CAZA.L Regulatory News (CAZA)

November 14, 2013

CAZA OIL & GAS ANNOUNCES THIRD QUARTER RESULTS

AND PROVIDES OPERATIONAL UPDATE

HOUSTON, TEXAS (Marketwire - November 14, 2013) - Caza Oil & Gas, Inc. ("Caza" or the "Company") (TSX:CAZ) (AIM:CAZA), is pleased to provide its unaudited financial and operational results for the three-months ended September 30, 2013.

Unaudited Third Quarter Financial Results

· Caza's aggregate production increased 66% to 36,491 Boe for the three-month period ended September 30, 2013, from 21,999 Boe for the comparative period in 2012. This represents an average daily production rate increase of 158 Boe/d to 397 Boe/d, as compared to 239 Boe/d for the comparative period.

· Caza's revenues from oil and gas sales increased 186% to $2,583,753 for the three-month period ended September 30, 2013, from $902,622 for the comparative period in 2012. The increase in production from the third quarter of 2012 was primarily due to additional oil wells brought online in the Bone Spring play.

· The average combined price received by Caza increased 73% to $70.81 per Boe during the three-month period ended September 30, 2013, from $41.03 per Boe during the comparative period in 2012, due to higher commodity prices and the increase in oil & NGL production in relation to the Company's combined oil and natural gas production.

· The Company's ratio of oil and NGL production versus natural gas continues to increase. Caza's oil and NGL production increased 160% to 22,958 bbls for the three-month period ended September 30, 2013, from 8,818 bbls for the comparative period in 2012. The Company's oil and NGL production has increased to 63% of the Company's combined oil and natural gas production in the nine-month period ended September 30, 2013, from 40% in the nine-month period ended September 30, 2012, further mitigating the low US gas price.

· Caza had a cash balance of $13,402,981 as of September 30, 2013, as compared to $19,105,277 at June 30, 2013. Caza's working capital balance at September 30, 2013, was $5,488,240 as compared to $11,168,013 at June 30, 2013. The decrease in Caza's working capital balance is due primarily to drilling activities in the Bone Spring play in New Mexico.

Third Quarter Operational Results and Recent Events

The Company has been deploying proceeds from the Note Purchase Agreement ("NPA") with Apollo Investment Corporation ("Apollo") to progress the properties included in the initial Bone Spring drilling phase in Southeast New Mexico, as outlined under the NPA. The initial drilling phase has been partially modified from the original plan, as described in the property updates below. The modified plan was mutually agreed between the Company and Apollo.

The initial Bone Spring drilling phase is still planned to include the drilling of 12 oil and natural gas wells and two salt water disposal wells. Upon completion of the initial drilling phase, the Company will plan a second phase, largely based on the initial well results on specific properties, to drill 12 additional wells in the Bone Spring play to be funded from a subsequent sale of notes, subject to the NPA.

· Lennox: The Lennox State Unit 32 #2H well has been drilled and is producing from the 2nd Bone Spring Sand. The well was recently deemed commercial by the Commissioner of Public Lands for the State of New Mexico and is holding the entire Lennox Unit, containing approximately 1,920 acres, across all depths. This is important for the future development of this property. The Lennox State Unit 32 #4H well has been permitted and was originally planned for Q4 2013, but has been replaced by the Jazzmaster well (see below) and moved to the second phase of drilling. The well is now scheduled for Q4 2014.

· Copperline: The Caza Ridge 14 State #4H well was fracture stimulated and completed in the 3rd Bone Spring Sand interval. The well produced at a peak 24 hour rate of 1,004 bbls of oil and 1.3 million cubic feet of natural gas, which equates to 1,221 Boe. Once meaningful production began post frac, the 30 day average rates for the well, which included the peak rate, were 573 bbls/d of oil and 622 Mcf/d, which equates to 677 Boe/d. Caza has a 58.75% working interest (44.8% net revenue interest) in the Caza Ridge 14 State #4H well.

