operating loss carryforwards of $64,276,981. The Company’s deferred tax assets were previously subject to full valuation allowance.

 

7 Financial Instruments

 

  a. Fair Value

The Company’s financial instruments consist of cash and cash equivalents, trade accounts receivable, restricted investments, warrants, short-term debt, and accounts payable and accrued liabilities. For all periods presented, the fair value of the commodity derivative was obtained from the counterparty and therefore was considered level 2. Due to the pending liquidation, the Company valued the warrants based on the expected cash distribution to shareholders as this represents management’s best estimate on the valuation of the underlying equity instruments as of September 30, 2012. As the warrants have an exercise price greater than the expected cash distribution to shareholders, the value of the warrants are determined to approximate zero.

 

  b. Credit Risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from joint venture partners and from crude oil and natural gas marketers.

The majority of the Company’s receivables are within the oil and gas industry, primarily from its industry partners. The receivables are not collateralized. To date, the Company has experienced minimal bad debts, and has no allowance for doubtful accounts. The majority of the Company’s cash and cash equivalents are held by two financial institutions, one in the U.S. and the other in Canada. As of September 30, 2012, and December 31, 2011, the accounts receivable balances are primarily all from the sale of oil and gas and post-close adjustments from the sale of its oil and gas properties. All receivables are current and therefore, no provision was determined to be required.

 

  c. Derivatives

Commodity price risk is the risk that the future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for crude oil and natural gas are impacted by world economic events that dictate the levels of supply and demand.

In January of 2010, the Company entered into a derivative financial contract for 7,500 Bbls of NYMEX West Texas Intermediate (“NYMEX WTI”) crude oil production per month at a fixed rate of $85.10 per barrel until December 2012.

 

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NiMin Energy Corp.

Notes to Interim Consolidated Financial Statements

(Expressed in U.S. dollars)

 

In December 2010, the Company entered into a derivative financial contract for 125 Bbls of oil per day for 2011 and 250 Bbls of oil per day for 2012 at a fixed rate of $90.40 per barrel.

In November 2011, the Company entered into a derivative financial contract for 100 Bbls of oil per day for 2012 at a fixed price of $96.75 per barrel.

At December 31, 2011, the Company recognized $976,929 as a derivative liability on crude oil derivative contracts.

For the three months ended September 30, 2011, the Company’s change in derivative contracts included a realized gain of $98,145 and an unrealized gain of $2.69 million.

During the second quarter of 2012, the Company terminated and settled all derivative contracts as of May 17, 2012, and at September 30, 2012, carried no liability.

For the six months ended June 30, 2012, the Company’s change in derivative contracts included a realized gain of $189,507. For the nine months ended September 30, 2011, the Company’s change in derivative contracts included a realized loss of $875,009 and an unrealized gain of $2.33 million.

 

8 Subsequent Events

On October 10, 2012, the Company announced that its common shares will be voluntarily delisted from the Toronto Stock Exchange (“TSX”) after the close of trading on October 22, 2012 (the date on which NiMin’s initial distribution will be payable as announced on September 24, 2012 and further detailed on September 28, 2012) and its listing will be transferred to the NEX, a separate board of the TSX Venture Exchange, effective as of market open on October 23, 2012. From and after October 23, 2012, NiMin’s common shares will trade on the NEX under the symbol “NNN.H”.

 

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Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following management discussion and analysis (“MD&A”) should be read in conjunction with the Company’s Annual Report on Form 10-K as amended from time to time, (“Annual Report”) and filed with the United States Securities and Exchange Commission (“SEC”) on March 14, 2012, our interim consolidated financial statements for the periods ended September 30, 2012 and 2011, and our historical consolidated financial statements and the accompanying notes included elsewhere in the Annual Report.

In this MD&A, unless otherwise specified, all dollar amounts are expressed in US Dollars (“$”).

