The money market instruments bear interest at a rate of 0.060% as at March 31, 2013 (December 31, 2012 - 0.082%).
8. Financial Instruments
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the consolidated statement of financial position date. A majority of the Company's financial assets at the consolidated statement of financial position date arise from natural gas liquids and natural gas sales and the Company's accounts receivable that are with these customers and joint interest participants in the oil and natural gas industry. Industry standard dictates that commodity sales are settled on the 25th day of the month following the month of production. The Company's natural gas and condensate production is sold to large marketing companies. Typically, the Company's maximum credit exposure to customers is revenue from two months of sales. During the period ended March 31, 2013, the Company sold 68.32% (March 31, 2012 - 78.39%) of its natural gas and condensates to a single purchaser. These sales were conducted on transaction terms that are typical for the sale of natural gas and condensates in the United States. In addition, when joint operations are conducted on behalf of a joint interest partner relating to capital expenditures, costs of such operations are paid for in advance to the Company by way of a cash call to the partner of the operation being conducted.
Caza management assesses quarterly whether there should be any impairment of the financial assets of the Company. At March 31, 2013, the Company had overdue accounts receivable from certain joint interest partners of $ 687 which were outstanding for greater than 60 days and $148,085 that were outstanding for greater than 90 days. At March 31, 2013, the Company's two largest joint interest partners represented approximately 8% and 7% of the Company's receivable balance (March 31, 2012 26% and 8% respectively). The maximum exposure to credit risk is represented by the carrying amount on the consolidated statement of financial position of cash and cash equivalents, restricted cash accounts receivable and deposits.
Other Financial Instruments
The Company entered into an Equity Adjustment Agreement with Global Master SPV Ltd., an investment fund managed by Yorkville Advisors Global, LP in conjunction with its Standby Equity Distribution Agreement dated November 23, 2012 with Yorkville. Pursuant to the Agreement, during the three months ended March 31, 2013, the Company issued 3,846,154 common shares to Yorkville at a price of GBP 0.13 per share for aggregate proceeds of GBP 500,000 (US$756,451).
Under the terms of the Agreement, if on February 28, 2014 the common share market price (determined as 95% of the average daily volume weighted average price of common shares (VWAP) during the preceding 22 trading days) is greater than GBP 0.13, then Yorkville will pay to the Company the difference multiplied by the number of New Common Shares, and if the market price is less than GBP 0.13 then the Company will pay to Yorkville the difference multiplied by the number of New Common Shares. The fair value of this derivative was calculated at the date of issuance using inputs as of that date and at March 31, 2013 using inputs as of March 31, 2013, including the share price, the strike price and the estimated volatility over the remaining term. The fair value of $110,000 has been included within current liabilities on the statement of financial position, and the change in fair value of $55,000 since the date of issuance is included in other expenses in the consolidated statement of net loss.
The Company has deposited in escrow GBP 275,000 (US$ - $416,048) as security for this contingent payment obligation, which has been recorded within restricted cash on the consolidated statement of financial position.
Fair Value of Financial Instruments
The Company has determined that the fair values of the financial instruments consisting of cash and cash equivalents, restricted cash, accounts receivable, deposits and accounts payable are not materially different from the carrying values of such instruments reported on the consolidated statement of financial position due to their short-term nature. At March 31, 2013, the fair value of the notes payable is $1,615,227.
IFRS establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:
-- Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.-- Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.-- Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
The Company's cash and cash equivalents and restricted cash, which are classified as fair value through profit or loss, are categorized as Level 1 financial instruments.
The Company's notes payable are categorized as Level 2 financial instruments and were recorded at fair valued on issuance using a market interest rate for similar debt issued without the warrants attached. The Company's derivative as described above under "Other Financial Instruments" is also a Level 2 financial instrument.
All other financial assets are classified as loans or receivables and are accounted for on an amortized cost basis. All financial liabilities are classified as other liabilities. There are no financial assets on the consolidated statement of financial position that have been designated as available-for-sale. There have been no changes to the aforementioned classifications during the periods presented.
9. Subsequent Event
On April 8, 2013 Caza issued 4,948,682 common shares to Yorkville at a price of GBP 0.101037 per share.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.
Caza Oil & Gas, Inc.
+1 432 682 7424
Caza Oil & Gas, Inc.
+65 9731 7471 (Singapore)
Cenkos Securities plc
+44 20 7397 8900 (London)
Cenkos Securities plc
+44 131 220 6939 (Edinburgh)
VSA Capital Limited
+44 20 3005 5004
VSA Capital Limited
+44 20 3005 5012
+44 20 7920 2330