· Gateway: The Gateway 2 State #1H well reached its intended total measured depth ("TMD") of 13,550 feet in the 2nd Bone Spring Sand interval on August 28, 2013. The well was subsequently fracture stimulated beginning on September 19, 2013, and put on jet pump to help unload frac fluids. The well is still in the completion phase and has recently started producing oil and natural gas. The well was recently shut in to repair the jet pump, but is now back online. As expected, the rates continued to increase prior to shut in, and the well was producing approximately 87 bbls/d of oil and 34 Mcf/d, which equates to 93 Boe/d. It is anticipated that these rates will continue to rise as load water from the frac is recovered. To date, approximately 53% of the load water has been recovered. Caza has a 60% working interest (45.9% net revenue interest) in the Gateway 2 State #1H well.

· West Copperline: The West Copperline 29 Fed #1H horizontal Bone Spring test well reached its intended TMD of approximately 15,035 feet in the 2nd Bone Spring Sand interval on October 11, 2013, and was subsequently fracture stimulated beginning on November 1, 2013. The well is currently beginning the initial flowback phase, and initial results should be available within the next couple of weeks. Early indications and recent drilling and producing results in very close proximity to this well are very encouraging.

· Forehand Ranch: The Forehand Ranch 27 State #3 (Ramsey Sand) vertical well was initially planned for Q3 2013, but has been replaced with the Mewbourne operated Two Mesas horizontal Bone Spring well (see below). The Forehand Ranch 27 State #5 salt water disposal well has been drilled and should be operational in the near term, which will significantly reduce the Company's production expenses on this property and in the general area.

· Two Mesas: Caza recently received an election to participate in the Mewbourne Oil Company operated Two Mesas 7 MP Federal #1H horizontal 2nd Bone Spring test well in Eddy County, New Mexico. Caza elected to participate in the well, which spudded on October 31, 2013. Caza has a 5.63% working interest (4.11% net revenue interest) in the Two Mesas property.

· Mad River: The Mad River 13 State #1H horizontal (Bone Spring or Brushy Canyon) test well was originally planned for Q4 2013, but will be replaced by the initial test well on the Gramma Ridge prospect (see below).

· Roja: The Madera 17 Fed #1H Lower Brushy Canyon well was fracture stimulated, shut in for a period and placed on rod pump, which yielded short term initial producing rates of 30 bbls/d of oil and 78 Mcf/d, which equates to 43 Boe/d. Shortly thereafter, the well was shut in again until permanent facilities could be installed. The facilities have now been installed, and the operator has recently started producing the well on pump at a deliberately controlled rate. The production rates continue to increase, and the well has recently produced at 30 day average rates of approximately 86 bbls/d of oil and 55 Mcf/d, which equates to 96 Boe/d. This completion technique is different than that being implemented by Caza, but both are considered sound practises by industry standards, and this well continues to improve. Caza has a 20% working interest (15.59% net revenue interest) in the Madera 17 Fed #1H well.

· Madera: The Madera 35 Fed #1H well reached its intended TMD in the 3rd Bone Spring Sand interval, was fracture stimulated and yielded short term initial producing rates of 288 bbls/d of oil and 136 Mcf/d, which equates to 297 Boe/d. As with Roja, the well was then shut in to be placed on rod pump and to await the installation of permanent facilities. These facilities have now been installed, and it is anticipated that the operator is ready to resume production in the very near term. Caza has a 20% working interest (15.59% net revenue interest) in the Madera 35 Fed #1H well.

· Lynch: The Company has received an election and intends to participate in the Marathon Road 15 PA Fed Com #1H horizontal Bone Spring well to be operated by Mewbourne and drilled to a total vertical depth of approximately 10,929 feet and a TMD of approximately 15,450 feet. The anticipated spud date is late Q4 2013. Mewbourne has proposed the formation of a 600 acre unit across Section 15, and Caza has agreed to spread its current working interest percentage in 280 acres in the W/2 of the section across the unit, which will reduce the Company's working interest from 34.38% to 18.71% (14.64% approximate net revenue interest). The Mewbourne operated wells on the Lynch property will be referred to as Marathon Road wells from this point forward. This property directly offsets the Fasken Quail Ridge wells that Caza participated in with a small interest. There have been four Quail Ridge wells drilled to date. Two are still waiting to be fracture stimulated. The other two had 30 day average initial producing rates of 640 bbls/d of oil and 510 Mcf/d and 828 bbls/d of oil and 1,195 Mcf/d, which equates to 725 Boe/d and 1,027 Boe/d respectively, which bodes well for this property.