FORWARD LOOKING STATEMENT

This MD&A may include certain statements and information that may be deemed to be “forward -looking statements” within the meaning of applicable securities laws, which may include, but which are not limited to, statements with respect to the objectives, financial conditions, results of operations and business of the Company. The use of any of the words “expect” , “anticipate”, “ continue”, “should”, “will” “believe” “plan” “intend” “ongoing” “estimate” “may” “project” or similar expressions are intended to identify forward-looking statements. These statements may also be in respect of operating costs, general and administrative expenses, applicable and future tax liabilities, contractual obligations, the proposed distributions to shareholders, the dissolution and liquidation of both Legacy or the Company, future plans, objectives and results. Forward-looking statements involve numerous risks and uncertainties. Estimates and forward-looking statements are based on assumptions of future events and actual results may vary from these estimates. The actual results could differ materially from those anticipated in these forward-looking statements as a result of the following risk factors and as set forth elsewhere in this MD&A: (i) timing and risks associated with the disposition of the remaining final assets and finalization and payment of remaining liabilities; (ii) timing and risks associated with the final steps in dissolution and wind up of Legacy and NiMin; (iii) timing and risks associated with the initial and other distributions of cash to the shareholders of NiMin; (iv) other factors discussed under the heading “risks and uncertainties” and (v) the factors discussed under “risk factors” in our Annual Report. These factors should not be construed as exhaustive. The forward-looking statements contained in this MD&A are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements contained herein or in any other documents filed with Canadian or U.S. securities authorities whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws. Readers are cautioned that expectations, estimates, projections and assumptions used in the preparation of such forward-looking statements, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The forward -looking statements are expressly qualified by this cautionary statement.

BOE Presentation

Barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas (“mcf”): one barrel of oil (“bbl”) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Overview

NiMin Energy Corp. (“NiMin”, “we” or the “Company”) was an oil and gas company engaged in the acquisition, development and production of oil and gas properties in the United States. We have operated as an exploration and production company since late 2006, but as of June 30, 2012, we no longer have oil and gas operations.

The annual and special meeting (the “Special Meeting”) of holders (“Shareholders”) of common shares of the Company (“Common Shares”) was held on June 26, 2012. At the Special Meeting, in addition to annual items of business, shareholders were asked to consider and vote on, among other things, special resolutions approving the proposed sale of all or substantially all of the Company’s assets (the “Sale of Assets”) including those assets held by NiMin’s wholly-owned subsidiary, Legacy pursuant to purchase and sale agreements with respect to its Wyoming based oil and gas (“Wyoming Assets”) assets and California based oil and gas (“California Assets”) assets.

 

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At the Special Meeting, the shareholders were also asked to consider and vote on the voluntary liquidation and dissolution of the Company pursuant to the laws of the Business Corporations Act (Alberta) (the “Winding Up ”) and the distribution to shareholders of the net proceeds of the Sale of Assets (less the settlement of obligations of Legacy,) and cash on hand, as part of such liquidation and dissolution after satisfaction of all liabilities of the Company, by way of a reduction of the stated capital of the common shares of the Company.

Both the Sale of Assets and the Winding Up were approved by the shareholders at the Special Meeting. Legacy is a wholly owned subsidiary of NiMin and, therefore, in order for the Company to complete the Winding Up, the appropriate corporate steps must also occur for the dissolution and liquidation of Legacy. Pursuant to the approval of the Sale of Assets, Legacy proceeded with the sale of the Wyoming assets and the California assets all as more particularly described below.

On June 28, 2012, Legacy completed its previously announced sale of its Wyoming assets to BreitBurn Operating L.P., a wholly-owned subsidiary of BreitBurn Energy Partners L.P. (NASDAQ: BBEP “BreitBurn”), for total cash consideration of approximately $93 million, being the original purchase price of approximately $98 million less approximately $5 million adjusted to account for preliminary purchase price adjustments. On August 30, 2012, Legacy completed its final settlement with BreitBurn and received approximately $2.3 million based on the final purchase price adjustments.

