Washington, D.C. 20549
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
(Name, Telephone, E-mail, and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12 (b) of the Act: None
Securities registered or to be registered pursuant to Section 12 (g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Some of the information in this prospectus contains forward-looking statements. Forward-looking statements represent our current expectations or forecasts of future events
and are based on our management's beliefs, as well as assumptions made by and information currently available to them. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements
may include the words "anticipate," "believe," "budget," "estimate," "expect," "intend," "objective," "plan," “probable” "possible," "potential," "project" and other words and terms of similar meaning in connection with any discussion of future
operating or financial performances. Any references to we, our, us, Company, Corporation, or FEC refer to FEC Resources Inc,
Any or all of our forward-looking statements in this Form 20-F may turn out to be incorrect. They can be affected by inaccurate assumptions, or by known or unknown risks and
uncertainties. Many of these factors, including the risks outlined under "Risk Factors," will be important in determining our actual future results, which may differ materially from those contemplated in any forward-looking statements. These
factors include, among others, the following:
When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this prospectus. Our
forward-looking statements speak only as of the date made.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, they are subject to a variety of variables which could cause actual
results or trends to differ materially. We cannot guarantee future results, levels of activity, performance or achievements. Except as otherwise required by United States securities laws, we are under no duty to update any of the forward looking
statements after the date of this Form 20-F to conform them to actual results or to changes in our expectations. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement.
Unless otherwise stated, “$”, when used in this Form 20-F, refers to US dollars.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
Not applicable to Form 20-F filed as annual report.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
Not applicable to Form 20-F filed as annual report.
The following is a summary of key information about our financial condition, capitalization and the risk factors pertaining to our business.
Currency Exchange Rates
Table No. 3(A)(1) below sets forth the rate of exchange for the Canadian Dollar at the end of each of the five (5) most recent fiscal years ended December 31, the average
rates for each year, and the range of high and low rates for each year. Table 3(A)(2) sets forth the high and low exchange rates for each month during the previous six (6) months. The rate of exchange means the noon buying rate as posted by the
Bank of Canada. The Tables set forth the number of Canadian Dollars required under that formula to buy one (1) US Dollar. The average rate means the average of the exchange rates on the last day of each month during the year.
Table No. 3(A)(1)
U.S. Dollar/Canadian Dollar
Currency Exchange Table No. 1
U.S. Dollar/Canadian Dollar
The current closing rate of exchange was 1.2660 on March 8, 2021.
Table No. 3(A)(2)
U.S. Dollar/Canadian Dollar
A. Selected Financial Data
The following financial data summarizes selected financial data for our company prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”) for the five fiscal years ended December 31, 2020, 2019, 2018, 2017 and 2016. The information presented below for the five year period ended December 31, 2020, 2019, 2018, 2017 and 2016 is
derived from our audited financial statements. The information set forth below should be read in conjunction with our audited annual financial statements and related notes thereto included in this annual report, and with the information appearing
under the heading “Item 5 – Operating and Financial Review and Prospects”.
B. Capitalization and Indebtedness
This Form 20-F is being filed as an annual report under the U.S. Exchange Act and, as such, there is no requirement to provide any information under this item.
C. Reason for the Offer and Use of Proceeds
This Form 20-F is being filed as an annual report under the U.S. Exchange Act and, as such, there is no requirement to provide any information under this item.
D. Risk Factors
General Business Risks
We Have Had a History of Operating Losses Which May Affect Our Ability to Continue Operations.
We had a net loss of ($187,052) during the year ended December 31, 2020 (2019 –$(211,683); 2018 – ($217,665). We have incurred operating losses in the
previous fiscal years with our accumulated deficit totaling $18,342,134 as at December 31, 2020. We also anticipate sustaining a loss from operations for the fiscal year ended December 31, 2021. We have no sources of revenue in the year ended
December 31, 2020 and our only source of revenue has been from the sale of the Forum Energy Limited (“Forum Energy” or “FEL”) shares and, historically, have only shown net income as a result of accounting for our equity share of profits in other
companies in which we hold equity investments.
On July 31, 2020, we closed a Rights Offering and received net proceeds of approximately $718,117. On the same date we also settled a Rights Offering
Advance of $170,111 previously received from PXP Energy Corporation (“PXP”) by issuing 75,605,066 shares to PXP at the same price of $0.00225.
On August 7, 2020, we purchased 6.8% of the loan currently due by FEL to PXP amounting to $346,202 plus accrued interest of $939. This loan is
unsecured, due on December 31, 2021, and bears interest at an annual rate of 3.5% plus LIBOR which is payable on a quarterly basis.
Should FEL require additional financing requiring us to advance funds in order to maintain our 6.8% interest, there can be no guarantee that we will be able to provide the
necessary funds and as a result our interest in FEL may be diluted.
Management considers the Company to be a going concern in the short term but there is no certainty that the Company will be able to continue as a going concern past
2021without additional debt or equity financing.
Unless We Are Able To Invest in Companies That Discover Economically Recoverable Reserves in the Future, There is Substantial Doubt We
Will Be Able to Continue Operations as a Going Concern in the Long Term.
Our business success is dependent upon our ability to benefit from the discovery of economically recoverable reserves by companies we invest in, and for
those companies to bring such reserves into profitable production. The companies we invest in are subject to a number of risks, including environmental risks, contractual risks, legal and political risks, fluctuations in the price of oil and gas,
and other factors beyond our control.
The consolidated Financial Statements included herein have been prepared by management on the basis of accounting principles applicable to a “going
concern”. Management believes the “going concern” basis, which presumes the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future, is appropriate. We have experienced significant operating
losses and cash outflows from operations in the years ended December 31, 2020, 2019 and 2018 and have no income other than that generated from interest on cash balances and the sale of FEP shares. Our ability to continue as a “going concern” in the
long term is dependent on benefiting from our investments and upon obtaining additional financing. The outcome of these matters cannot be predicted at this time.
We Believe We Don’t Have Sufficient Working Capital to Support Our Business beyond 2021. We Will Need Additional Funds in Order to
Sustain our Operations in Order to See if Our Investments Will be Successful and There is No Assurance that Such Funds Will Be Available As, If, and When, Needed.
Funds used in operations for the fiscal years ended December 31, 2020 and 2019 were $(271,668) and $(147,062), respectively. We have been dependent upon
the proceeds of the sale of FEL shares, equity and debt financing in addition to the disposition of assets to fund operations. No assurances can be given that our actual cash requirements will not exceed our budget, that anticipated revenues will be
realized, that, when needed, lines of credit will be available if necessary or that additional capital will be available to us. There is no assurance that we will be able to obtain such additional funds on terms and conditions we may deem
acceptable. Failure to obtain such additional funds may materially and adversely affect our ability to acquire interests directly or indirectly in producing oil and gas and mineral properties.
On July 31, 2020, we closed a Rights Offering and received net proceeds of approximately $718,117. On the same date we settled a Rights Offering
Advance of $170,111 previously received from PXP by issuing 75,605,066 shares to PXP at the same price of $0.00225.
On August 7, 2020, we purchased 6.8% of the loan currently due by FEL to PXP amounting to $346,202 plus accrued interest of $939. This loan is
unsecured, due on December 31, 2021 and bears interest at an annual rate of 3.5% plus LIBOR which is payable on a quarterly basis.
Should FEL require additional financing requiring us to advance funds in order to maintain our 6.8% interest, there can be no guarantee that we will be able to provide the
necessary funds and as a result our interest in FEL may be diluted.
Management considers the Company to be a going concern in the short term but there is no certainty that we will be able to continue as a going concern past 2021
We Do Not Intend to Pay Dividends In the Foreseeable Future, and thus, You Should Not Expect to Receive Dividends.
We have paid no dividends on our common shares since inception, and do not plan to pay dividends in the
foreseeable future. See "Description of
Common Shares."
The Market Price of Our Common Shares Has Been, and Will Likely Continue to Be, Volatile.
The market price of our common shares has fluctuated over a wide range, and it is likely that the price of our common shares will fluctuate in the future. Further,
announcements regarding acquisitions, the status of corporate collaborations, regulatory approvals or other developments by us or our competitors could have a significant impact on the market price of our common shares.
The Value and Transferability of Our Shares May Be Adversely Impacted By the Limited Trading Market For Our Shares and the Penny Stock
Rules.
There is only a limited trading market for our shares on the Pink Sheets. There can be no assurance that (a) we will be able to be listed again on the OTCQB, due to enhanced
listing requirements that were implemented by OTC Markets in 2014, (b) this market will be sustained, or (c) that we will be able to satisfy any future trading criteria that may be imposed by the Financial Industry Regulatory Authority (“FINRA”).
In addition, holders of our common shares may experience substantial difficulty in selling their securities as a result of the “penny stock rules” which apply to our common
shares. Under the penny stock rules, the Securities and Exchange Commission imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rules, a broker-dealer must make a
special suitability determination for the purchaser and transaction prior to the sale. Consequently, the rules may affect the ability of broker-dealers to sell our securities, and also may affect the ability of purchasers of our stock to sell their
shares in the secondary market. It may also cause fewer broker-dealers to make a market in our common shares.
The Large Number of Shares Eligible For Future Sale By Existing Shareholders May Adversely Affect the Market Price For Our Common
Shares.
Future sales of substantial amounts of common shares in the public market, or the perception that such sales could occur, could adversely affect the market price of our
common shares. At March 8, 2021, we had 861,082,371 common shares outstanding. We currently have 304,714,973 shares eligible to be resold pursuant to Rule 144. We do not intend to include these common shares in a future Registration Statement to be
filed with the United States Securities and Exchange Commission (“SEC”) pursuant to the Securities Act of 1933, registering the common shares for sale. If a decision was made to file a Registration Statement for these common shares. no prediction can
be made as to the effect, if any, that sales of common shares or the availability of such shares for sale will have on the market prices of our common shares prevailing from time to time. The possibility that substantial amounts of our common shares
may be sold under SEC Rule 144 into the public market may adversely affect prevailing market prices for our common shares and could impair our ability to raise capital in the future through the sale of equity securities.
Your vote may not affect the outcome of any shareholder vote since our principal stockholder currently retains approximately 78% of our
outstanding stock.
Specifically, PXP Energy Corporation (“PXP”) may be able to control the outcome of all stockholder votes, including votes concerning director elections, charter and by-law
amendments and possible mergers, corporate control contests and other significant corporate transactions which may not be in the interests of all shareholders.
As of the record date, based on the information available to us, PXP beneficially owned 674,999,986 Common Shares which represents approximately 78% of the total number of
our Common Shares issued and outstanding;
Foreign Laws, Rules and Environmental Regulations to Which Companies We Invest In Are Subject May Adversely Affect Our Business
Operations As Well As the Market Price For Our Stock.
The production of oil and gas and the extraction of minerals by companies we invest in or by ourselves is generally subject to extensive laws, rules, orders and regulations
governing a wide variety of matters, including the drilling and spacing of wells, allowable rates of production, prevention of waste and pollution and protection of the environment. In addition to the direct costs borne in complying with such
regulations, operations and revenues may be impacted to the extent that certain regulations limit oil and gas and mineral production to below economic levels. Although the particular regulations applicable in each jurisdiction in which operations
are conducted vary, such regulations are generally designed to ensure that oil and gas operations are carried out in a safe and efficient manner, and to ensure that similarly-situated operators are provided with reasonable opportunities to produce
their respective fair share of available crude oil, natural gas, and mineral reserves. However, since these regulations generally apply to all oil and gas producers, we believe that these regulations should not put us at a material disadvantage to
other oil, gas and mineral producers.
Operating Risks - Oil and Gas Exploration Investment Activities
We Do Not Currently Directly Own Assets That Provide Cash Flow and Our Failure to Find or Acquire Available Assets
May Adversely Impact Our Business Operations.