· Jazzmaster: Caza has participated with a 25% working interest (19.44% net revenue interest) in the Jazzmaster 17 State No. 4 well in Lea County, New Mexico via the trade outlined in the Gramma Ridge section immediately below. The well reached its intended TMD on September 29, 2013. Based on favorable log and core data obtained from the well, Caza elected to participate in the completion procedure proposed for the 2nd Bone Spring Sand interval. The well is currently being fracture stimulated.

· Gramma Ridge: Caza was the winning bidder on 320 acres at the State of New Mexico Oil and Gas Lease Sale held on July 16, 2013. At that time Caza participated with a 10% bidding partner, O'Neill Properties, and retained a 90% working interest in the lease. Caza subsequently swapped acreage at Gramma Ridge for acreage at the Jazzmaster prospect, also in Lea County, New Mexico, operated by Endurance Resources, LLC. Caza received an undivided 25% working interest from Endurance in 480 acres at Jazzmaster, and Endurance received an undivided 37.5% working interest in Caza's 320 acres at Gramma Ridge. Therefore, Caza now has a 52.5% working interest (40.82% net revenue interest) in the Gramma Ridge property. This is considered a like kind trade and exposes Caza to additional Bone Spring play opportunities. This type of acreage swap is favorable to selling down in a project, because it reduces risk without sacrificing reserve potential. Since the Jazzmaster well was already scheduled to be drilled, the Gramma Ridge test well was pushed back and has not yet been officially rescheduled.

· Yorkville Loan Agreement: As announced on November 5, 2013, the Company entered into an agreement in relation to a $4.3 million convertible unsecured loan (the "Loan") which was made available by YA Global Master SPV Ltd., an investment fund managed by Yorkville Advisors LLC ("Yorkville"). The Loan consists of $3.5 million of new credit facilities along with an additional $0.84 million that was used to repay amounts which were outstanding under the prior loan from Yorkville. Caza intends to use the funds from the Loan, together with funds available pursuant to the NPA, to continue its leasing and drilling program in the Bone Spring Play in Lea and Eddy Counties in Southeastern New Mexico.

· Hedging Arrangements: On November 6, 2013, the Company entered into swap contracts to limit potential exposure to declining crude oil prices for approximately 75% of its oil production from currently producing wells. Under these swaps, the Company pays or receives, whichever the case may be, a monthly cash settlement on the covered oil production representing the difference between the swap price and the monthly average of the daily closing quoted spot price per barrel of West Texas Intermediate NYMEX crude oil. For the remainder of 2013 the swap covers 9,685 barrels of oil at a swap price of $94.25. During the 12 months ending December 2014, the swap covers 40,524 barrels of oil at a swap price of $92.55. During the 12 months ending December 2015, the swap covers 28,410 barrels of oil at a swap price of $87.05.

W. Michael Ford, Chief Executive Officer commented:

"We are very pleased with the progression of the initial drilling phase of our Bone Spring program in Southeast New Mexico. Early well results have continued Caza's trend of positive operational and financial performance, increasing both production and revenues. Production from these wells also continues to increase Caza's oil to natural gas ratio. The Company's oil and NGL production is up 9% from Q2 2013, and now represents 63% of the Company's combined production. We expect these increases to continue as more Bone Spring play wells are brought online in the next quarter."

"Our production increased 79% and revenue increased 142% from Q2 2013. These increases did not include production from the Madera wells due to delays in bringing them online. We are very pleased this has been remedied by the operator and look forward to drilling additional wells across this large acreage block as they are proposed."