On June 29, 2012, Legacy completed its previously announced sale of its California assets to Southern San Joaquin Production, LLC for total cash consideration of approximately $26 million, being the original purchase price of approximately $27 million, less approximately $1 million adjusted to account for preliminary purchase price adjustments. Pursuant to the terms of the purchase and sale agreement, $3 million of the $26 million purchase price paid on closing has been deposited with an escrow agent through December 31, 2012 in connection with various indemnities contained therein. On August 30, 2012, Legacy completed its final settlement with Southern San Joaquin Production LLC and received $347,938 based on the final purchase price adjustments.

The Winding Up and the dissolution and liquidation of Legacy contemplates the orderly disposition of the assets, the orderly discharge of all outstanding liabilities, including all outstanding debt, and after the establishment of appropriate reserves, the distribution of cash to shareholders in installments.

Upon completion of the disposition of all remaining assets of Legacy and the settlement of all liabilities of the Company and Legacy, the Company intends to distribute the net proceeds of the liquidation and dissolution of both Legacy and the Company to shareholders in one or more distribution installments.

As a result of the shareholders’ approval of the Winding Up of the Company, the liquidation basis of accounting was adopted effective June 30, 2012. This basis of accounting is considered appropriate when, among other things, liquidation of a company is imminent and the net realizable values of assets are reasonably determinable. Under this basis of accounting, assets are valued at their net realizable values and liabilities are stated at their estimated settlement amounts. Further, all costs of liquidation are accrued as of September 30, 2012. Financial information presented as of and subsequent to June 30, 2012, includes a Consolidated Statement of Net Assets and a Consolidated Statement of Changes in Net Assets in Liquidation, as required under the liquidation basis of accounting. Financial information included for periods ending prior to June 30, 2012, is presented under the going concern basis of accounting. Therefore, financial information presented as of and for the 3 months ended September 30, 2012, is not comparable to financial information presented for prior periods.

On September 24, 2012, the Company’s board of directors declared an initial distribution to shareholders of $1.01 per Common Share in connection with the winding up of NiMin. The distribution will be made as a return of capital to shareholders of record at the close of business on October 9, 2012, and the stated capital of the Company will be reduced accordingly. The distribution will be payable on October 22, 2012. On September 28, 2012, the Toronto Stock Exchange (“TSX”) determined that its “Due Bill” trading procedures will apply to the initial distribution to shareholders.

 

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Pursuant to the TSX’s “Due Bill” trading procedures, trades of Common Shares entered into from and including October 4, 2012 until and including October 22, 2012 will have a Due Bill attached which will allow the purchaser to receive the initial distribution instead of the seller, even if such trades are settled after the October 9, 2012 record date. Thus, any trades that are executed during the Due Bill process will be automatically flagged to ensure that purchasers receive the entitlement and sellers do not.

Investors who enter into trades to purchase Common Shares on or after the ex-distribution date of October 23, 2012 will not be entitled to the distribution. The Due Bills will be redeemed on October 25, 2012 once all trades with attached Due Bills entered into up to October 22, 2012 have settled.

NiMin’s wholly-owned subsidiary, Legacy Energy, Inc., a Delaware corporation, dissolved in accordance with the laws of Delaware on September 17, 2012.

On October 10, 2012, NiMin announced that its common shares will be voluntarily delisted from the Toronto Stock Exchange (“TSX”) after the close of trading on October 22, 2012 (the date on which NiMin’s initial distribution will be payable and its listing will be transferred to the NEX, a separate board of the TSX Venture Exchange, effective as of market open on October 23, 2012. From and after October 23, 2012, NiMin’s common shares will trade on the NEX under the symbol “NNN.H”.