We do not own any properties or investments that provide cash flow. Our cash flow and income, as well as our success are highly dependent on success in finding or acquiring
cash flow through our investments and obtaining the financing necessary to acquire such investments. We cannot assure shareholders that we will be able to acquire such investments, if any.
Exploring For and Producing Oil and Natural Gas and Minerals Are High-Risk Activities With Many Uncertainties That Could Adversely
Affect Our Business, Financial Condition or Results of Operations.
Exploration and development of oil and gas and mineral resources involve a high degree of risk, and few properties which are explored are ultimately developed into producing
properties. There is no assurance that exploration and development activities of companies that we invest in will result in any discoveries of commercial bodies of oil, gas or minerals. The long-term profitability of our operations will be, in
part, directly related to the cost and success of exploration programs of companies we invest in which may be affected by a number of factors. Substantial expenditures are required to establish reserves through drilling, to develop processes to
extract the resources, and, in the case of new properties, to develop the extraction and processing facilities and infrastructure at any site chosen for extraction. Although substantial benefits may be derived from the discovery of a major deposit
of oil, gas or minerals, no assurance can be given that natural resources will be discovered in sufficient quantities by companies we invest in to justify commercial operations or that the funds required for development can be obtained on a timely
basis.
If Companies We Invest In Are Unable to Continue to Identify, Explore and Develop New Properties, Our Business Operations May Be
Adversely Affected.
We expect that to be successful companies we invest in must continually acquire or explore for and develop new oil and gas reserves to replace those, if any, being depleted
by production. Without successful drilling or acquisition ventures, our indirect oil and gas assets, mineral assets and properties and the revenues derived therefrom, if any, will decline over time. To the extent we engage in drilling activities
indirectly, such activities carry the risk that no commercially viable oil or gas production or mineral extraction will be obtained. The cost of drilling, completing and operating oil and gas wells is often uncertain. Moreover, drilling for oil and
gas and minerals may be curtailed, delayed or cancelled as a result of many factors, including shortage of available working capital, title problems, weather conditions, environmental concerns, government prohibitions, shortages of or delays in
delivery of equipment, as well as the financial instability of well operators, major working interest owners, and drilling and well servicing companies. The availability of a ready market for oil and gas and minerals will depend on numerous factors
beyond our control, including the demand for and supply of oil and gas and minerals, the proximity of natural gas reserves to pipelines, the capacity of such pipelines, the proximity of any smelting facilities in relation to any minerals found,
fluctuations in seasonal demand, the effects of inclement weather, and government regulation. New gas wells may be “shut-in” for lack of a market until a gas pipeline or gathering system with available capacity is extended into an area.
The Exploration and Development of Oil and Gas and Mineral Properties are Subject to
Operating Hazards and Risks for Which We Will Be Uninsured.
Exploration for natural resources involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Operations in
which we have an interest will be subject to all the hazards and risks normally incidental to exploration, development and production of resources, any of which could result in work stoppages, damage to persons or property and possible environmental
damage. These include the possibility of fires, earthquake activity, coastal erosion, explosions, blowouts, oil spills or seepage, gas leaks, discharge of toxic gas, over-pressurized formations, unusual or unexpected geological conditions and the
absence of economically viable reserves. These hazards may result in cost overruns, substantial losses, and/or exposure to substantial environmental and other liabilities.
Fluctuating Resource Prices May Adversely Impact Our Operations and Activities.
The price of natural resources has traditionally been subject to wide fluctuations, particularly in recent years, and is affected by numerous factors beyond our control
including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new extraction
developments and improved extraction and production methods. The effect of these factors on the price of oil and gas and minerals, and therefore, the economic viability of any investments we have or make in exploration projects, cannot accurately be
predicted.
If We Fail to Fulfill Our Obligations Under Our Purchase Option and Joint Venture
Agreements, Not Only Will Our Operations Be Adversely Affected, But We May Lose Our Interest In the Property in Question.
We may, in the future, be unable to meet our share of costs incurred under joint venture agreements or other option or joint venture agreements to which we
are, or may become a party, and we may have our interest in properties, in which we may acquire interests subject to such agreements, reduced as a result. Furthermore, if other parties to such agreements do not meet their share of such costs, we may
be unable to finance the cost required to complete recommended programs.
It Is Possible that Our Title for the Claims in Which We Have a Direct or Indirect Interest in Will Be Challenged By Third Parties.
Although we will attempt to ascertain the status of the title for any projects in which we have or will
invest in, there is no guarantee that title to such concessions will not be challenged or impugned. In some countries, the system for recording title to the rights to explore, develop, and mine natural resources is such that a title opinion
provides only minimal comfort that the holder has title. Also, in many countries, claims have been made and new claims are being made by aboriginal peoples, and other countries claiming rights that call into question the property rights granted by
the governments of those countries. An example of this is the force
majeure declared on SC72 because this contract area falls within the territorial disputed area of the West Philippine Sea which was the subject of an United Nations arbitration process between the Republic of Philippines and the People’s Republic
of China. On July 12, 2016, the Permanent Court of Arbitration in the Hague ruled in favor of the Philippines against China over territorial disputes in the South China Sea. China has rejected the ruling. It is uncertain whether this ruling will resolve the dispute between the parties.
Reserve Estimates for Resources That May Be Reported By Companies We Invest In Are Dependent On Many Assumptions that May Ultimately
Turn Out to Be Inaccurate.
Reserve estimates are imprecise and may be expected to change as additional information becomes available. Furthermore, estimates of reserves of natural
resources, of necessity, are projections based on engineering data and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve
engineering is a subjective process of estimating underground accumulations of oil, gas and minerals that cannot be measured in an exact way and the accuracy of any reserve estimate is a function of the quality of available data of engineering and
geological interpretation and judgment. Accordingly, there can be no assurance that the information regarding reserves of natural resources, if any, set forth herein will ultimately be produced.
Any Resource Production of Companies That we Have Invested In May Be Adversely Affected By Factors Beyond Our Control.
The production and marketing of resources are affected by a number of competitive factors which are beyond our control and the effect of which cannot be accurately
predicted. These factors include crude oil and mineral imports, actions by foreign oil-producing nations and other mineral producers, the availability of adequate pipeline and other transportation facilities, the availability of equipment and
personnel, the marketing of competitive fuels and minerals, the effect of governmental regulations, and other matters affecting the availability of a ready market such as fluctuating supply and demand.
Operations of Companies We Invest In Will Be Subject to Numerous Environmental Risks
Resource operations of companies we invest in, if any will be subject to compliance with applicable federal, state, and local laws and regulations controlling the discharge
of materials into the environment, or otherwise relating to the protection of the environment. We believe that there is a trend toward stricter standards of environmental regulation which will in all probability continue. Compliance with such laws
and standards may cause substantial delays and require capital outlays in excess of those anticipated, thereby adversely affecting our earnings and competitive position in the future.
Since We May Acquire Holdings In Properties In Less Developed Countries and Have Indirectly Acquired Holdings in Properties In Less
Developed Countries, Our Operations May Be Adversely Affected By Risks Associated With the Political, Economic and Social Climate of the Countries In Which We Will Operate or Have Indirect Holdings
Since our indirect exploration and development activities will occur primarily in countries other than Canada and the United States, we may be affected by possible political
or economic instability in those countries. The risks include, but are not limited to, terrorism, military repression, extreme fluctuations in currency exchange rates, and high rates of inflation. Changes in resource development or investment
policies or shifts in political attitude in these countries may adversely affect our business. Operations of companies we invest in may be affected in varying degrees by government regulations with respect to restrictions on production, price
controls, export controls, income taxes, expropriation of property, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. The effect of these factors cannot be accurately predicted.
Exploration and production activities in areas outside of the United States and Canada are also subject to the risks inherent in foreign operations, including loss of revenue, property and equipment as a result of hazards such as expropriation,
nationalization, war, insurrection and other political risks.
We Face Competition From Larger and Better Financed Companies Seeking to Acquire Properties In Our Sphere of Operation.
The resource industry is highly competitive, and our business could be harmed by competition from other companies. Because resources are fungible commodities, the principal
form of competition is price competition. We will strive to insure companies we invest in maintain the lowest exploration and production costs possible to maximize profits. In addition, we may compete for reserve acquisitions, exploration leases,
licenses, concessions and marketing agreements against companies with financial and other resources substantially larger than we possess. Many of our competitors have established strategic long term positions and maintain strong governmental
relationships in countries in which we may seek entry.
We Currently Do Not Maintain Insurance Against Potential Losses and Unexpected Liabilities.
As previously stated herein, exploration for and production of resources can be hazardous, involving natural disasters and other unforeseen occurrences such as “blowouts”,
“cratering”, fires and loss of well control, which can damage or destroy wells or production facilities, injure or kill people, and damage property and the environment. We do not have such insurance coverage for companies we invest in; and, even if
we were able to obtain such insurance coverage, there is no assurance that it would be adequate to protect against all operational risks, or subject to defenses or exclusions against insurance coverage.
We Are Dependent On Retaining Our Senior Management and Key Personnel.
To a large extent, we depend on the services of our senior management personnel. These individuals have critical and unique knowledge of the areas of operations that
facilitate the evaluation and acquisition of potential properties in our intended sphere of operations. The loss of these experienced personnel, if that were to occur, could have a material adverse impact on our ability to compete in this region of
the world. We do not maintain any insurance against the loss of any management personnel.
Our Directors May Face Conflicts of Interest In Connection With Our Participation In Certain Ventures Because They Are Directors of
Other Resource Companies.
Some of our directors participate in other resource companies and to the extent that such other companies may participate in ventures in which we may participate, our
directors may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. It is possible that due to our directors’ conflicting interests, we may be precluded from participating in certain projects
that we might otherwise have participated in or we may obtain less favorable terms on certain projects than we might have obtained if our directors were not also the directors of other participating mineral resource companies. In their effort to
balance their conflicting interests, our directors may approve terms that are equally favorable to all of their companies as opposed to negotiating terms that may be more favorable to us, but adverse to their other companies. Additionally, it is
possible that we may not be afforded certain opportunities to participate in particular projects because such projects are assigned to our directors’ other companies for which the directors may deem the projects to have a greater benefit.
Our Security Holders May Not Be Able to Enforce U.S. Civil Liabilities Claims Thereby Limiting Their Ability to Collect on Claims
Against Us.
We are incorporated in Canada and the majority of our directors and officers are nationals and/or residents of countries other than the United States. All or a substantial
portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. In addition, there is uncertainty as to whether the
courts of Canada would recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear
original actions brought in these countries against us or such persons predicated upon the securities laws of the United States or any state thereof.
As a Foreign Private Issuer, We Are Exempt From a Number Of U.S. Securities Laws And Rules Promulgated Thereunder And Are Permitted To
File Less Information With The SEC Than U.S. Companies Must. This Will Limit The Information Available To Holders Of Our Shares
We currently qualify as a “foreign private issuer,” as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements
applicable to companies organized within the U.S. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), that regulate disclosure obligations and procedural requirements related
to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of
the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. We are
also not subject to Regulation FD under the Exchange Act, which would prohibit us from selectively disclosing material nonpublic information to certain persons without concurrently making a widespread public disclosure of such information.
Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.
ITEM 4. INFORMATION ON THE COMPANY
A. Our Corporate History and Development.
We were incorporated on February 8, 1982 in British Columbia, Canada under the name Tylox Corporation. Our continuance under the Canada
Business Corporation Act resulted in, among other things, our name change, first in December 1991, to Tracer Petroleum Corporation, followed in July 2003, to Forum Energy Corporation. On May 18, 2005, we changed our name to FEC Resources,
Inc. We have no subsidiaries. We currently hold 6.80% of the issued and outstanding capital of FEL, and in addition we hold a 35% interest in Metalore Mining Corporation (“MMC”), a Philippine-based company that holds the rights to a 64 hectare
license, which has been abandoned. We also own a 1.08% interest in Lascogon Mining Corporation which owns the Mineral Production and Sharing Agreement 148 (“MPSA 148”), a gold exploration project in the Philippines.