"In addition to the Madera wells, the wells at Gateway, West Copperline and Jazzmaster should all be contributing to production and revenue streams in the next quarter. We're excited to get these wells online and producing. The Gateway well appears to be tight in the 2nd Bone Spring, but early indications at West Copperline appear very good. We look forward to updating the market once the West Copperline and Jazzmaster wells are completed."

"In this initial drilling phase, we aretesting our various acreage blocks and gathering valuable log and core date across prospective intervals. This will allow us to develop specifically targeted areas during the second drilling phase of our program, which should lower risk and continue to grow our production, revenue and reserves, creating value for our shareholders."

Copies of the Company's unaudited financial statements for the third quarter ended September 30, 2013, and the accompanying management's discussion and analysis are available on SEDAR at www.sedar.com and the Company's website at www.cazapetro.com.

About Caza

Caza is engaged in the acquisition, exploration, development and production of hydrocarbons in the following regions of the United States of America through its subsidiary, Caza Petroleum, Inc.: Permian Basin (West Texas and Southeast New Mexico) and Texas and Louisiana Gulf Coast (on-shore).

For further information, please contact:

Caza Oil & Gas, Inc.

Michael Ford, CEO +1 432 682 7424

John McGoldrick, Chairman +65 9731 7471 (Singapore)

Cenkos Securities plc

Jon Fitzpatrick +44 20 7397 8900 (London)

Neil McDonald +44 131 220 6939 (Edinburgh)

VSA Capital Limited

Andrew Raca +44 20 3005 5004

Malcolm Graham-Wood +44 20 3005 5012

VIGO Communications

Chris McMahon +44 20 7016 9570

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

In accordance with AIM Rules - Guidance Note for Mining, Oil and Gas Companies, the information contained in this announcement has been reviewed and approved by Anthony B. Sam, Vice President Operations of Caza who is a Petroleum Engineer and a member of The Society of Petroleum Engineers.

ADVISORY STATEMENT

Information in this news release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws. Such information is often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "schedule", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "intend", "could", "might", "should", "believe", "develop", "test", "anticipation" and similar expressions. In particular, information regarding the depth, timing and location of future drilling, elections to participate in future drilling, future production rates and revenue streams, future completion operations, intended production testing, availability of future funding, use of funds, future production expenses and the Company's future working interests and net revenue interests in properties contained in this news release constitutes forward-looking information within the meaning of securities laws.

Implicit in this information, are assumptions regarding the success and timing of drilling operations, rig availability, projected revenue and expenses, availability of funding and well performance. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operations, operating results and economic performance of the Company are subject to a number of risks and uncertainties, including general economic, market and business conditions and could differ materially from what is currently expected as set out above. In addition, the geotechnical analysis and engineering to be conducted in respect of certain wells is not complete. Future flow rates from wells may vary, perhaps materially, and will be subject to decline. In addition, certain wells may prove to be technically or economically unviable. The flow rates disclosed herein are not necessarily indicative of long-term performance or of ultimate recovery. Any future flow rates will be subject to the risks and uncertainties set out herein.

Information in this news release regarding areas in the Bone Spring Formation in which the Company does not have an interest may not have been prepared by a qualified reserves evaluator or auditor in accordance with the Canadian Oil & Gas Evaluators Handbook. Such information relates to areas which are proximate to areas in which the Company has or intends to acquire an interest and has been provided so that readers may better understand oil and gas activities in areas in which the Company operates or plans to operate. There is no warranty, express or implied, that the results of the Company will be consistent with such information. The Company's results may differ materially and readers should not assume the Company's results will be consistent with those of other operators or use such information for any purpose other than as specified herein.

For more exhaustive information on these risks and uncertainties you should refer to the Company's most recently filed annual information form which is available at www.sedar.com and the Company's website at www.cazapetro.com. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time except as may be required by securities laws.

