FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2013

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from             to             .

 

Commission file number: 333-178437

 

West Texas Resources, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada		99-0365272
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification no.)

 

5729 Lebanon Road, Suite 144

Frisco, Texas  75034

(Address of principal executive offices, including zip code)

 

(972) 712-1039

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act):

 

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

 

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

 

As of August 19, 2013, 13,902,200 shares of the common stock of West Texas Resources, Inc. were outstanding.

 

TABLE OF CONTENTS

 

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Balance Sheets	1
	Statements of Operations	2
	Statements of Cash Flows	3
	Notes to Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	General	11
	Plan of Operations	12
	Financial Condition	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13
Item 4.	Controls and Procedures	13
PART II — OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 6.	Exhibits	14

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

  

West Texas Resources, Inc.

 

Balance Sheets

  

		June 30,				September 30,
		2013				2012
		(Unaudited)
ASSETS
Current Assets
Cash		$	75,376			$	8,611
Accounts receivable			127,705
Total Current Assets			203,081				8,611
Oil and gas properties, using successful effort accounting			721,650				145,873
Equipment - water truck, net			–				24,704
TOTAL ASSETS		$	924,731			$	179,188
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Investment payable		$	702,900			$	18,750
Asset retirement obligation			10,000				–
Shareholder advances			–				35,000
Other			67,742				67,953
Total Current Liabilities			780,642				121,703
Commitments and Contingencies			–				–
Shareholders' Equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding			–				–
Common stock, $0.001 par value; 200,000,000 shares authorized; 13,543,200 and 13,106,500 shares issued and outstanding at June 30, 2013 and September 30, 2012, respectively			13,543				13,106
Additional paid-in capital			510,709				292,796
Accumulated deficit			(380,163	)			(248,417	)
Total Shareholders' Equity			144,089				57,485
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	924,731			$	179,188

  

See accompanying notes to these financial statements.

 

 

West Texas Resources, Inc.

 

STATEMENTS OF OPERATIONS (UNAUDITED)

 

		For the Three Months Ended June 30,								For the Nine Months Ended June 30,
		2013				2012				2013				2012
Revenues
Oil and gas sales		$	127,705			$	0			$	127,705			$	0
General and administrative expenses			(26,397	)			(27,631	)			(132,833	)			(93,373	)
Operating income/(loss)			101,308				(27,631	)			(5,128	)			(93,373	)
Other income (expenses)
Lease income			–				–				–				19,203
Bad debt expense			–				(5,616	)			–				(5,616	)
Depreciation expense			–				(2,980	)			(2,980	)			(8,076	)
Loss on disposal of equipment			–				–				(5,265	)			–
Asset retirement expense			(10,000	)			–				(10,000	)			–
Impairment loss on investment			(108,373	)			–				(108,373	)			–
			(118,373	)			(8,596	)			(126,618	)			5,511
Loss Before Income Taxes			(17,065	)			(36,227	)			(131,746	)			(87,862	)
Income taxes			–				–				–				–
Net Loss		$	(17,065	)		$	(36,227	)		$	(131,746	)		$	(87,862	)
Loss per share
Basic and diluted weighted average number of common shares outstanding			13,397,000				13,106,500				13,207,500				13,106,500
Basic and diluted net loss per share		$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.01	)

 

 

 

 

See accompanying notes to these financial statements.

 

 

 

West Texas Resources, Inc.

 

STATEMENTS OF CASH FLOWS (UNAUDITED)

  

		For the Nine Months Ended June 30,
		2013				2012
Cash flows from operating activities
Net loss		$	(131,746	)		$	(87,862	)
Adjustments to reconcile net loss to net cash from operating activities:
Stock-based compensation			–				–
Depreciation expense			2,980				8,076
Loss on disposal of equipment			5,265				–
Asset retirement expense			10,000
Impairment loss on investment			108,373
Bad debt expense			–				5,616
Changes in operating assets and liabilities:
Receivables			(127,705	)			(5,616	)
Investment payable			702,900				–
Other payables			(210	)			15,368
Net cash used in operating activities			569,857				(64,418	)
Cash flows from investing activities
Investments			(702,900	)			(108,374	)
Purchase of water truck			–				–
Net proceeds from sale of water truck			16,458				–
Net cash provided by (used in) investing activities			(686,442	)			(108,374	)
Cash flows from financing activities
Proceeds from sale of common stock			177,350				–
Shareholder Advances			6,000				10,000
Net cash from financing activities			183,350				10,000
Net increase (decrease) in cash			66,765				(162,792	)
Cash, beginning of period			8,611				169,346
Cash, end of period		$	75,376			$	6,554
Supplemental cash flow disclosure:
Interest paid		$	–			$	–
Income taxes paid		$	–			$	–
Supplemental disclosure of non-cash transactions:
Conversion of shareholder advances to common stock		$	41,000			$	–

 

See accompanying notes to these financial statements.