We are engaged in investment into companies in the natural resource sector.
Our head office is located at Suite 2300, Bentall 5, 550 Burrard Street, Vancouver, BC, V6C
2B5.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov. Our website can be viewed at the following
address: www.fecresources.com
B. Business Overview
At this time, we do not have any significant revenue-generating assets, and as a result, we will rely upon issuance of new shares or debt to fund ongoing
operations.
Recent Developments
In October 2019, the Philippines’ Department of Foreign Affairs (“DFA”) announced that the Philippines and China had officially
convened an Intergovernmental Standing Committee that will supervise projects under the two countries’ joint oil and gas exploration in the West Philippines Sea. The DFA further announced that the Steering Committee held its first meeting in
Beijing on October 28, 2019. Under the MOU, the Steering Committee will create one or more inter-Entrepreneurial Working Groups that will agree on entrepreneurial, technical and commercial aspects of cooperation on certain areas in the West
Philippine Sea. China’s government has appointed China National Offshore Oil Corporation (“CNOOC”) as its representative to the Working Group(s). FEL will be the Philippine government’s representative to the Working Group that will be created for
SC 72. This indicates continuing participation of private companies on the Philippine side and provides protection to existing service contractors such as FEL, which holds and operates SC 72.
On October 16, 2020, FEL received notice from the Philippine Department of Energy (“DOE”) that the force majeure (“FM”) imposed on SC 72 on December 15, 2014 was lifted with
immediate effect and that FEL was to resume exploration activities on SC 72. FEL now has 20 months from the date of lifting of the FM to drill two (2) commitment wells. The total cost of drilling these wells depends on a number of factors, the
Company’s management estimates the total work to be between US$70 million and US$100 million. It is important to note that, to date, there has been no announcement of any agreement between FEL and CNOOC in relation to SC 72.
The 2021 WPB for SC72 was approved by the DOE on February 23, 2021. It consisted mainly of finalization of drilling programs, purchase of long lead items, award of third-party contracts and the
drilling of two (2) Sampaguita wells.
The Philippines
We are currently a holding company with an interest in FEL, in which we own a 6.80% equity interest, owns the oil and gas rights over an 8,800 square-kilometer block located
in the West Philippine Sea. In addition, FEL holds interests in various other concessions located in the Philippines. This block is subject to a dispute between The Republic of the Philippines and the People’s Republic of China.
Forum Energy Plc. (“FEP”)/Forum Energy Limited (“Forum Energy” or “FEL”)
We currently own 6.80% of Forum Energy. Forum Energy was established through the consolidation in 2005 of the Philippine assets of FEC Resources, Inc. of Canada, and Sterling
Energy Plc of the UK, into one corporate entity. Forum Energy is a private company, which has participating interests in 11 oil and gas blocks in the Philippines through various subsidiaries. Forum Energy’s subsidiaries are Forum Energy Philippines
Corporation (“FEPC”) and Forum (GSEC101) Limited.
Forum Energy and ourselves are both ultimately under the control of PXP Energy Corporation (“PXP”) and are therefore affiliates.
On March 23, 2017, PXP announced that it had increased its shareholdings in Forum Energy from 48.8% to 69.5% through a debt conversion involving the issuance of 39,350,920
Forum Energy shares at a decreased price of US$0.30 per share. On the same day, an independent third party purchased 6,666,667 newly issued Forum Energy shares at a price of US$0.30 per share for a total cash payment of US$2,000,000. We did not
participate in this financing transaction. These two transactions resulted in the dilution of our interest in Forum Energy from 18.42% to 8.03%. As a result of this dilution, the Company’s investment in Forum Energy ceased to be an equity
investment. As a result of the loss of significant influence, we recognized an unrealized gain of $1,965,000 in the statement of operations and comprehensive income for the revaluation and reclassification of the investment as available for sale
during the year. On December 6, 2017, we sold 1,000,000 Forum Energy shares to our parent company, PXP, for $0.30 per share. As a result of the sale of the shares our interest in Forum Energy was reduced to 6.80%.
The following information related to PXP or Forum Energy has been provided to us by PXP or Forum Energy, as we do not have direct knowledge of such information.
PXP holds a 79.13% controlling interest in Forum Energy, with 72.33% held directly and 6.80% held indirectly through its 78.39% shareholding of our Company. Forum Energy is
a company incorporated under the laws of England and Wales with focus on the Philippines and has: (a) a 70% operating interest in SC 72 Recto Bank, which covers the Sampaguita natural gas discovery in offshore West Palawan, held through Forum (GSEC
101) Limited; (b) minority interests in the SC 6 and SC 14 sub-blocks in offshore Northwest Palawan, including a 3.21% interest in the producing Galoc field, held through FEPC; and (c) a 100% operating interest in SC 40 North Cebu held through FEPC’s
66.67%-held subsidiary Forum Exploration Inc. (“FEI”).
A summary of Forum Energy’s interests are as follows:
*Ceased production on March 13, 2019.
Following is a brief description of the properties of Forum Energy together with production details where appropriate.
SC 72 Recto Bank
FEL’s principal asset is a 70% participating interest in SC 72 (previously Geophysical Survey and Exploration Contract No. 101 (“GSEC 101”)), a petroleum license located in
the Recto Bank, offshore west of Palawan Island, the Philippines. The remaining 30% of SC 72 is owned by Monte Oro Resources & Energy Inc., a company incorporated in the Philippines, who is involved in a joint venture with FEL with respect to SC
72.
On February 15, 2010, the GSEC 101 licence was converted to Service Contract 72 and FEL immediately conducted geological and geophysical works to further evaluate the block
and to fulfill its commitment to the government. SC 72 covers 8,800 square kilometers, which is 85% of the area covered by GSEC 101.
Exploration in the area began in 1970, and in 1976, gas was discovered in the Sampaguita structure following the drilling of a well. To date, a total of three wells have
been drilled at the southwest end of the structure. Two of the wells tested gas at rates warranting further exploration.
In early 2011, FEL acquired 2,202 line-km of 2D seismic, gravity, and magnetic data over SC 72 to further define leads. Also, 565 square kilometers of 3D seismic data were
acquired over the Sampaguita Field (the “Sampaguita 3D”).
The 2D seismic data were reprocessed in 2013 and were subsequently interpreted, aided by gravity-magnetics data that were interpreted by Fugro (in 2012) and Cosine Ltd. (in
2015). In 2015, Arex Energy produced a report on the North Bank area, located northwest of the Sampaguita Field, and estimated the prospective resources to be significant enough to continue with exploration of the concession.
A final hearing on the merits and remaining issues of jurisdiction and admissibility was held from November 24-30, 2015 in The
Hague regarding the area covered by FEL’s 70% interest in Service Contract (“SC”) 72 Recto (Reed) Bank. On July12, 2016, the Permanent Court of Arbitration in the Hague ruled in favor of the Philippines against China over territorial disputes in the South China Sea. China has rejected the ruling. It is uncertain
whether this ruling will resolve the dispute between the parties. However, a Memorandum of Understanding on Cooperation on Oil and Gas Development between the Government of the Republic of the Philippines and the Government of the People’s Republic
of China and dated November 20, 2018 (the “MOU”) was signed. The MOU states that the aforesaid governments
"…have decided to negotiate on an expedited basis arrangements to facilitate oil and gas exploration and
exploitation in relevant maritime areas consistent with applicable rules of international law (hereinafter referred to as “the cooperation arrangements”)… The two governments will endeavour to agree on the cooperation agreements within twelve (12)
months of this Memorandum of Understanding… This Memorandum of Understanding, and all discussions, negotiations and activities of the two governments or their authorized enterprises under or pursuant to this Memorandum of Understanding, will be
without prejudice to the respective legal positions of both governments. This Memorandum of Understanding does not create rights or obligations under international or domestic law."
Also, in October 2018, FEL started the Broadband and Pre-Stack Depth Migration (“PSDM”) reprocessing of the Sampaguita 3D seismic data with DownUnder GeoSolutions (“DUG”), a
company based in Perth, Australia, as contractor. The reprocessing work was completed in June 2019 and costs around US$490,000, including quality control supervision.
In October 2019, the Philippines’ Department of Foreign Affairs (“DFA”) announced that the Philippines and China had officially convened an Intergovernmental Steering
Committee that will supervise projects under the two countries’ joint oil and gas exploration in the West Philippine Sea. The DFA further announced that the Steering Committee held its first meeting in Beijing on October 28, 2019. Under the
Memorandum of Understanding (“MOU”), the Steering Committee will create one or more inter-Entrepreneurial Working Groups that will agree on entrepreneurial, technical, and commercial aspects of cooperation on certain areas in the West Philippine Sea.
China has appointed China National Offshore Oil Corporation (“CNOOC”) as representative to the Working Group(s). FEL will be the representative to the Working Group that will be created for SC 72. The Steering Committee also agreed to hold the
second meeting in the Philippines in early 2020, however, it was being deferred due to the COVID-19 pandemic.
On October 16, 2020, FEL received notice from the Philippine Department of Energy (“DOE”) that the force majeure (“FM”)
imposed on SC 72 on December 15, 2014 was lifted with immediate effect and that FEL was to resume exploration activities on SC 72. FEL now has 20 months from the date of lifting of the FM to drill two (2) commitment wells. The total cost of
drilling these wells depends on a number of factors, the Company’s management estimates the total work to be between US$70 million and US$100 million. It is important to note that, to date, there has been no announcement of any agreement between FEL
and CNOOC in relation to SC 72.
SC 40 North Cebu
A 100% operating interest in SC 40 is held by FEPC’s 66.67% owned subsidiary FEI.
SC 40 is located in the Visayan Basin in the central part of the Philippine Archipelago and covers an area of 340,000 hectares in the northern part of Cebu Island and
adjacent offshore areas. It contains the Libertad Gas Field and several other prospects.
A land gravity survey was conducted in the municipalities of Daanbantayan and Medellin from April 2 to 27, 2018. A total of 94 gravity stations were acquired at a spacing of
200m to 500m. The processing and interpretation of the gravity data was carried out in two (2) stages. The first stage is a 3D inverse grid depth modelling which was undertaken by contractor Cosine Ltd. (“Cosine”). This was completed in early 2019.
The second stage is a detailed stratigraphic 3D multi-sectional model done in-house by the FEL technical team under Cosine’s quality control supervision. During this stage, a number of possible carbonate bodies were identified in certain areas of
the block. Delineation of this features required additional data; thus a gravity survey was conducted in the first quarter of 2020.
FEL has started planning for an onshore well, Dalingding-2, to be drilled in 2021. The Company has engaged the services of an operations geologist to prepare the geological
program and prospect montage. The Dalingding Prospect is a reefal structure defined by seismic with Barili Limestone as the primary target. A well, Dalingding-1, was drilled by Cophil Exploration in 1996 and was plugged and abandoned as a dry hole
with minor gas shows after reaching a total depth of 1,508 ft. Following FEL’s recent re-evaluation of the prospect, it was concluded that Dalingding-1 did not reach the Barili target, which is estimated at 1,740 ft, or 232 ft below the well’s total
depth. The current plan is to drill a well down to at least 4,000 ft to penetrate the Barili and secondary targets underneath.