GLOSSARY OF ABBREVIATIONS

Boe may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

Condensed Consolidated Statements of Financial Position

(Unaudited)

Condensed Consolidated Statements of Net Loss and Comprehensive Loss

(Unaudited)

Condensed Consolidated Statements of Cash Flows

See accompanying notes to the condensed consolidated financial statements

 Condensed Consolidated Statements of Changes in Equity

(Unaudited)

See accompanying notes to the condensed consolidated financial statements

1. Basis of Presentation

Caza Oil & Gas, Inc. ("Caza" or the "Company") was incorporated under the laws of British Columbia on June 9, 2006 for the purposes of acquiring shares of Caza Petroleum, Inc. ("Caza Petroleum"). The Company and its subsidiaries are engaged in the exploration for and the development, production and acquisition of, petroleum and natural gas reserves. The Company's common shares are listed for trading on the TSX (symbol "CAZ") and AIM stock exchanges (symbol "CAZA"). The corporate headquarters of the Company is located at 10077 Grogan's Mill Road, Suite 200, The Woodlands, Texas 77380 and the registered office of the Company is located at Suite 1700, Park Place, 666 Burrard Street Vancouver, British Columbia, V6C 2X8.

Caza's functional and presentational currency is the United States ("U.S.") dollar as the majority of its transactions are denominated in the currency.

The condensed consolidated financial statements (the "Financial Statements") were prepared in accordance with IAS 34 - Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards ("IFRS").

These Financial Statements should be read in conjunction with the Company's audited annual consolidated financial statements as at and for the year ended December 31, 2012, which outline the Company's significant accounting policies in Note 2 thereto, as well as the Company's critical accounting judgments and key sources of estimation uncertainty, which have been applied consistently in these Financial Statements. The note disclosure requirements of annual consolidated financial statements provide additional disclosures to that required for interim unaudited condensed consolidated financial statements.

These Financial Statements were approved for issuance by the Board of Directors on November 10, 2013.

Changes in Accounting Policies

As disclosed in the December 31, 2012 consolidated financial statements, effective January 1, 2013, Caza adopted IFRS 10 "Consolidated Financial Statements", IFRS 11 "Joint Arrangements, IFRS 12 "Disclosure of Interests in Other Entities", and the amendments to IAS 28 "Investments in Associates and Joint Ventures."

There were no changes to the consolidated financial statements or the consolidation process as a result of adoption of IFRS 10. IFRS 11 classifies interests in joint arrangements as joint ventures or joint operations depending on the rights and obligations of the parties in the arrangement. Caza performed a review of interests in joint arrangements and concluded that shared wells operate as joint operations and accordingly there is no change in the accounting for these assets as a result of adoption of this standard. As a result, there were no changes as a result of the adoption of IFRS 12 as well.

Furthermore Caza was also required to adopt IFRS 13 "Fair Value Measurements," amendments to IAS 1 "Presentation of Financial Statements," amendments to IFRS 7 "Financial Instruments: Disclosures." There were no material changes as a result of the adoption of these standards.

2. Exploration and evaluation assets ("E&E")

During the period ended September 30, 2013, the Company added $18,708,601 of exploration and evaluation costs to E&E relating to the W. Copperline 29 St.Com #1H and the Gateway 2 State #2H wells drilled in the Bone Spring play in New Mexico. The Company also transferred $13,384,381 to the Petroleum and natural gas properties and equipment relating to the Caza Ridge 14#4H and Lennox 33 State #2H wells that were completed during the second and third quarters of 2013. During the three and nine month periods ended September 30, 2013 the Company expensed nil and $740,677 respectively associated with the expiration of leasehold costs.

3. Petroleum and natural gas properties and equipment

Future development costs of proved undeveloped reserves of $38,583,900 were included in the depletion calculation at September 30, 2013 and December 31, 2012. The Company did not note any indications of impairment as at September 30, 2013.  

During the three months ended March 31, 2012, the Company recorded an impairment of $2,688,506 primarily due to changes in the estimates of expected future natural gas prices used in determining the fair value. The March 31, 2012 impairment was recognized using a 16% discount rate.