Oil and Gas Sales Report

Average daily production sold by region (1)

 

     Six
Months
Ended
June
30, 2012
     Three Months
Ended
September 30,
2011
     Nine Months
Ended
September 30,
2011
 

Louisiana (2)

        

Oil - Bbl/d

     —           68         69   

Gas - Mcf/d

     —           516         514   

Total Louisiana (boe/d)

     —           154         155   

California (3)

     —           —           —     

Oil - Bbl/d

     242         249         188   

Gas - Mcf/d

     —           —           —     

Total California (boe/d)

     242         249         188   

Wyoming (3)

     —           —           —     

Oil - Bbl/d

     652         751         686   

Gas - Mcf/d

     —           —           —     

Total Wyoming (boe/d)

     652         751         686   

Total Oil (Bbl/d)

     894         1068         943   

Total Gas (Mcf)

     0         516         514   

Total (boe/d)

     894         1154         1029   

Notes:

(1) These numbers are net to NiMin’s working interest for the relevant properties.
(2) The Louisiana producing properties were sold on December 1, 2011 (see “Liquidity and Capital Resources”).
(3) The Wyoming and California properties were sold on June 28, 2012 and June 29, 2012, respectively.

 

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Table of Contents

Crude oil and natural gas sales

Given that the respective property sales transactions closed on June 28, 2012 and June 29, 2012, the associated revenues are included in revenues and expenses for the period ending June 30, 2012. However, the purchase and sale agreements provide adjustments to the purchase price be made related to revenues and operating expenses for the period of April 1, 2012 through the closing date of the sale of the properties. As such, the purchase price of the sale of the properties in June 2012 was adjusted for revenues and operating expenses for the period of April 1 through closing date of the sale of the properties.

For the three months ended September 30, 2011, we recorded gross revenues of $8.27 million. For the six months ended June 30, 2012, we recorded gross revenues of $13.78 million, as compared to $22.32 million for the nine months ended September 30, 2011. Given the abovementioned sale of the Company’s oil and gas assets during the second quarter of 2012, the Company did not have any sales during the three months ended September 30, 2012.

Crude Oil Derivative Contracts

Commodity price risk is the risk that the future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for crude oil and natural gas are impacted by world economic events that dictate the levels of supply and demand.

In January of 2010, the Company entered into a derivative financial contract for 7,500 Bbls of NYMEX West Texas Intermediate (“NYMEX WTI”) crude oil production per month at a fixed rate of $85.10 per barrel until December 2012.

On December 20, 2010, we agreed to economically hedge the future sales of 125 barrels of NYMEX WTI crude oil per day at a fixed price of $90.40 starting January 1, 2011, for a period of 12 months and 250 barrels of NYMEX WTI crude oil per day at a fixed price of $90.40 starting January 1, 2012, for a period of 12 months.

On November 11, 2011, we entered into a swap contract to minimize the variability in cash flows due to price movements in crude oil. We agreed to economically hedge the future sales of 100 barrels of NYMEX WTI crude oil per day at a fixed price of $96.75 starting January 1, 2012, for a period of 12 months.

We do not designate our derivative financial instruments as hedging instruments for accounting purposes and, as a result, we recognize the current change in a derivative’s fair value in earnings. At December 31, 2011, we recognized $976,929 as a derivative liability on crude oil derivative contracts.

For the three months ended September 30, 2011, the change in derivative contracts included a realized loss of $98,145 and an unrealized gain of $2.69 million.

During the second quarter of 2012, the Company terminated and settled all derivative contracts as of May 17, 2012, and at September 30, 2012, carried no liability.

For the six months ended June 30, 2012, the Company’s change in derivative contracts included a realized gain of $189,507. For the nine months ended September 30, 2011, the Company’s change in derivative contracts included a realized loss of $875,009 and an unrealized gain of $2.33 million.

Royalties

California

In previous periods, the Company paid a crude oil production fee (“Production Fee”) consisting of 100% of the first 635.10 barrels of crude oil produced per month which commenced in 2008 and declines at a rate of 5.5% each year.

For the three months ended September 30, 2011, we recorded royalties in California in the amount of $663,587. For the six months ended June 30, 2012, we recorded royalties in California in the amount of $1.31 million, as compared to $1.50 million for the nine months ended September 30, 2011.