On November 21, 2019, FEL submitted the WP&B for 2020, which includes the continuation of the Gravity Interpretation – Stage 2, Radioactive Waste Management, and the
conduct of a Land Gravity Survey. This was approved by the DOE on December 2, 2019. The radioactive wastes that were part of FEL’s wireline logging tools were safely transported from Daanbantayan, Cebu and turned over to the Philippine Nuclear
Research Institute in February 2020. Thereafter, FEL applied for the termination of its Radioactive Materials License. However, one of the conditions for the termination of license is the certification that the facilities are not contaminated. This
will require measurement of radioactivity in the site post removal of the radioactive materials, which will have to wait until travel restrictions have been eased and/or the safety of the personnel from COVID-19 can be guaranteed.
The 2020 Land Gravity Survey is for the acquisition of gravity data along profiles in parts of the Municipality of Daanbantayan and Bogo City that aims to further delineate
the carbonate bodies detected in the said areas by the initial 3D gravity modelling exercise in 2019. The survey began on February 18, 2020 and was completed on March 14, 2020. A total of 84 stations, 300m to 500m apart were acquired during the
survey. FEL has completed the correction of meter readings, coordinates, and elevations of gravity stations acquired during the survey. All corrected gravity data were forwarded to a geophysical contractor, Cosine Ltd, for data reduction, processing,
and interpretation. The report for the first phase of gravity interpretation was received from Cosine Ltd in early December 2020 and is being reviewed by FEL’s technical team. The results of the gravity survey will be used to update the current depth
model for northern Cebu.
SC 14 C-1 Galoc
Block C-1 Galoc has an area of 164 square kilometers and contains the producing Galoc Oil Field.
On July 12, 2018, Tamarind Galoc Pte Ltd, a subsidiary of Singapore-based Tamarind Resources Pte Ltd (“Tamarind”), acquired Nido Petroleum’s subsidiaries Galoc Production
Company WLL (“GPC”) and Nido Production (Galoc) Pte Ltd, giving Tamarind 55.88% equity and operatorship of the Galoc Field.
On May 7, 2020, GPC informed the DOE of the cessation of operation for Galoc Field starting September 24, 2020. This comes after GPC’s receipt of a Notice of Termination from
Rubicon Offshore International (“ROI”), the owner of the floating production storage and offloading (“FPSO”) vessel, Rubicon Intrepid. GPC has also requested approval of the initial drawdown from the fund set-up under the DOE-approved Galoc
Abandonment Plan for the implementation of the field suspension plan. However, in September 2020, the Galoc Joint Venture was able to negotiate with ROI for the sale of the Rubicon Intrepid that will allow Galoc Field to continue to be in production
beyond the original cessation schedule of September 24, 2020. Tamarind, which owns GPC, formed a new subsidiary, Philippines Upstream Infrastructure (“PUI”), to acquire the FPSO from ROI. GPC and ROI then entered into a Transition Operations and
Maintenance (“O&M”) contract to allow the current ROI crew to continue managing FPSO operations during a transition period that will last for about six (6) months. Finally, GPC entered into an O&M contract with Three60 Energy, an energy
services provider, that will take over FPSO operations after the transition period. The contract will be for 24 months.
Gross production for 2020 averaged 1,900 BOPD [2019 – 2,045 BOPD]. FEPC’s share is approximately 48.4 BOPD [2019 – 46 BOPD]. This represents a slight increase of 5.4%
associated with the increase in participating interest of FEL in Galoc from 2.28% to 3.21% due to the withdrawal of one of the Consortium members, Galoc Production Company 2 (“GPC 2”) in September 2020, and the distribution of GPC 2’s participating
interest of 26.84% to the remaining members on the same month. The increase in participating interest was accepted by FEPC in January 2021.
On December 23, 2020, GPC resigned as the SC 14C-1 operator effective on that date. On the same day, the Joint Venture elected NPG Pty Limited, GPC’s affiliate, to become the
replacement operator.
SC 6A Octon
SC 6A Octon covers an area of 1,080 square kilometers and contains the Octon Field.
In 2018, The Philodrill Corporation (“Philodrill”) completed the seismic interpretation/mapping work on the northern sector of the block using the PSDM volume. The evaluation
focused on the Malajon, Salvacion, and Saddle Rock prospects. The Malajon and Saddle Rock closures were previously tested by wells which encountered good oil shows in the Galoc Clastic Unit (“GCU”) interval. However, no drill stem tests were
conducted in this interval due to operational constraints.
The 2019 work program included the completion of seismic attribute analysis of the North Block of SC 6A to characterize the target reservoirs and determine their distribution
in terms of porosity, thickness, and lithology. Philodrill will then conduct resource analysis, including computation of reserves, and preliminary well design and cost to mature a drilling location in the area.
For 2020, the DOE approved a work program which consists of G&G studies in support of establishing a final well location and well design to test the hydrocarbon potential of the Malajon-Salvacion-Saddle Rock anticlinorium, and the continuation of G&G work to identify additional resources at the Octon South structure and other opportunities immediately around the Octon Field to support its development.
In June 2020, LMKR, a private petroleum technology company based in Dubai, completed a pilot study on the Malajon area using 3D seismic and well data. The study shows the
Malajon structure having a good potential and thus requires further detailed analysis. LMKR is also able to identify four (4) sand packages within the GCU after generating several elastic properties (P-impedance, Vp/Vs, etc.).
A Quantitative Interpretation (“QI”) study was approved by the JV aimed at generating pay probability maps and identifying prospective zones that could be targets for any
future well. It will also include detailed attribute analysis as several channelized sands within the GCU have been identified during the pilot study. An amended WP&B for 2020 to cover this additional study was approved by the DOE in July 2020.
The DOE approved Philodrill’s request to defer the submission of the 2021 WP&B for SC 6A to First Quarter of 2021 as it needs additional time to incorporate the results
of the QI study in the preparation of the work program.
SC 6B Bonita
SC 6B Bonita covers an area of 567 square kilometers and contains the Bonita discovery.
An in-house evaluation completed by Operator Philodrill in early 2016 shows the East Cadlao Prospect has marginal resources which cannot be developed on a “stand-alone”
basis. However, it remains prospective being near the Cadlao Field, which lies in another contract area. In view of this, the JV has requested for the reconfiguration of SC 6B to append the Cadlao Field for possible joint development in the future.
On March 14, 2018, the DOE approved the annexation of Cadlao Block to SC 6B.
The Cadlao Field was discovered in 1977 and produced about 11 million barrels (“MMbbls”) of oil from two (2) subsea production wells from 1981-1991. It has estimated
recoverable reserves of 3.7 MMbbls (1P) and 5.7 MMbbls (2P) based on GCA (2012). The East Cadlao has estimated recoverable resources of 1.48 MMbbls (P10) and 1.17 MMbbls (P50) based on Philodrill (2016).
On October 17, 2019, the FIA, Deed of Assignment and transfer of operatorship from Philodrill to Manta Oil Company Ltd. (“Manta”) were approved conditionally by the DOE,
requiring Manta to submit additional financial documents. Under the FIA, Manta will carry the JV up to First Oil to earn 70% interest. FEL’s interest will be reduced to 2.4546% from 8.182% upon completion of the farm-in.
Manta is currently conducting a remapping of the Cadlao Field based on 2016 Pre-Stack Time Migration (PSTM) reprocessing of the 3D seismic data. It is also planning to
conduct PSDM reprocessing of 88 square kilometers of 3D seismic data over Cadlao Field to improve the mapping of the Cadlao structure and firm-up well locations for the field’s redevelopment. A plan of development (“POD”) for Cadlao will be submitted
to the DOE by the end of 2021. It may include the drilling of East Cadlao, depending on the results of the technical evaluation.
SC 14A [Nido], SC 14B [Matinloc] & SC 14B-1 [N. Matinloc]
Production from the Nido and Matinloc Fields was terminated permanently on March 13, 2019, after producing 22,173 barrels (“bbls”) of oil from January to March 2019. The Nido
Field accounted for 93.06% of the total while Matinloc Field contributed the remaining 6.94%. Shell Philippines was the sole buyer for the crude during the period.
Nido started oil production in 1979 while Matinloc was put in place in 1982. The final inception-to-date production figures for the two fields are: 18,917,434 bbls for Nido
and 12,582,585 bbls for Matinloc. The North Matinloc Field, which was in production from 1988 to 2017 produced a total of 649,765 bbls of oil. The total production for the three (3) fields is 32,149,784 bbls.
Seven (7) production wells in Nido (3 out of 5), Matinloc (3), and North Matinloc (1) were successfully P&A from April to May 2019. The two remaining Nido wells, A1 and
A2, were only partially abandoned due to difficulties encountered during operations.
Following the suspension of field operations and the P&A of the wells in March 2019, Philodrill conducted the stripping and disposal of equipment and materials aboard the
production platforms from June to October 2019. In December 2019, all production platforms were turned over to the DOE which, in turn, will hand them over to the Armed Forces of the Philippines (“AFP”). On June 26, 2020, a Deed of Donation and
Acceptance was signed by DOE with the Department of National Defense to formalize the transfer of ownership of the Nido and Matinloc platforms to the AFP, which will now use the platforms for defense purposes.
The P&A of the remaining Nido production wells, A-1 and A-2 wells was completed on October 5, 2020. This was originally scheduled in April 2020 but had to be deferred
due to COVID 19-related health and travel restrictions.
Following the cessation of operations and the completion of P&A of all production wells, preparations are being made to surrender the SC 14A, 14B, 14B-1, Tara, and SC 14D
blocks to the DOE within the first quarter of 2021.
SC 14C-2 West Linapacan
Block C-2 has an area of 176.5 square kilometers and contains the West Linapacan “A” and “B” structures.
In 2018, the JV headed by Philodrill completed mapping and interpretation work on the 3D seismic data that was reprocessed in 2014. The study focused on the West Linapacan
“B” structure, which was drilled in 1991. The JV is studying options to develop the field.
The SC 14C2 and SC 74 consortia conducted a joint Rock Physics and QI studies over the West Linapacan and Linapacan areas using existing 3D seismic and well data. The
initial phase of the study was carried out and completed by Ikon in October 2019. The SC 14C2 JV decided not to proceed with the second phase of the QI Study in view of the impending entry of DRPL to the SC 14C2 block.
In 2019, Desert Rose Petroleum Limited (“DRPL”) expressed interest to re-develop the West Linapacan “A” Field through a farm-in process and through the purchase of
participating interests from companies that are willing to divest. For the divesting members, DRPL offered a nominal transaction price of US$100.00, but upon production will pay these companies:
For the farming-out companies, DRPL will shoulder the cost of redevelopment of West Linapacan “A” Field up to First Oil. In return, the companies will further assign 75% of
their remaining interest to the farminee, leaving them with a combined interest of 5%.
By end-2020, the relevant closing conditions, which include regulatory approval in the Sale and Purchase Agreement (SPA) and the Farm-out Agreement (FOA) have not yet
completed. The process of finalizing the documents, including Deeds of Assignment arising out of the SPA and FOA, was severely delayed by the COVID 19 situation. FEL is not a party to the FOA as it opted to sell all its interest to DRPL.
Other sub-blocks in SC6 and SC14
Forum Energy will continue to participate in these sub-blocks which are mostly in the exploration phase.
Forum Energy Objectives and Strategy
The core objective of FEL is to maximize the potential of its investments and its current licences to generate income, whilst at the same time continuing to reduce administrative expenses.
FEL plans to achieve this by:
For further details regarding Forum Energy, see its 2019 financial statement package at https://find-and-update.company-information.service.gov.uk/company/05411224/filing-history
Please note that FEL is not required to file its financial statement package with Companies House in the UK until September 30 following the end of its fiscal year which is
December 31. Accordingly, the FEL financial statement package for 2020 is not expected to be available until Q3 of 2021.
Risk factors specific to FEL
The Company is exposed to certain risk factors which are specific to its investment in Forum Energy. These include the following:
C. Organizational Structure
We are part of a group of companies with our parent company being PXP. We have no subsidiaries.