4. Decommissioning Liabilities

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of petroleum and natural gas properties:

The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $1,985,802 (December 31, 2012 - $1,415,507). The obligation was calculated using a risk free discount rate of 2.5 percent (2012 - 2.5 percent) and an inflation rate of 3 percent (2012 - 3 percent). It is expected that this obligation will be funded from general Company resources at the time the costs are incurred with the majority of costs expected to occur between 2013 and 2030.

5. Related Party Transactions

The aggregate amount of expenditures made to related parties:

Singular Oil & Gas Sands, LLC ("Singular") is a related party as it is a company under common control with Zoneplan Limited, which is a significant shareholder of Caza.

Singular participates in the drilling of the Matthys McMillan Gas Unit #2 and the O B Ranch #1 and 2 wells located in Wharton County, Texas. Under the terms of that agreement, Singular paid 14.01% of the drilling costs through completion to earn a 10.23% net revenue interest on the Matthys McMillan Gas Unit #2 well and paid 12.5% of the drilling costs to earn a 6.94% net revenue interest on the O B Ranch #1 well. Under the terms of the agreement of the O B Ranch #2 Singular paid 9.375% of the drilling costs to earn approximately 6.8% net revenue interest. This participation was in the normal course of Caza's business and on the same terms and conditions to those of other joint interest partners. Singular owes the Company $50,666 in joint interest partner receivables as at September 30, 2013 (December 31, 2012 - $ 6,336).

All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties and which is comparable to those negotiated with third parties.

The Company is required under the Apollo Note Agreement to convey a proportionately reducible 2% overriding royalty interest in each lease acquired by Caza using proceeds advanced under this agreement. These amounts are not payable until such a time that these leases produce petroleum and natural gas revenues. See Note 8 for additional information.

7. Supplementary Information

(a) net change in non-cash working capital (nine months ended):

(b) supplementary cash flow information

(c) cash and cash equivalents

The money market instruments bear interest at a rate of 0.020% as at September 30, 2013 (December 31, 2012 - 0.082%).

8. Financial Instruments

Credit Risk

Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the consolidated statement of financial position date. A majority of the Company's financial assets at the consolidated statement of financial position date arise from natural gas liquids and natural gas sales and the Company's accounts receivable that are with these customers and joint interest participants in the oil and natural gas industry. Industry standard dictates that commodity sales are settled on the 25th day of the month following the month of production. The Company's natural gas and condensate production is sold to large marketing companies. Typically, the Company's maximum credit exposure to customers is revenue from two months of sales. During the three and nine month periods ended September 30, 2013, the Company sold 67.7% and 67.7%, respectively (2012 - 81.8% and 79.1%, respectively) of its natural gas and condensates to a single purchaser. These sales were conducted on transaction terms that are typical for the sale of natural gas and condensates in the United States. In addition, when joint operations are conducted on behalf of a joint interest partner relating to capital expenditures, costs of such operations are paid for in advance to the Company by way of a cash call to the partner of the operation being conducted.

Caza management assesses quarterly whether there should be any impairment of the financial assets of the Company. At September 30, 2013, the Company had overdue accounts receivable from certain joint interest partners of $34,671 which were outstanding for greater than 60 days and $104,969 that were outstanding for greater than 90 days; management believes these amounts are collectible and not impaired. During the three and nine month periods ended September 30, 2013 the Company expensed nil and $12,478 respectively (nil for 2012) of uncollectable receivables. At September 30, 2013, the Company's two largest joint interest partners represented approximately 10% and 8% of the Company's receivable balance (September 30, 2012 - 6% and 5% respectively). The maximum exposure to credit risk is represented by the carrying amount on the consolidated statement of financial position of cash and cash equivalents, restricted cash, accounts receivable and deposits.

Other Financial Instruments

Equity Facility

The Company entered into an Equity Adjustment Agreement (the "Adjustment Agreement") on March 5, 2013 with Global Master SPV Ltd., an investment fund managed by Yorkville Advisors Global, LP in conjunction with its Standby Equity Distribution Agreement (the "SEDA Agreement") dated November 23, 2012 with Yorkville. Pursuant to the Adjustment Agreement, during the three months ended March 31, 2013, the Company issued 3,846,154 common shares to Yorkville at a price of £0.13 per share for aggregate proceeds of £500,000 (US$756,451).