 

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Table of Contents

Louisiana

Royalties related to Louisiana production varied by property. Effective December 1, 2011, the Company sold all of its producing interest in Louisiana (see “Liquidity and Capital Resources”) and no royalties were recorded for the six months ended June 30, 2012. For the nine months ended September 30, 2011, we recorded $732,305 in royalties representing an average rate of 30.23%.

Wyoming

For the three months ended September 30, 2011, we recorded $909,732 in royalties in Wyoming representing an average rate of 17.57%. For the six months ended June 30, 2012, we recorded $1.47 million in royalties in Wyoming representing an average rate of 16.12%., as compared to $2.68 million or 18.22% for the nine months ended September 30, 2011.

Operating Costs

 

    

Six months
ended

June 30,
2012

     Three months
ended
September 30,
2011
     Nine months
ended
September 30,
2011
 
     ($)      ($)      ($)  

Operating costs

     4,257,619         3,826,968         8,731,503   

Average operating costs per boe

     26.45         36.04         31.10   

Given that the respective property sales transactions closed on June 28, 2012 and June 29, 2012, the associated revenues during the quarter are included in revenues and expenses for the period ending June 30, 2012. However, the purchase and sale agreements provide adjustments to the purchase price be made related to revenues and operating expenses for the period of April 1, 2012, through the closing date of the sale of the properties. As such, the purchase price of the sale of the properties in June 2012, have been adjusted for revenues and operating expenses for the period of April 1 through closing date of the sale of the properties. For the three months ended September 30, 2011, we incurred operating costs in the amount of $3.83 million.

For the six months ended June 30, 2012, we incurred operating costs in the amount of $4.26 million, as compared to $8.73 million for the nine months ended September 30, 2011.

Operating costs included severance taxes paid in Louisiana and Wyoming. There is no severance tax in the state of California. Severance taxes in Louisiana consist of 12.5% on gross oil sales and $0.164 per Mcf of gas sales. For the three months ended September 30, 2011, we recorded $654,996 in severance taxes. For the six months ended June 30, 2012, we recorded $996,327 in severance taxes, as compared to $1.73 million for the nine months ended September 30, 2011.

General and Administrative Expenses (“G&A”)

 

     Six months
ended
June 30,
2012
     Three months
ended
September 30,
2011
     Nine months
ended
September 30,
2011
 
     ($)      ($)      ($)  

G&A expense before stock-based compensation

     3,753,693         1,306,526         4,082,524   

Average per boe

     23.32         12.31         14.54   

Stock-based compensation (“SBC”)

     2,289,567         526,990         1,861,058   

Average per boe

     14.22         4.96         6.63   
  

 

 

    

 

 

    

 

 

 

G&A

     6,043,260         1,833,516         5,943,582   
  

 

 

    

 

 

    

 

 

 

Average per boe

     37.55         17.27         21.17   

For the six months ended June 30, 2012, we recorded G&A expense, excluding SBC, of $3.75 million, as compared to $4.08 million for the nine months ended September 30, 2011.

 

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Following the approval of the Winding Up of the Company, all outstanding unvested options became automatically vested and the Company recognized the remaining grant date fair value of approximately $1.7 million in the current period.

For the six months ended June 30, 2012, we recorded SBC in the amount of $2.29 million, as compared to $1.86 million for the nine months ended September 30, 2011.

 

     Six months ended
June 30, 2012
     Three months ended
September 30, 2011
     Nine months ended
September 30, 2011
 
     ($)      ($)      ($)  

Liquidation related expenses

     7,537,423         —           —     

For the six months ended June 30, 2012, we recorded liquidation related expenses of $7.54 million primarily comprising of accrued professional fees, and severance and payroll related payments.