ITEM 4A. UNRESOLVED STAFF COMMENTS
N/A
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
We have experienced significant operating losses over the last few years, and as a result, our ability to continue as a going concern is dependent on achieving profitable
operations and/or upon obtaining additional financing.
Our audited financial statements were prepared in accordance with IFRS as issued by the IASB, which are different from US GAAP (refer to the Auditors’ Report dated March 26,
2021).
The Company is exposed to foreign currency fluctuations for general and administrative transactions denominated in Canadian Dollars. The majority of the
Company’s cash is kept in U.S. dollars. Cash held in Canadian dollars is subject to exchange rate fluctuations between the Canadian dollars and the U.S. dollars.
The following discussion and analysis of financial results should be read in conjunction with our Audited Financial Statements for the year ended December 31, 2020, together
with the notes related thereto. The discussion contains forward-looking statements that involve risks and uncertainties. Such information, although considered reasonable by our management at the time of preparation, may prove to be inaccurate and
actual results may differ materially from those anticipated in the statements made.
Fiscal year ended December 31, 2020 versus December 31, 2019
Our accounts show a loss for the year ended December 31, 2020 of $187,052, or $0.00 per share, versus a loss of $211,683 for the same period in 2019. General and
administration expense were $211,677 for the year ended December 31, 2020 versus $213,561 for the same period in 2019. Overall expenses were slightly lower than those experienced in the previous year. Lower professional fees offset by an increase
in consulting fees and office expenses mainly accounted for the difference. Professional fees were $22,388 for the year ended December 31, 2020 versus $56,773 for the same period in the previous year due to costs resulting from a shareholder
complaint. Office and miscellaneous costs were $34,139 for the year ended December 31, 2020 versus $21,016 for the same period in the previous year due an accrual for some potential one time costs. Consulting fees for the year ended December 31, 2020
were $128,320 versus $108,513 for the previous year due to an increase in fees paid to the directors. Listing and filing fees were $18,370 for the year ended December 31, 2020 versus $19,980 for the same period in the previous year. The difference
was not significant. For the year ended December 31, 2020, foreign exchange loss was $4,333 versus $3,403 for the same period in the previous year. Reversal of accounts payable for the year ended December 31, 2020 was $18,895 versus $Nil for the
same period in the previous year as an amount due to Lascogon Mining Corporation was deemed to be extinguished and therefore was reversed.
Fiscal year ended December 31, 2019 versus December 31, 2018
Our accounts show a loss for the year ended December, 2019 of $(211,683) or $0.00 per share, versus a loss of $(217,665) for the same period in 2018.
The difference was because of slightly lower overall general and administration expenses.
General and administration expense were $213,561 for the year ended December 31, 2019 versus $222,326 for
the same period in 2018. Overall expenses were slightly lower than those experienced in the previous year. Higher professional fees offset by reductions in listing and filing fees and office and miscellaneous costs accounted for the difference.
Professional fees were $56,773 for the year ended December 31, 2019 versus $44,836 for the same period in the previous year due to costs resulting from a shareholder complaint. Consulting fees for the year ended December 31, 2019 were $108,513
versus $108,000 for the year ended December 31, 2018. The difference was not significant. Listing and filing fees were $19,980 for the year ended December 31, 2019 versus $31,201 for the same period in the previous year. The decrease was due to
the fees associated with the application for the removal of the cease trade order
against the Company in Alberta and British Columbia in 2018. For the year ended
December 31, 2019 travel expense was $Nil versus $8,691 for the year ended December, 2018. The decrease was due to travel for the Company’s annual general meeting in 2018 that was not undertaken in 2019. For the year ended December 31, 2019
foreign exchange loss was $3,403 versus a loss of $22 for the year ended December 31, 2018.
Our current assets were $544,175 at December 31, 2020 versus $52,908 for the year ended December 31, 2019. The difference is
mainly a result of the higher cash balance, higher receivables balance and the loan due from Forum Energy. Our investment in Forum Energy was reflected at a carrying value of $1,835,111 in the financial statements as at December 31, 2020 (2019 -
1,665,000). Our assets reflect our investment in Forum Energy on a fair value basis. The fair value of the investment in Forum Energy is reflected at $1,835,111 or
US$0.30 per share based on the most recent arms’ length financing completed by Forum Energy.
Liquidity and Capital Resources
Our working capital at December 31, 2020 was $501,443 versus a deficit of $69,208 at December 31, 2019 and shareholders’ equity was $2,336,554 at
December 31, 2020 (December 31, 2019 $1,635,378). The change was due to the completion of the Company’s previously mentioned Rights Offering.
Cash used in operating activities for the year ended December 31, 2020 was $271,668 versus $147,062 for the same period in 2019 mainly as a result of the differences
described in the results of operations above.
Cash provided by financing activities was $757,498 for the year ended December 31, 2020 versus cash used in financing activities of $39,381 for the year ended December 31, 2019. In 2019, we paid
$39,381 for costs related to a Rights Offering transaction which commenced in 2019 and was completed in 2020.
Cash used in investing activities was $347,141 for the year ended December 31, 2020 versus $Nil for previous year. The increase was due to the loan to FEL purchased from PXP by the Company.
Capital Resources
We currently own 6.80% of Forum Energy. If Forum Energy is required to raise additional funds through equity issuances then we would have to purchase our proportionate share
of these equity issuances to maintain our current equity position.
We anticipate that we will require additional funds for working capital in 2021 and we are evaluating options in order to raise the additional funds. If we are unable to
raise additional funds there is significant doubt that we will be able to continue as a going concern.
Since the delisting of FEL from the London Stock Exchange, there is no liquidity via a public market for the FEL shares. As we are wholly reliant on the information
disclosed by PXP concerning the business of FEL, we may not be able to obtain information necessary to facilitate a wider sales process and may be reliant on significant shareholders of PXP for the disposition of any of our FEL shares. We have
looked at all options including raising funds to operate and participate in future FEL financings by way of debt or equity financings.
Given our current share price, and given that any external financings may have been extremely dilutive, we completed a rights
offering to raise funds to sustain operations. We closed the rights offering on
July 31, 2020 and raised approximately $846,750 less transaction costs of $128,633.
On January 22, 2020, we received $150,000 from our parent company, PXP, as a working capital advance. The advance was non-interest bearing, unsecured and
due on demand. The loan was repaid on July 31, 2020.
On April 14, 2020, FEL completed a fund raising of $2,500,000 which was achieved by FEL issuing new shares at a price of US$0.30 each.
In advance of our Rights Offering, PXP paid our share of FEL’s financing thus allowing us to maintain our 6.8% interest in FEL
at a cost of approximately $170,111. On July 31, 2020 we settled this amount by issuing 75,605,066 shares to PXP at a price of $0.00225.
On August 7, 2020, we purchased 6.8% of the loan currently due by FEL to PXP amounting to $346,202 plus accrued interest of $939. This loan is unsecured, due on December 31,
2021 and bears interest at an annual rate of 3.5% plus LIBOR which is payable on a quarterly basis. As at December 31, 2020 accrued interest liability was $2,755.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual Obligations
None
Critical Accounting Policies and Estimates
Basis of preparation and accounting policies
We have prepared our consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards
Board (“IASB”). IFRS represents standards and interpretations approved by the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former
Standing Interpretations Committee (“SIC’s”). The consolidated financial statements have been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2020.
Critical Accounting Estimates
The preparation of financial statements requires management to make certain judgments and estimates. Changes in these judgments and estimates could have a material impact on
our reported financial result and financial condition.
We make estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on
historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.
The determination of the fair value of our investment in FEL is a significant accounting estimate.
Recent Accounting Related Pronouncements
The Company has prepared its financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents standards and
interpretations approved by the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations Committee (“SIC’s”).
The financial statements have been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2020.
New IFRS standards and interpretations or changes to existing standards with future effective dates are either not applicable or not expected to have a significant impact on
the financial statements of the Company.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
A. Directors and Senior Management
The following table lists, as of the date of this report, the names, ages, functions and areas of experience in our operations of all our directors and Senior Management.
Each Director will serve until the next Annual General Meeting or until his/her successor is duly elected, unless his/her office is vacated in accordance with our charter documents. Our executive officers serve at the pleasure of the Board of
Directors.
(1) Member of Audit Committee in 2020.
(2) Member of Compensation Committee in 2020
(3) Member of the Corporate Governance Committee in 2020
Information About our Directors and Officers
Mr. Daniel Carlos Director, President, Chief Executive Officer
Mr. Carlos is currently the President and a Director of the PXP Energy Corporation, the Company’s majority shareholder. He obtained his Bachelor of Science (B.Sc.) degree in
Geology from the University of the Philippines (1984) and holds a Master of Science (M.Sc.) degree in Petroleum Geoscience from the Norwegian University of Science and Technology or NTNU (2002). He also has a Diploma in Petroleum Exploration and
Reservoir Evaluation from the University of Trondheim, now NTNU (1988). In February 2007, he joined Forum Energy Philippines Corporation as Vice President for Exploration and was appointed President since July 2013 to present. He was appointed
President of PXP Energy Corporation in August 2015. He is also the Resident Agent in the Philippines of Forum (GSEC 101) Limited which operates Service Contract (SC) 72 or Recto Bank. He is also the President of Forum Energy Philippines Corporation,
a subsidiary with non-operated holdings in SCs 6 and 14, and Forum Exploration, Inc., which operates SC 40 or North Cebu Block. He is a licensed Filipino Geologist (PRC No. 1027) and placed third in the 1985 Geologist Licensure Examinations.
Mr. Mark Rilles Chief Financial Officer
Mr. Rilles is currently the Finance Controller of the PXP Energy Corporation, having joined the Group in 2012. He is the Corporate Secretary of Forum Energy Limited and
Pitkin Petroleum Limited and Director and Treasurer of Forum Energy Philippines Corporation and Forum Exploration Inc. He obtained his Bachelor of Science degree in Accountancy from the University of Santo Tomas (2004) and holds a Master of Business
Administration (M.B.A.) degree from the Ateneo Graduate School of Business (2014). He is a Certified Public Accountant (passed the CPA Licensure Examinations in 2004) and previously worked at SyCip Gorres Velayo & Co. (SGV & Co.) from 2004 to
2008.
Mr. Paul Wallace
Mr. Paul Frederick Wallace is a Chartered Professional Accountant and member of the CPA Canada. He was appointed as the Chief Financial Officer of Hong Kong-based First
Pacific Company Limited from 1995 to 1997, between 2003 and 2004, and between 2014 and 2015. He was appointed Group Finance Director to the Sanctuary Group plc between 2005 and 2008. Mr. Wallace was Chief Executive Officer of Blue Ocean Wireless
Limited between 2009 and 2011, and a Non-Executive Director of JPMorgan Global Emerging Markets Income Trust Plc between 2010 and 2015. From March 2015 through April 2019, he was the Finance Director of Forum Energy, a Director of Pitkin Petroleum
Limited, and Head of Finance of Goodman Fielder Pty Limited.
Mr. Claro Ramirez
Mr. Ramirez is a resident of Richmond, British Columbia, Canada and served as Senior Vice President of Philippine Long Distance Telephone Company (“PLDT”) until 2014, and
President of First Coconut Manufacturing Inc, from 2014 to May 2018.
None of our directors and/or executive officers, or those persons to be appointed, have been the subject of any order, judgment, or decree of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he or she is a director and/or executive officer, to engage in the
securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he or she is an officer or director from engaging in or continuing any conduct, practice,
or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security, or any aspect of the securities business, or of theft, or of any felony.
There are no arrangements or understandings between any two (2) or more directors or executive officers, pursuant to which he or she was selected as a Director or Executive
Officer. There are no family relationships between any two (2) or more of our directors or executive officers.