 

 

WEST TEXAS RESOURCES, INC.

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

June 30, 2013

 

1.	Organization and Summary of Significant Accounting Policies

 

Organization and business

 

Texas Resources Energy, Inc. (“TREI”) was incorporated under the laws of Nevada on December 9, 2010, as a wholly-owned subsidiary of Russian Resources Energy, Inc., a Texas corporation (“RREI”), and then spun off to the shareholders of RRIE on the same date. On June 30, 2011, TREI changed its name to West Texas Resources, Inc. (the “Company”). The Company is engaged in the acquisition, exploration and development of oil and gas properties in North America.

 

Basis of presentation

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and reflect all adjustments, consisting of normal recurring adjustments and other adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company, for the respective periods presented. The results of operations for an interim period are not necessarily indicative of the results that may be expected for any other interim period or the year as a whole. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes for the year ended September 30, 2012.

 

Liquidity and management’s plans

 

The Company’s ability to generate revenue primarily depends on its success in investigation and exploration of oil and gas properties.  The Company incurred a net loss of $131,746 during the nine months ended June 30, 2013 and a net loss of $380,163 from inception to June 30, 2013. Also, the Company had a cash balance of $75,376, a working capital deficit of $577,561 and a stockholders’ equity of $144,089 at June 30, 2013.

 

The Company will require up to $1 million of additional capital in order to fund its proposed operations over the next 12 months. Management plans to continue to seek sources of financing on favorable terms; however, there are no assurances that any such financing can be obtained on favorable terms, if at all.   Management expects to monitor and control the Company’s operating costs until cash is available through financing or operating activities.  There are no assurances that the Company will be successful in achieving these plans.  The Company anticipates that losses will continue until such time, if ever, as the Company is able to generate sufficient revenues to support its operations.

 

 

WEST TEXAS RESOURCES, INC.

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

June 30, 2013

 

1.	Organization and Summary of Significant Accounting Policies (continued)

 

Oil and gas properties

 

The Company uses the successful efforts method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells that find proved reserves, to drill and equip development wells and related asset retirement costs are capitalized. Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and retaining unproved properties are expensed.

 

Unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment by providing an impairment allowance. Other unproved properties are amortized based on the Company's experience of successful drilling and average holding period. Capitalized costs of producing oil and gas properties, after considering estimated residual salvage values, are depreciated and depleted by the unit-of-production method.  

 

On the sale or retirement of a complete unit of a proved property, the cost and related accumulated depreciation, depletion, and amortization are eliminated from the property accounts, and the resultant gain or loss is recognized. On the retirement or sale of a partial unit of proved property, the cost is charged to accumulated depreciation, depletion, and amortization with a resulting gain or loss recognized in income.  On the sale of an entire interest in an unproved property for cash or cash equivalent, gain or loss on the sale is recognized, taking into consideration the amount of any recorded impairment if the property had been assessed individually. If a partial interest in an unproved property is sold, the amount received is treated as a reduction of the cost of the interest retained.

 

Impairment of long-lived assets

 

The Company accounts for the impairment and disposition of long-lived assets in accordance with ASC 360-10-35, Impairment or Disposal of Long-Lived Assets. In accordance with ASC 360-10-35, long-lived assets are reviewed for events of changes in circumstances, which indicate that their carrying value may not be recoverable. During the three months ended June 30, 2013, the Company determined that the investment in its oil and gas properties was impaired due to unsuccessful fracking process. Accordingly, the Company recorded impairment loss of $108,373 to write off the capitalized fracking costs.

 

Asset retirement obligations 

 

ASC 410-20, Asset Retirement Obligations, clarifies that a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. ASC 410-20 requires a liability to be recognized for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated.

 

 

WEST TEXAS RESOURCES, INC.

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

June 30, 2013

 

1.	Organization and Summary of Significant Accounting Policies (continued)

 

Cash, cash equivalents, and other cash flow statement supplemental information

 

The Company considers all liquid investments with an original maturity of three months or less that are readily convertible into cash to be cash equivalents.  The Company places its cash equivalents with high credit quality financial institutions.  Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company performs ongoing evaluations of these institutions to limit its concentration of risk exposure.  Management believes this risk is not significant due to the financial strength of the financial institutions utilized by the Company.

 

Furniture, fixtures and equipment

 

Furniture, fixtures and equipment are carried at cost depreciated using the straight-line method over their estimated useful lives. Gain or loss on retirement or sale or other disposition of these assets is included in income in the period of disposition.

 

Use of estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.