Under the terms of the Adjustment Agreement, if on February 28, 2014 the common share market price (determined as 95% of the average daily volume weighted average price of common shares (VWAP) during the preceding 22 trading days) is greater than £0.13, then Yorkville will pay to the Company the difference multiplied by the number of New Common Shares, and if the market price is less than £0.13 then the Company will pay to Yorkville the difference multiplied by the number of New Common Shares. The fair value of this derivative was calculated at the date of issuance using inputs as of that date and at September 30, 2013 using inputs as of September 30, 2013, including the share price, the strike price and the estimated volatility over the remaining term. The derivative liability is classified as a financial instrument measured at fair value though profit or loss. The fair value of the derivative liability amounting $212,962 as of September 30, 2013 has been included within current liabilities on the consolidated statement of financial position, and the change in fair value of $174,775 since the date of issuance is included in other expenses in the consolidated statement of net loss and comprehensive loss.

The Company has deposited in escrow £275,000 (US$ - $444,647) as security for this contingent payment obligation, which has been recorded within restricted cash on the consolidated statements of financial position.

The outstanding balance of the notes payable relating to the SEDA Agreement as of September 30, 2013 was US$709,883 (net of unamortized transaction costs of US$115,117). These notes payable are classified as other financial liabilities and are measured at amortized cost. The note matures December 15, 2013.

Notes Payable

The Company also entered into a Note Purchase Agreement ( the" Note Agreement") dated May 23, 2013 with Apollo Investment Corporation ("the Note Holder"), an investment fund managed by Apollo Investment Management, pursuant to which the Note Holder has agreed to purchase from the Company up to US$50,000,000 of its senior secured notes. The Company received US$20,000,000 at the closing of the Note Agreement ("Tranche A Apollo Note") and the Company may draw additional advances up to US$30,000,000 until August 23, 2014, if at the time of the advance, the Company meets the specified minimum production and drilling cost requirements for previous wells drilled under the program that were financed with funding from the Note Purchase Agreement. In addition to these funds, the Company will have the ability to reinvest cash flow from program wells back into the drilling program.

In connection with the Tranche A Apollo Note, the Company incurred a total of US$1,487,412 in transaction costs (consisting of US$1,359,912 in issuance costs and US$127,500 relating to the fair value of the 2% overriding royalty conveyed at the closing of the Note Purchase Agreement). In addition, the Company also incurred structuring fees of US$440,000 in connection with the Note Purchase Agreement. The Tranche A Apollo Note is classified as other financial liabilities and is measured at amortized cost.

The outstanding balance of the Tranche A Apollo Note as at September 30, 2013 was US$23,170,502 which includes an additional draw down of $5,000,000 on September 11, 2013(net of unamortized transaction costs US$1,829,498). This outstanding balance matures on May 23, 2017. The Tranche A Apollo Note bears interest at a floating rate of one-month LIBOR (with a floor of 2%) plus 10% per annum, payable monthly. In an event of default under the Note Purchase Agreement, additional interest will be payable at a default rate of 5% per annum, but only during the period of default.

The Company is required to comply with financial covenants, which are tested quarterly, providing for specified interest coverage ratios beginning in the quarter ending September 30, 2013, and asset coverage ratios and minimum production, beginning in the quarter ending March 31, 2014. Furthermore, the Company is required to maintain a limit on expenditures for general and administrative costs. Any outstanding balances in the Note Purchase Agreement may be prepaid at the option of the Company at any time at premiums that vary over time. The Note Purchase Agreement is also subject to a mandatory prepayment from the proceeds of the sale of assets and from funds received from transactions outside of the ordinary course of business. Additionally, if in any period the Company fails to comply with any financial or performance covenants, certain mandatory payments are required. Outstanding balances under the Note Purchase Agreement are secured by first-priority security interests in all of the Company's assets.