B. Compensation.
We have recently agreed to pay our directors the following consulting fees or directors’ fees on a monthly basis:
None of our executive officers or directors received other compensation in excess of the lesser of US $25,000 or 10% of such Executive Officer's or Director’s cash
compensation as reported in the compensation table below and all Executive Officers and directors as a group did not receive other compensation which exceeded US $25,000 times the number of persons in the group or 10% of the compensation reported in
the compensation table below.
No funds were set aside or accrued by us during the year ending December 31, 2019 to provide pension, retirement or similar benefits for our directors or Executive Officers.
Except for the stock option program discussed below, we have no bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or Executive Officers.
The following tables detail the compensation paid during fiscal year ended December 31, 2020 and 2019 to our directors and members of our administrative, supervisory or
management bodies:
Director/Executive Officer Compensation
Director Compensation for Fiscal Year ended December 31, 2020
(1). “Option Exercise Net Market Value” is defined as the aggregate difference between the exercise
price and the market value of the common stock on the date of exercise.”
(2) Lyle Brown resigned as a Director on October 30, 2020.
Director Compensation for Fiscal Year ended December 31, 2019
(1). “Option Exercise Net Market Value” is defined as the aggregate difference between the exercise
price and the market value of the common stock on the date of exercise.”
(2) Lyle Brown resigned as a Director on October 30, 2020.
Our Board may award special remuneration to any Director undertaking any special services on our behalf other than services ordinarily required of a Director. Other than
indicated above no Director received any additional compensation for his or her services including committee participation and/or special assignments.
Except for the stock option program discussed below, we have no bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our
directors or Executive Officers.
Options to Purchase Our Securities.
Options to purchase securities from us are granted to directors, officers and employees on terms and conditions acceptable to the relevant regulatory authorities. We adopted
a formal stock option plan on June 19, 2000. There were no stock options outstanding on December 31, 2020 and none were issued or exercised in 2020 or 2019.
C. Board Practices
We have an Audit Committee, a Compensation Committee and a Corporate Governance Committee. No committee members receive additional compensation for serving on a committee
and all committee members serve for a one year term. All board members are elected at our Annual General Meeting to serve for one year or until their successor is appointed.
Audit Committee. The
Audit Committee oversees the retention, performance and compensation of our independent auditors, and the establishment and oversight of our systems of internal accounting and auditing control. Members of the Audit Committee in 2020 Lyle Brown,
Claro Ramirez, and Paul Wallace. Mr. Brown resigned as a board member on October 30, 2020 as was replaced by Mr. Daniel Carlos. New members of our Audit Committee for 2021 will be appointed following our Annual and General Meeting of
Shareholders.
Compensation Committee.
The Compensation Committee reviews and makes recommendations to our Board concerning the terms of the compensation packages provided to our senior executive officers, including salary, bonus and awards under our stock option plan and any other
compensation plans that we may adopt in the future. Members of the Compensation Committee in 2020 were Paul Wallace, Lyle Brown and Claro Ramirez. Lyle Brown resigned as a Director on October 30, 2020 and was replaced by Daniel Carlos. Members
of our Compensation Committee for 2021 will be appointed following our Annual and General Meeting of Shareholders.
Corporate Governance Committee. The Corporate Governance Committee meets with and discusses current disclosure issuances with our management personnel, directors, and with both our Canadian and United States counsel, to report to our Board any matters which
should be the subject of either public disclosure or remedial action and to assist our Board in establishing reporting and disclosure procedures to ensure that we are in compliance with our disclosure and compliance obligations under applicable
laws, rules and obligations. Members of our Corporate Governance Committee in 2020 were Claro Ramirez and Lyle Brown. Lyle Brown resigned as a director on October 30, 2020 and was replaced by Paul Wallace. Members of our Corporate Governance
Committee for 2021will be appointed following our Annual and General Meeting of Shareholders,
D. Employees
As of December 31, 2020, we had no employees.
E. Share Ownership
The following table lists as of March 8, 2021, the share ownership of our directors and executive officers.
The following table sets forth certain information as of March 8, 2021 regarding the ownership of our common stock by (i) each
of our directors, (ii) each of our named executive officers, and (iii) all of our directors and executive officers as a group. Except as otherwise indicated, the address of each person identified below is c/o FEC Resources Inc, Suite 2300, Bentall 5, 550 Burrard Street, Vancouver, BC, V6C 2B5. We believe that ownership of the shares by the persons identified below is both of
record and beneficial and that such persons have sole voting and investment power with respect to the shares indicated. Percentage of class in the following table is calculated individually based on the following formula: (shares directly or
indirectly controlled + shares issuable on the exercise or conversion of various securities) / (total shares outstanding + shares issuable on the exercise or conversion of various warrant, debentures and options by the director or officer). The
total shares outstanding on March 8, 2021 was 861,082,371.
(1) Lyle Brown resigned as a director on October 30, 2020.
The particulars of the stock options granted to officers and directors are set forth in
the preceding section entitled “DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.” The particulars regarding convertible debentures and warrants acquired by certain officers and directors are as follows:
The following table lists the current directors, executive officers and employees to whom warrants to purchase our shares were sold and the number of share purchase warrants
so sold as of the date of this report, as well as the number of share purchase warrants sold to directors and all employees as a group.
Warrants Held by Directors and Officers
We are a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries. Currently, we are not controlled
directly or indirectly by any foreign government but are controlled by PXP Energy Corporation.
There are no arrangements, known to us, the operation of which may at a subsequent date result in a change in our control other than as noted above.
The above listed organizations and individuals have no special or separate voting rights than those rights held by our shareholders.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
We are a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries. We are controlled by PXP due to
the fact that, as indicated in the table below, it directly owns 78.39% of our outstanding voting securities and thus controls the outcome of all matters decided stockholder votes. The following table provides the names and share ownership of those
parties that have ownership of 5% or more of each class of our voting securities as of March 8, 2021, according to the information available to us
* On July 31, 2020, PXP converted into equity a Rights Offering advance of $170,111 for 75,605,066 shares and also purchased 374,394,920 shares pursuant to our Rights Offering. No other significant changes in the
ownership of our shares by PXP has occurred during the past three (3) years.
** CDS & Co. and Cede & Co. are clearing houses in Canada and the United States and represent the interest of multiple shareholders and there is no way of knowing if any one in particular beneficially holds
over 10% of the voting rights attached to our shares.
There are no arrangements, known to us, the effect of which may at a subsequent date result in a change in our control other
than as noted in Item 5 Operating and Financial Review and Prospects.
As at March 8, 2021, management is not aware of any person holding a greater than 5% registered interest in any class of our voting securities other than as set forth above.
The above listed organizations and individuals have no special or separate voting rights than those rights held by our shareholders.
On March 8, 2021, the shareholders’ list showed 590 registered shareholders and 861,082,371 shares outstanding. The number of shares held by U.S. residents was 48,759,651 representing 5.66% of the
total issued and outstanding shares. The total number of U.S. resident registered shareholders was 521.
B. Related Party Transactions
During the year ended December 31, 2020, general and administrative expenses included key management personnel compensation totaling $66,000 (2019:
$48,000).
On January 22, 2020, the Company received $150,000 from its parent company, PXP, as a working capital advance which was repaid on July 31, 2020. The
advance was non-interest bearing, unsecured and due on demand.
On April 14, 2020, PXP advanced approximately $170,111 directly to FEL on the Company’s behalf allowing the Company to participate in a fund raising by FEL so that the
Company could maintain its 6.8% interest. The advance was considered an advance against the Company’s stock rights offering. The advance was settled by the issuance of new common shares from treasury at the same price as the rights offering price.
On August 7, 2020, the Company purchased 6.8% of the loan currently due by FEL to PXP amounting to $346,202 plus accrued interest of $939. This loan is unsecured, due on
December 31, 2021 and bears interest at an annual rate of 3.5% plus LIBOR which is payable on a quarterly basis. As at December 31, 2020 accrued interest liability was $2,755.
During the year ended December 31, 2020, the Company paid $6,518 for PXP filing fees related to the Right Offering. This amount was repaid subsequent to year end.
During the year ended December 31, 2020, an amount payable to Lascogon Mining Corporation in the amount of $18,895 was deemed extinguished and was therefore reversed.
* Note Item 7.C not required for this Annual Report.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Financial Statements and Other Financial Information
We know of no pending legal or arbitration proceedings, including those relating to bankruptcy, governmental receivership or similar proceeding and those involving any third
party against it, nor are we involved as a plaintiff in any material pending litigation.
We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse
to us, or our subsidiaries, or has a material interest adverse to us. We have not declared any dividends for the last five (5) years, nor do we intend to declare any dividends in the foreseeable future.
B. Significant Changes/Developments
None
ITEM 9. THE OFFER AND LISTING
A. Listing Details and Markets
Starting on September 22, 1999, our shares
traded on the OTC–Bulletin Board (“OTC.BB”) under the symbol “FECOF” and since 2012, our shares have been quoted on the OTC Pink Sheets.
Our common shares trade and have traded on a limited or sporadic basis and should not be deemed to constitute an established public trading market. Broker-dealers often
decline to trade in over-the-counter stocks that are quoted on the OTC Pink Sheets given the market for such securities are often limited, the stocks are more volatile, and the risk to investors is greater. These factors may reduce the potential
market for our common shares by reducing the number of potential investors. This may make it more difficult for investors in our common shares to sell shares to third parties or to otherwise dispose of their shares. This could cause our share price
to decline, and there is no assurance that there will be liquidity in our common shares.
In addition, The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a penny stock. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to a few exceptions which we do not meet. Unless an
exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
ITEM 10. ADDITIONAL INFORMATION.
A. Share Capital
Not applicable
B. Memorandum and Articles of Association
Reference is hereby made to our Certificate of Continuance, and to our Bylaws, each of which is incorporated herein by reference to, respectively, Exhibit 3.1 and 3.2 to our
Registration Statement on Form F-1, file number 33-81290.
C. Material Contracts.
See "Item 4. Information on the Company."
D. Exchange Controls
Investment Canada Act
The Investment Canada
Act (the “ICA”) prohibits the acquisition of control of a Canadian business enterprise in Canada by non-Canadians without the prior consent of Investment Canada, the
agency that administers the ICA, unless such acquisition is exempt under the provisions of the ICA. Investment Canada must be notified of such exempt acquisitions. The ICA covers acquisitions of control of corporate enterprises, whether by
purchase of assets, shares or “voting interests” of an entity that controls, directly or indirectly, another entity carrying on a Canadian business.
Apart from the ICA, there are no other limitations on the right of non-resident or foreign owners to hold or vote securities imposed by Canadian law or our Certificate of
Continuance. There are no other decrees or regulations in Canada which restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-resident holders of
our securities except as discussed in “Taxation”, below.
E. Taxation
The following is a summary of the principal Canadian federal income tax considerations generally applicable in respect of our common stock. The tax consequences to any
particular holder of common stock will vary according to the status of that holder as an individual, trust, corporation or member of a partnership, the jurisdiction in which that holder is subject to taxation, the place where that holder is resident
and, generally, according to that holder's particular circumstances. This summary is applicable only to holders who are resident in the United States; have never been resident in Canada; deal at arm's length with us; hold their common stock as
capital property; and who will not use or hold the common stock in carrying on a business in Canada.
This summary does not take into account provincial income tax consequences. This summary assumes that the publicly announced proposals will be enacted as proposed with the
effective dates set out therein; otherwise, this summary assumes that there will be no other changes in law whether by judicial or legislative action.