Depreciation, Depletion, Amortization and Accretion Expense (“DD&A”)

 

     Six months ended
June 30, 2012
     Three months ended
September 30, 2011
     Nine months ended
September 30, 2011
 
     ($)      ($)      ($)  

DD&A expense

     1,697,361         951,079         2,521,067   

Average per boe

     10.55         8.96         8.98   

We follow the full-cost method of accounting and all costs included in proved properties and all future development costs along with our total proved reserves determine the period’s depletion cost.

For the three months ended September 30, 2011, we recorded DD&A in the amount of $951,079.

For the six months ended June 30, 2012, we recorded DD&A in the amount of $1.68 million, as compared to $2.52 million for the nine months ended September 30, 2011.

Change in Fair Value of Warrants and Options

The exercise price of certain warrants is denominated in Canadian dollars which is not the functional currency of the Company. As a result, these warrants are classified as a liability on the balance sheet and recorded at their fair value at the end of each period and the change in fair value recognized in earnings.

During the nine months ended September 30, 2012, none of the issued warrants were exercised, and due to the pending liquidation, the Company valued the warrants based on the expected cash distribution to shareholders as this represents management’s best estimate of the value of the underlying equity instruments as of September 30, 2012. As the warrants have an exercise price greater than the expected cash distribution to shareholders, the value of the warrants were determined to approximate zero. Further, a gain of $235,134 was recognized in earnings during the six months ended June 30, 2012.

During the three months ended September 30, 2011, 333,900 warrants were exercised and a total of 5,354,800 warrants were exercised during the nine months ended September 30, 2011. At September 30, 2011, the fair value of the outstanding warrants was $601,273, with a gain of $2.08 million recognized in earnings during the three months ended September 30, 2011, and a gain of $689,799 recognized in earnings during the nine months ended September 30, 2011. As a result of the approval of the Winding Up of the Company in July 2012, 2,188,970 unexercised warrants were terminated.

 

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The exercise price of 2.70 million stock options relating to former employees that transitioned to a consulting role is denominated in Canadian dollars, which is not the functional currency of the Company (which is the U.S. dollar). As a result, the applicable 2.20 million vested options were classified as a liability on the balance sheet and recorded at their fair value at the end of each period with the change in fair value recognized in earnings. Following the approval of the Winding Up of the Company, all outstanding unvested options became automatically vested and the Company recognized the remaining grant date fair value of approximately $1.7 million in the current period.

As a result of the approval of the Winding Up of the Company, the Company valued the stock options based on the expected cash distribution to shareholders as this represents management’s best estimate of the valuation of the underlying equity instruments as of June 30, 2012. As the stock options at June 30, 2012, have an exercise price greater than the expected cash distribution to shareholders, the value of the stock options were determined to approximate zero. Further, a gain of $296,519 was recognized in earnings during the six months ended June 30, 2012. In addition, all stock options were terminated at September 30, 2012.

Interest Income and Expense

For the six months ended June 30, 2012, we recorded interest expense of $6.44 million ($3.49 million non-cash) related to the Senior Loan (as define herein, see “Liquidity and Capital Resources”), as compared to $4.01 million ($648,125 non-cash) for the nine months ended September 30, 2011 related to the Senior Loan.

As part of the Winding Up of the Company, on June 28, 2012, the Company prepaid the entire amount of the Senior Loan and as a result, a prepayment penalty of 2% representing $707,705 was applied on in addition to the accrued interest of $1,118,853 and principal of $36,000,000. The remaining unamortized debt issuance cost of $3.23 million related to the Senior Loan is included in current period interest expense.

For the six months ended June 30, 2012, we recorded interest income in the amount of $10,673, as compared to $37,501 for the nine months ended September 30, 2011.

Income Tax

At September 30, 2012, the Company had estimated an alternative minimum income tax liability of $1,458,816, for Federal and California purposes, relating to taxable gains resulting from the sale of its oil and gas properties in the current period. The Federal taxable income for regular income tax purposes was fully reduced by net operating loss carryforwards of $64,276,981. The Company’s deferred tax assets were previously subject to full valuation allowance.