In addition to the 2% overriding royalty interest conveyed at the closing of the Note Purchase Agreement in its properties in Eddy and Lea Counties, New Mexico, the Company is also required to convey a proportionately reducible 2% overriding royalty interest in each lease acquired by Caza using proceeds from the Note Purchase Agreement. These amounts are not payable until such a time that these leases produce petroleum and natural gas revenues.

Upon full repayment of Tranche A Apollo Note, the overriding royalty interests will convert to a 25% net profits interest in each property, proportionately reduced to reflect the Company's working interest as provided in the Agreement, which will reduce to a 12.5% net profits interest at such time as the Note Holder achieves specified investment criteria pursuant to the Note Purchase Agreement. The Note Agreement provides for customary events of default. Additionally, an event of default would occur upon a change of control of the Company, which consists of (i) a shareholder acquiring more than 35% of the Company's outstanding Common Shares, (ii) a change in the composition of the board of directors by more than ⅓ during a 12-month period or (iii) a termination of service by any three of the five executive officers of the Company.

Fair Value of Financial Instruments

The Company has determined that the fair values of the financial instruments consisting of cash and cash equivalents, restricted cash, accounts receivable, deposits and accounts payable are not materially different from the carrying values of such instruments reported on the consolidated statement of financial position due to their short-term nature. The fair values of other financial instruments are discussed below.

IFRS establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below:

· Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

· Level 2: Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

· Level 3: Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

The Company's cash and cash equivalents and restricted cash, which are classified as fair value through profit or loss, are categorized as Level 1 financial instruments.

The Company's notes payable issued in 2012 were categorized as Level 2 financial instruments and were recorded at fair value on issuance using a market interest rate for similar debt issued without the warrants attached. The notes payable issued pursuant to the Note Purchase Agreement as described above were categorized as Level 2 financial instruments and were recorded at fair value on issuance using a market interest rate for similar debt issued without the overriding royalty interest attached.

The Company's derivative liability as described above under "Other Financial Instruments - Equity facility" is also a Level 2 financial instrument.

All other financial assets are classified as loans or receivables and are accounted for on an amortized cost basis. All financial liabilities are classified as other liabilities. There are no financial assets on the consolidated statement of financial position that have been designated as available-for-sale. There have been no changes to the aforementioned classifications during the periods presented.

9. Subsequent Events

On September 30, 2013 the Company received cash in the amount of $776,003 for shares to be issued in October 2013. On October 24, 2013 Caza issued 5,263,158 common shares to Yorkville at a price of £0.095 per share.

On November 1, 2013 the Company entered into an agreement in relation to a $4.3 million convertible unsecured loan (the "Loan") to be made available by YA Global Master SPV Ltd., an investment fund managed by Yorkville. The Loan consists of $3.5 million of new credit facilities along with an additional $0.84 million that will be used to repay amounts which remain outstanding under the prior loan from Yorkville. The Loan will mature in two years, which may be extended to three years by Yorkville. The Loan bears interest on outstanding principal at 8% per annum and interest is payable quarterly only in Common Shares based on a conversion price equal to 92.5% of the average price of the Common Shares during the ten trading days prior to the interest payment date. At Yorkville's option, outstanding principle of the loan is convertible into Common Shares of the Company and the conversion price will be a price per Common Share equal to either (a) 92.5% of the average price of the Common Shares during the ten trading days prior to the conversion to a maximum of $450,000 per month or (b) at Yorkville's option, a fixed price of £0.14.

On November 6, 2013, the Company entered into swap contracts to limit exposure to declining crude oil prices for approximately 75% of its production from currently producing wells. Under these swaps, the Company receives or pays monthly a cash settlement on the covered production of the difference between the swap price and the month average of the daily closing quoted spot price per barrel of West Texas Intermediate NYMEX crude oil. For the remainder of 2013 the swap covers 9,685 barrels of oil at a swap price of $94.25. During the 12 months ending December 2014, the swap covers 40,524 barrels of oil at a swap price of $92.55. During the 12 months ending December 2015, the swap covers 28,410 barrels of oil at a swap price of $87.05.