If a non-resident were to dispose of common stock to another Canadian corporation which deals (or is deemed to deal) on a non-arm's length basis with the non-resident, and
which, immediately after the disposition, is connected with us (i.e. which holds shares representing more than 10% of the voting power and more than 10% of the market value of all of our issued and outstanding shares), the excess of the proceeds over
the paid-up capital of the common stock sold will be deemed to be taxable as a dividend either immediately, or eventually, by means of a deduction in computing the paid-up capital of the purchasing corporation.
Under the Canadian Tax
Act, a gain from the sale of common stock by a non-resident will not be subject to Canadian tax, provided the stockholder (and/or persons who do not deal at arm's
length with the stockholder) has not held a “substantial interest” in our shares (25% or more of the shares of any class of our equity securities) at any time in the five (5) years preceding the disposition. Generally, the Canadian-United States
Tax Convention (the “Tax Convention”) will exempt from Canadian taxation any capital gain realized by a resident of the United States, provided that the value of the common stock is not derived principally from real property situated in Canada.
In the case of any dividends paid to non-residents of Canada, the Canadian tax is withheld by us, which remits only the net amount to the stockholder. By virtue of Article X
of the Tax Convention, the rate of tax on dividends paid to residents of the United States is generally limited to 15% of the gross dividend (or 10% in the case of certain corporate stockholders owning at least 10% of our voting shares). In the
absence of the treaty provisions, the rate of Canadian withholding tax imposed on non-residents is 25% of the gross dividend. Stock dividends received by non-residents of Canada from us are taxable by Canada as ordinary dividends.
This summary is of a general nature only and is not exhaustive of all possible income tax consequences. It is not intended as legal or tax advice to any particular holder of
common stock, and should not be so construed. Each holder should consult his/her own tax advisor with respect to the income tax consequences applicable to him/her in his/her own particular circumstances.
F. Dividends and Paying Agents
Not applicable
G. Summary By Experts
Not applicable
H. Documents on Display
The documents concerning us which are referred to in this Annual Report are either annexed hereto as exhibits (see Item 19) or may be inspected at our principal executive
offices in Vancouver, British Columbia.
I. Subsidiary Information
Not applicable
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Currency Exchange Rate Sensitivity
In regards to transactional risk, our functional currency is the United States dollar and our activities are predominantly executed using both the U.S. and Canadian dollars.
We have done a limited number of financings, and we are not subject to significant operational exposures due to fluctuations in these currencies. Our common shares are listed on the OTC.BB and are bought and sold in US dollars. We have not entered
into any agreements, or purchased any instruments, to hedge any possible currency risks at this time.
Interest Rate Sensitivity
We currently have no significant short-term or long-term debt requiring interest payments. This does not require us to consider entering into any agreements or purchasing
any instruments to hedge against possible interest rate risks at this time. Our interest-earning investments are short-term. Thus, any reductions in future income or carrying values due to future interest rate declines are believed to be
immaterial.
Commodity Price Sensitivity
Our future revenue and profitability will be dependent, to a significant extent, upon prevailing spot market prices for gold, oil and gas. In the past, gold, oil and gas
prices have been volatile. Prices are subject to wide fluctuations in response to changes in supply of, and demand for, gold, oil and gas, market uncertainty, and a variety of additional factors that are beyond our control. We currently have no
significant operating revenue.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
Not Applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
We report under Item# 18.
ITEM 18. FINANCIAL STATEMENTS.
The Auditors’ Report, financial statements and notes thereto, schedules thereto, as required under Item 18 are found immediately below.
Financial Statements:
Report of Auditors, dated March 26, 2021
Balance Sheets at December 31, 2020 and December 31, 2019
Statements of Loss and Deficit for the three Years ended December 31, 2020, December 31, 2019, and December 31, 2018.
Statements of Cash Flows for the three Years ended December 31, 2020, December 31, 2019, and December 31, 2018
Notes to the Consolidated Financial Statements
FEC RESOURCES INC.
Financial Statements
As of December 31, 2020 and 2019
and for each of the years in the three year period ended
December 31, 2020
(Expressed in United States dollars)
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of FEC Resources Inc.
Opinion on the Financial Statements
We have audited the accompanying statements of financial position of FEC Resources Inc. (the "Company") as of December 31, 2020 and 2019, the related statements of comprehensive loss, changes in equity and cash flows
for the years ended December 31, 2020, 2019 and 2018, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2020 and 2019, and its financial performance and its cash flows for the years ended December 31, 2020, 2019 and 2018, in conformity with International
Financial Reporting Standards as issued by the International Accounting Standards Board.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has disclosed certain conditions
that raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our
audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express
no such opinion in accordance with the standards of the PCAOB.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and: (1) relates
to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relate.
DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
We have served as the Company’s auditor since 2017
Vancouver, Canada
March 26, 2021
Statements of Financial Position
Expressed in United States Dollars
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Shareholders’ Equity
SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:
"Daniel Carlos" "Paul Wallace"
Director Director
The accompanying notes form an integral part of these financial statements
FEC RESOURCES INC.
STATEMENTS OF COMPREHENSIVE LOSS
Expressed in United States Dollars
Loss per common share
The accompanying notes form an integral part of these financial statements
FEC RESOURCES INC.
STATEMENTS OF CHANGES IN EQUITY
Expressed in United States Dollars
For the years ended December 31, 2020, 2019 and 2018
The accompanying notes form an integral part of these financial statements
FEC RESOURCES INC.
STATEMENTS OF CASH FLOWS
Expressed in United States Dollars
Changes in working capital related to operating activities
FINANCING ACTIVITY
INVESTING ACTIVITY
The accompanying notes form an integral part of these financial statements
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 1 Corporate Information
FEC Resources Inc. (“FEC” or the “Company”) was incorporated under the laws of Alberta, Canada and is a holding Company with an interest in Forum Energy Limited (“FEL”). The Company is listed in the
United States on the OTC Pink (“OTC Pink”), having the symbol FECOF.
At December 31, 2020, the Company has a 6.8% interest in FEL. (Note 8).
The principal address of the Company is Suite 2300, Bentall 5, 550 Burrard Street, Vancouver, BC, V6C 2B5. The Company’s ultimate parent company is PXP Energy Corporation (“PXP”) with a registered
office at 2/F LaunchPad, Reliance corner Sheridan Streets, Mandaluyong City 1550,, Metro Manila, Philippines.
Note 2 Basis of Preparation and Going Concern
These financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”).
The financial statements were authorized for issue by the Board of Directors on March 26, 2021.
The financial statements have been prepared on a historical cost basis except for certain financial instruments measured at fair value described in the applicable notes and are presented in United
States dollars, which is also the Company’s functional currency.
The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the
Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 5.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 2 Basis of Preparation (continued)
As a holding company with an interest in FEL, the Company’s business is indirectly subject to risks inherent in oil and gas exploration and development operations. In addition,
there are risks associated with FEL’s stage of operations and the foreign jurisdiction in which it or FEL may operate or invest. The Company has identified certain risks pertinent to its investment including: exploration and reserve risks,
uncertainty of reserve estimates, ability to exploit successful discoveries, drilling and operating risks, title to properties, costs and availability of materials and services, capital markets and the requirement for additional capital, market
perception, loss of or changes to production sharing, joint venture or related agreements, economic, political and sovereign risks, possibility of less developed legal systems, corporate and regulatory formalities, environmental regulation, reliance
on strategic relationships, market risk, competition, dependence on key personnel, volatility of future oil and gas prices and foreign currency risk. The Company has an accumulated deficit since inception of $18,342,134.
Management considers that the current economic environment is difficult and the outlook for holding companies investing in oil and gas exploration companies presents significant challenges in terms
of raising funds through issuance of shares. To the extent necessary, the Company has relied on its ability to raise funds via dispositions of quantities of its shareholdings in FEL to PXP under terms that are consistent with the best interests of
shareholders, in order to finance its operations. The Company has been successful in disposing quantities of its shareholdings in FEL in previous fiscal years. However, there can be no assurance the Company will continue to be able to dispose of
quantities of its shares in FEL under suitable terms. Currently management has no plans to sell any additional FEL shares.
Since the delisting of FEL from the London Stock Exchange, there is no liquidity via a public market for the FEL shares. As the Company is wholly reliant on the information disclosed by PXP
concerning the business of FEL, the Company may not be able to obtain information necessary to facilitate a wider sales process and may be reliant on significant shareholders of PXP for the disposition of any of its FEL shares. Management looked at
all options including raising funds to operate and participate in future FEL financings by way of debt or equity financings. Given the share price of the Company, and given that any external financings may have been extremely dilutive, the Company
undertook a rights offering during the year to raise funds to sustain operations.
Management has concluded that the combination of these circumstances gives rise to a material uncertainty that casts substantial doubt on the ability of the Company to continue as a going concern;
therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 3 Summary of Significant Accounting Policies
The accounting policies set out below have been applied consistently to all years presented in these financial statements.
a) Equipment
Recognition and Measurement
On initial recognition, property, plant, and equipment are recorded at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the
location and condition necessary to be capable of operating in the manner intended by the Company. This includes the appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The
corresponding liability is recognized within provisions.
Property, plant and equipment is subsequently measured at cost less accumulated depreciation less any impairment losses.
Depreciation
Equipment is carried at cost less accumulated depreciation. The Company depreciates its computer equipment at the rate of 30% per annum utilizing the declining balance method.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.
Impairment
The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication
exists, then the asset’s recoverable amount is estimated.
The functional and presentation currency of the Company is the US dollar. Accordingly, foreign currency transactions and balances are translated as follows: (i) monetary assets and liabilities
denominated in currencies other than the US dollar (“foreign currencies”) are translated into US dollars at the exchange rates prevailing at the balance sheet date; (ii) non-monetary assets denominated in foreign currencies and measured at other than
fair value are translated using the rates of exchange at the transaction dates; (iii) non-monetary assets denominated in foreign currencies that are measured at fair value are translated using the rates of exchange at the dates those fair values are
determined; and (iv) income statement items denominated in foreign currencies are principally translated using daily exchange rates, except for depreciation and depletion which is translated at historical exchange rates. Foreign exchange gains and
losses are recognized in net (loss) earnings and presented in the statements of Comprehensive Income (Loss) in accordance with the nature of the transactions to which the foreign currency gains and losses relate. Unrealized foreign exchange gains and
losses on cash and cash equivalent balances denominated in foreign currencies are disclosed separately in the statements of cash flows.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 3 Summary of Significant Accounting Policies (continued)
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net income except to the extent that it relates to a business combination or items recognized
directly in equity or in other comprehensive loss/income.
Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of
previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date.
Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax basis, except for taxable temporary differences arising on the initial
recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit or
loss.
Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be
available against which the deferred tax asset can be utilized. At the end of each reporting year the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has
become probable that future taxable profit will allow the deferred tax asset to be recovered.
Basic earnings/loss per share is computed by dividing the net income or loss applicable to common shares of the Company by the weighted average number of common shares outstanding for the relevant
year.
Diluted earnings/loss per common share is computed by dividing the net income or loss applicable to common shares by the sum of the weighted average number of common shares issued and outstanding and
all additional common shares that would have been outstanding, if potentially dilutive instruments were converted.
There were no dilutive instruments (consisting of shares issuable on the exercise of options and warrants) outstanding during the years ended December 31, 2020, December 31, 2019 and December 31,
2018. Accordingly, there is no difference in the amounts presented for basic and diluted loss per share.
The Company measures financial instruments at fair value at each reporting date. 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.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 3 Summary of Significant Accounting Policies (continued)
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant
observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value measurement as a whole:
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by
re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of the reporting date.
Financial Assets
Measurement – initial recognition
Financial assets and financial liabilities are recognized in the Company’s statement of financial position when the Company becomes a
party to the contractual provisions of the instrument. On initial recognition, all financial assets and financial liabilities are recorded at fair value, net of attributable transaction costs, except for financial assets and liabilities classified
as at fair value through profit or loss (“FVTPL”). The directly attributable transaction costs of financial assets and liabilities classified as at FVTPL are expensed in the period in which they are incurred.