Foreign Currency Exchange

Our foreign exchange expense is derived from our cash balances denominated in Canadian dollars. For the three months ended September 30, 2011, we recorded a foreign exchange gain of $74,969. For the six months ended June 30, 2012, we recorded a foreign exchange loss of $438, as compared to a foreign exchange gain of $239,558 for the nine months ended September 30, 2011.

Liquidity and Capital Resources

The Winding Up and the dissolution and liquidation of Legacy contemplates the orderly disposition of the assets, the orderly discharge of all outstanding liabilities, including all outstanding debt, and after the establishment of appropriate reserves, the distribution of cash to shareholders in installments.

Upon completion of the disposition of all remaining assets of Legacy and the settlement of all liabilities of the Company and Legacy, the Company intends to distribute the net proceeds of the liquidation and dissolution of both Legacy and the Company to shareholders in multiple distribution installments. NiMin’s wholly-owned subsidiary, Legacy Energy, Inc., a Delaware corporation, dissolved in accordance with the laws of Delaware on September 17, 2012.

 

24


Table of Contents

As mentioned above, the Company’s board of directors declared an initial distribution to shareholders of $1.01 per Common Share in connection with the winding up of NiMin. The distribution will be made as a return of capital to shareholders of record at the close of business on October 9, 2012, and the stated capital of the Company will be reduced accordingly. The distribution will be payable on October 22, 2012. On September 28, 2012, the Toronto Stock Exchange (“TSX”) determined that its “Due Bill” trading procedures will apply to the initial distribution to shareholders. The estimated $1.13 net assets in liquidation per outstanding share has not been reduced for the initial distribution of $1.01 per Common Share declared by the board of directors on September 24, 2012, payable on October 22, 2012 to Shareholders of record on October 9, 2012.

The amount and timing of any subsequent distributions to shareholders will depend on a number of factors, several of which cannot be determined at this time, including the ultimate amount of our known, unknown, and contingent liabilities. As a result, the amount of cash remaining following completion of our liquidation and dissolution could vary from our current estimates.

Financial information presented as of and subsequent to June 30, 2012, includes a Consolidated Statement of Net Assets and a Consolidated Statement of Changes in Net Assets in Liquidation, as required under the liquidation basis of accounting. Overall net assets in liquidation increased $829,034 from $77,914,535 at June 30, 2012 to $78,743,569 at September 30, 2012. The increase was primarily related to tax liability adjustments of $1,019,447. The remaining change in net assets related to investment income, adjustments to assets, costs incurred, and adjustments to liquidation accruals during the three month period.

The following table summarizes our cash flows for the periods presented.

 

     Six months ended
June  30, 2012
($)
    Three months ended
September 30, 2011
($)
    Nine months ended
September 30, 2011
($)
 

Cash flows (used in) provided by operating activities

     (353,751     (844,133     (723,350

Cash flows (used in) provided by investing activities

     114,522,823        (6,540,829     (17,818,168

Cash flows (used in) provided by financing activities

     (36,029,108     4,055,652        11,791,667   
  

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     78,139,964        (3,329,310     (6,749,851

Cash and cash equivalents at beginning of the period

     3,811,028        9,490,005        9,490,005   

Foreign exchange on cash and cash equivalents

     —          (276,892     (112,004
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of the period

     81,950,992        5,883,804        2,628,150   
  

 

 

   

 

 

   

 

 

 

In September 2011, we completed the Private Placement of 2,758,620 Units of the Company at a purchase price of CDN$1.45 per Unit for gross proceeds of CDN$3,999,999 or USD $4,010,545, net of CDN $267,224 or USD $267,928 of agents fees.

Effective December 1, 2011, we completed the divestiture of the Company’s non-operated and non-core interests in producing oil and gas properties located in the southern onshore region of Louisiana for a total of $1 million.

On June 28, 2012, and June 29, 2012, the Company completed its sale of its oil and gas properties in Wyoming and California for USD $93 million and USD $26 million, respectively.