Subsequent measurement of financial assets and liabilities depends on the classifications of such assets and liabilities.
Classification of financial assets
Amortized cost:
Financial assets that meet the following conditions are measured subsequently at amortized cost:
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 3 Summary of Significant Accounting Policies (continued)
The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus
the cumulative amortization using effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. Interest income is recognized using the effective interest method. Interest income is
recognized in Other (Expense) Income, net in the statements of comprehensive income (loss).
The Company's financial assets at amortized cost consists of cash, receivables and due from Forum Energy Limited.
Fair value through other comprehensive income ("FVTOCI"):
Financial assets that meet the following conditions are measured at FVTOCI:
The Company's financial assets at FVTOCI include its investment in FEL (Note 8).
Equity instruments designated as FVTOCI:
On initial recognition, the Company may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments
that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income. Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is
contingent consideration recognized by an acquirer in a business combination. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses
arising from changes in fair value recognized in other OCI. The cumulative gain or loss is not reclassified to profit or loss on disposal of the equity instrument, instead, it is transferred to retained earnings.
Financial assets measured subsequently at fair value through profit or loss (“FVTPL”):
By default, all other financial assets are measured subsequently at FVTPL.
The Company, at initial recognition, may also irrevocably designate a financial asset as measured at FVTPL if doing so eliminates or
significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets measured at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in
profit or loss to the extent they are not part of a designated hedging relationship. The Company does not have any financial assets at FVTPL.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 3 Summary of Significant Accounting Policies (continued)
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangements and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all its liabilities. Equity
instruments issued by the Company are recognized at the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on
the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Classification of financial liabilities
Financial liabilities that are not contingent consideration of an acquirer in a business combination, held for trading or designated as at FVTPL, are measured
at amortized cost using effective interest method.
Impairment of Financial Assets
At each reporting date the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets
is deemed to be impaired, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the
financial asset or the group of financial assets.
Financial Liabilities
Financial liabilities are classified as other financial liabilities, based on the purpose for which the liability was incurred, and comprise of trade payables and accrued liabilities. These
liabilities are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest rate method. This ensures that any
interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs and premiums payable on
redemption, as well as any interest or coupon payable while the liability is outstanding. Trade and other payables represent liabilities for goods and services provided to the Company prior to the end of the period which are unpaid.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 3 Summary of Significant Accounting Policies (continued)
Equity instruments are contracts that give a residual interest in the net assets of the Company. Financial instruments issued by the Company are classified as equity only to the extent that they do
not meet the definition of a financial liability or financial asset. The Company’s common shares are classified as equity instruments. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax, from the proceeds.
Finance expense comprises interest expense on borrowings, accretion of the discount on provisions and impairment losses recognized on financial assets.
Interest income is recognized as it accrues in profit or loss, using the effective interest method.
Foreign currency gains and losses, reported under finance income and expenses, are reported on a net basis.
Note 4 Standards, Amendments and Interpretations
The Company has prepared its financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents standards and interpretations approved by
the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations Committee (“SIC’s”). The financial statements have
been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2020.
New IFRS standards and interpretations or changes to existing standards with future effective dates are either not applicable or not expected to have a significant impact on the financial
statements of the Company.
Note 5 Critical Accounting Estimates and Judgments
The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical
experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.
The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income/loss in the period of the change, if the change affects that period only, or in
the period of the change and future periods, if the change affects both.
The determination of the fair value of the Company’s investment in FEL is a significant accounting estimate (Note 8).
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 5 Critical Accounting Estimates and Judgments (continued)
Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in
the financial statements within the next financial year are discussed below:
The Company periodically or when circumstances change, reviews its investments in its associates to ascertain whether it has maintained significant influence over these investments
and also, reviews whether there exists any evidence that the investments in associates are required to be impaired. The Company does not currently have any investments in associates as it has concluded that it does not have significant influence in
Forum Energy Limited as a result of its 6.8% ownership interest (Note 8).
Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate
tax determination is uncertain. We recognize liabilities and contingencies for anticipated tax audit issues based on our current understanding of the tax law. For matters where it is probable that an adjustment will be made, we record our best
estimate of the tax liability including the related interest and penalties in the current tax provision. We believe we have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different
outcome than the amount included in the tax liabilities.
Note 6 Cash
Cash held at banks earns interest at floating rates based on daily bank deposit rates.
Note 7 Equipment
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 8 Investment in Forum Energy Limited (”FEL”)
The investment in FEL is summarized as follows:
As at December 31, 2020, the Company’s interest in FEL was 6.80% (2019 – 6.80%).
On April 14, 2020 FEP completed a fund raising of $2,500,000 which was achieved by FEL issuing new shares at a price of $0.30 each. In advance of the Company’s Rights Offering, PXP paid the Company’s
share of FEL’s financing thus allowing the Company to maintain its 6.8% interest in FEL at a cost of approximately $170,111. During the year, this advance was settled by the issuance of new common shares from treasury at the same price as the Rights
Offering price.
On August 7, 2020 the Company purchased 6.8% of the loan currently due by FEL to PXP amounting to $346,202 plus accrued interest of $939. This loan is unsecured, due on December 31, 2021 and bears
interest at an annual rate of 3.5% plus LIBOR which is payable on a quarterly basis. As of December 31, 2020, accrued interest outstanding was $2,755.
FEL’s assets consist of interests in various petroleum service contracts (SC) in the Philippines, the most significant of which in terms of Prospective Resources is SC 72. On March 2, 2015, the
Philippine Department of Energy (“DOE”) granted a force majeure on SC 72 because the contract area falls within the territorial disputed area of the West Philippine Sea. Under the terms of the force majeure, all exploration work at SC 72 was
immediately suspended until the DOE notified PXP that it could re-commence exploration. On October 16, 2020, FEL received a letter from the DOE lifting the force majeure and directing FEL to resume exploration activities on SC 72.
Determination of fair value
The investment in FEL represents an investment in a private company for which there is no active market and for which there are no publicly available quoted market prices.
The Company has classified its investment in FEL as Level 2 in the fair value hierarchy.
For purposes of determining fair value of the investment in FEL, the Company considered valuation techniques described in IFRS 13 – Fair Value Measurement. In respect of the investment in FEL,
management considered the fair value of $1,835,111 to be indicative of the fair value of the investment in FEL upon the adoption of IFRS 9 as there have been no changes in the circumstances that would change management’s assessment of fair value. The
fair value of the investment is consistent with the implied value based on the price of the April 14, 2020 financing which is a Level 2 input.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 9 Share Capital
The Company is authorized to issue an unlimited number of common shares without par value and is authorized to issue an unlimited number of Class A and Class B preferred convertible redeemable voting
shares without par value.
Issued:
On July 31, 2020, the Company closed the Rights Offering receiving gross proceeds of approximately $846,750 and converted into equity the Rights Offering Advance of $170,111
previously received from PXP. This resulted in the Company issuing a total of 451,938,606 new shares. Total transactions costs related to the rights offering were $128,633 of which $39,381 were incurred as at December 31, 2019.
No preferred shares have been issued.
The reserves recorded in equity on the Company’s statements of financial position include Contributed Surplus and Deficit.
Contributed Surplus is used to recognize the value of stock option grants prior to exercise.
Deficit is used to record the Company’s change in deficit from income and losses from period to period.
The Company has established a stock option plan whereby options may be granted to its directors, officers, consultants, and employees. The exercise price of each option equals the market price of
the Company’s stock on the date of the grant and an option’s maximum term is five years. The options vest immediately. There were no stock options outstanding on December 31, 2020 or December 31, 2019 and none were issued between January 1, 2018 and
December 31, 2020.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 10 Related Party Transactions and Balances
Note 11 General and administrative expenses
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 12 Income Taxes
Reconciliation of accounting and taxable income, for the years ended December 31 are as follows:
The nature and tax effect of the temporary differences giving rise to the deferred tax assets and liabilities at December 31, 2020 and 2019 are summarized as follows:
As at December 31, 2020, the Company had estimated non-capital losses for Canadian tax purposes of $6,398,000 that expire between 2026 to 2040 which may be carried forward to offset future years’ taxable income.
The potential benefit of these carry-forward non-capital losses has not been recognized in these financial statements as it is not considered probable that sufficient future taxable profit will allow the deferred tax
asset to be recovered.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 13 Financial Instruments and Risk Management
The Company is exposed through its operations to the following financial risks:
In common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s objectives, policies and processes for
managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.
There have been no substantive changes in the Company’s exposure to financial instrument risks, its objectives, polices and processes for managing those risks or the methods used to measure them from
previous years unless otherwise stated in the note.
General Objectives, Policies and Procedures
The Board of Directors has overall responsibility for the determination of the Company’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has
delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company’s finance function. The Board of Directors receive quarterly reports from the Company’s Chief
Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as
possible without unduly affecting the Company’s competitiveness and flexibility. Further details regarding these policies are set out below.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk are comprised of foreign currency risk,
interest rate risk and equity and commodity price risk.
Foreign currency exchange risk
The Company is exposed to foreign currency fluctuations for general and administrative transactions denominated in Canadian Dollars. The majority of the Company’s cash is kept in U.S. dollars. As at
December 31, 2020, the Company had an insignificant amount of cash denominated in Canadian dollars that was subject to exchange rate fluctuations between the Canadian dollar and the U.S. dollar. As at December 31, 2020, the Company held an
insignificant amount of financial liabilities denominated in Canadian dollars that would be subject to exchange rate fluctuations between Canadian dollars and U.S. dollars.
FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2020
(Expressed in United States Dollars)
Note 13 Financial Instruments and Risk Management (continued)
The Company maintains cash deposits in one chartered Canadian bank which, from time to time, exceed the amount of depositor’s insurance available in each respective account. Management assesses the
financial condition of this bank and believes that the possibility of any credit loss is minimal. The Company is also exposed to credit risk on the amount due from FEL. Management assesses that this credit risk is mitigated by the fact that FEL is
supported financially by PXP. The maximum exposure of credit risk is the Company’s cash deposit of $181,237 (2019: $42,548), receivables of $6,518 (December 31, 2019: $3,072) and due from FEL
$348,957 (2019: $Nil).
Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company does not generate cash from operations but rather, the Company will, from time to
time, issue shares via equity placements, borrow funds from an affiliated company or undertake to sell a portion of its investment in the shares of FEL should it be necessary to raise funds. The Company manages liquidity by maintaining cash balances
available to meet its anticipated operational needs. Liquidity requirements are managed based on expected cash flow to ensure that there is adequate capital to meet short-term and long-term obligations. The Company has in place a planning and
budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its growth plans. At December 31, 2020, the Company’s accounts payable and accrued liabilities were $42,732, all of
which fall due for payment within twelve months of the date of the statement of financial position.
The carrying values of accounts payable and accrued liabilities approximate their fair values due to the relatively short periods to maturity of the instruments.
Note 14 Capital Management
The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide an adequate return to shareholders, to meet external capital requirements on
credit facilities and to support any growth plans.
The capital of the Company consists of the items included in shareholders’ equity and cash net of debt obligations. The Company monitors capital based on the debt to debt-plus-equity ratio. Debt is
total debt shown on the balance sheet, less cash. Debt-plus-equity is calculated as debt shown on the balance sheet, plus total shareholders’ equity which includes share capital, warrants, contributed surplus and deficit. Currently the Company has no
debt. The Company’s Board of Directors approves management’s annual capital expenditures plans and reviews and approves any material debt borrowing plans proposed by the Company’s management.
As at December 31, 2020 the company had no externally imposed capital requirements nor were there any changes in the company’s approach to capital management during the year.
* Previously filed