 

25


Table of Contents

On June 30, 2010, the Company entered into a senior secured loan (the “Senior Loan”) in the amount of $36 million from a U.S. based institutional private lender (the “Lender”). The Company borrowed $36 million subject to an original issuer discount of 7.5%, a commitment fee of 1%, a placement fee of 1% and a transaction fee of 3%. Debt issuance costs of $4.9 million were incurred and were being amortized to net income under the effective interest method. The Senior Loan had a 12.5% fixed interest rate and a term of five years. Interest was paid quarterly beginning September 30, 2010.

As part of the Winding Up of the Company, on June 28, 2012, the Company prepaid the entire amount of the Senior Loan and as a result, a prepayment penalty of 2% representing $707,705 was applied on in addition to the accrued interest of $1,118,853 and principal of $36,000,000.

Research and development, patents and licenses, etc.

In December, 2010, the U.S. Patent and Trademark Office issued a patent to NiMin for its CMD process for enhanced oil recovery. Our patent covers the process of the injection of oxygen and water as foam to create carbon dioxide (“CO2”) and steam in the reservoir through wet combustion. Assets relating to the CMD technology were written down to the net realizable value of $0 within general and administrative expenses on June 30, 2012. The Company plans on transferring the patents to the Legacy Liquidating Trust as a part of the Winding Up.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements during the six months ended June 30, 2012, and the nine months ended September 30, 2011, except for the office lease obligations which were outstanding during those respective periods.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a detailed discussion of our critical accounting policies, please refer to our Annual Report. The Company adopted the liquidation basis of accounting effective June 30, 2012. This basis of accounting is considered appropriate when, among other things, liquidation of a company is imminent and the net realizable values of assets are reasonably determinable. Under this basis of accounting, assets are valued at their net realizable values and liabilities are stated at their estimated settlement amounts. The Company will continue to incur operating costs and receive income on its cash investments from September 30, 2012, through the liquidation of the Company throughout the Liquidation Period. On a regular basis, we evaluate our assumptions, judgments and estimates that can have a significant impact on our reported net assets in liquidation based on the most recent information available to us, and when necessary make changes accordingly. Actual costs and income may differ from our estimates, which might reduce net assets available in liquidation to be distributed to shareholders.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

Our primary market risk is market changes in oil and natural gas prices. Commodity prices for crude oil and natural gas are impacted by world economic events that dictate the levels of supply and demand. During the year ended December 31, 2011, we entered into swap contracts to minimize the variability in cash flows due to price movements in crude oil (See Item 2 – “MD&A – Crude Oil and Derivative Contracts”). During the second quarter of 2012, the Company terminated and settled all derivative contracts as of May 17, 2012, and at September 30, 2012, carried no liability.

 

26


Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) conducted an evaluation regarding the effectiveness of the design and operation of the Company’s disclosure control and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by this quarterly Report on Form 10-Q.

Based on the evaluation, management concluded that as of September 30, 2012, the Company’s disclosure controls and procedures continue to not be effective because of the material weaknesses as described in Management’s Report on Internal Control over Financial Reporting in our annual report on Form 10-K for the year ended December 31, 2011, as amended from time to time, and filed with the SEC on March 14, 2012.

(b) Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2012, that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

27


Table of Contents

PART II – OTHER INFORMATION

ITEM 1.A. RISK FACTORS

Not Applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

 

28


Table of Contents

ITEM 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

EXHIBITS

 

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS XBRL Instance Document

 

101.SCH XBRL Taxonomy Extension Schema Document

 

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

 

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

 

101.LAB XBRL Taxonomy Extension Label Linkbase Document

 

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

29


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Axchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NIMIN ENERGY CORP.

(Registrant)

 

Dated: October 22, 2012   By:   /s/ Clarence Cottman III
  Clarence Cottman III
  Chief Executive Officer
  By:   /s/ Jonathan S. Wimbish
  Jonathan S. Wimbish
  Chief Financial Officer

 

30

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