 

Income taxes

 

The Company reports certain expenses differently for financial and tax reporting purposes and, accordingly, provides for the related deferred taxes.  Income taxes are accounted for under the liability method in accordance with ASC 740, Income Taxes.

 

Management has considered its tax positions and believes that all of the positions taken by the Company in its Federal and State tax returns are more likely than not to be sustained upon examination. The Company is subject to examination by U.S. Federal and State tax authorities from 2010 to the present, generally for three years after they are filed.

 

Basic and diluted net income (loss) per share

 

Basic net income (loss) per share is based upon the weighted average number of common shares outstanding.  Diluted net income (loss) per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised.  Dilution is computed by applying the treasury stock method.  Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.  For the nine months ended June 30, 2013, all common stock equivalents were anti-dilutive.

 

 

WEST TEXAS RESOURCES, INC.

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

June 30, 2013

 

1.	Organization and Summary of Significant Accounting Policies (continued)

 

Stock-based payments

 

Compensation costs for all share-based awards are measured based on the grant date fair value and are recognized over the vesting period. The Company has no awards with market or performance conditions. Excess tax benefits will be recognized as an addition to additional paid-in-capital.

 

Fair value of financial instruments

 

The accounting standards regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash and other current assets and liabilities to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

The Company has also adopted ASC 820-10 which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

 

·

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

·

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

·

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

As of June 30, 2013, the Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 820-10.

Recent Accounting Pronouncements

 

In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, to simplify the manner in which entities test indefinite-lived intangible assets for impairment. The ASU permits an entity to first assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The implementation of the standard did not have a significant impact on the Company’s financial statements.

 

 

WEST TEXAS RESOURCES, INC.

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

June 30, 2013

 

2.

Equipment

 

In August 2011, the Company purchased a water truck for $35,759 cash. In October 2011, the Company's water truck was placed in service pursuant to a lease arrangement with an unaffiliated third party.  The lease requires the lessee to pay the Company $2,500 per month plus 10% of the revenue collected by the lessee from its use or sublease of the truck. The lease is for a term of two years and the lessee has the option to purchase the truck at the end of the lease term for 75% of the Company's purchase price.  During the year ended September 30, 2012, the Company terminated the lease and wrote off the lease income receivable of $5,616 as bad debt expense due to the lessee’s cash flow problems. In January 2013. the Company sold the water truck for net proceeds of $16,458 and recorded a loss on disposal of equipment of $5,265.

 

3.	Oil and Gas Properties

 

In September 2011, the Company acquired a 31.25% working interest in an exploratory oil and gas drilling prospect covering 120 acres in Eastland County, Texas, for $127,123 cash.

 

In October 2011, West Texas Royalties, Inc., the operator of the Company's Eastland County prospect began drilling and fracturing operations.

 

As of June 30, 2013, no revenue has yet to be derived from the wells. During the three months ended June 30, 2013, the Company determined that its investment in this oil and gas property was impaired due to the unsuccessful fracking process. Accordingly, the Company recorded an impairment loss of $108,373 to write off the capitalized fracking costs. In addition, the Company determined and recorded its share of the asset retirement obligation of $10,000 at June 30, 2013.

 

Effective April 1, 2013, the Company acquired a 7.24625% working interest in the oil and gas leases, wells and attendant production in the Port Hudson field, Baton Rouge Parish, Louisiana, for a total consideration of $702,900. The Port Hudson field has three producing wells with estimated total remaining recoverable proved developed producing reserves of 294,000 bbls and 229,000 bbls of proven developed behind pipes reserves. The wells are currently producing approximately 290 bbls per day. The Company’s working interest is subject to certain overriding royalty interests, subject to which it has a 5.65158% net revenue interest in the Port Hudson Field.

 

The entire purchase consideration of $702,900 was paid in July and August 2013.

 

 

WEST TEXAS RESOURCES, INC.

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

June 30, 2013

  

4.	Shareholders’ Equity

 

The Company is authorized to issue 200,000,000 shares of common stock, par value of $0.001, and 10,000,000 shares of preferred stock, par value of $0.001.

 

Commencing on January 24, 2011, the Company began the sale of up to 2,000,000 shares of its common stock at $.25 per share in a private placement.  During fiscal 2011, the Company sold 962,000 shares for gross proceeds of $240,500. No commissions were incurred with respect to these sales of stock.

 

On November 26, 2012, the Board of Directors of the Company approved the Private Placement Memorandum for an offering of 3,000,000 shares of the Company’s common stock at $0.50 per share. The Shares are being offered by the Company’s executive officers on a straight best-efforts basis. However, in the event the Company engages finders or FINRA member firms, the Company expects to pay finders’ fees or sales commissions of up to 10% of the gross offering proceeds.

 

On November 29, 2012 and January 10, 2013, the Company entered into subscription agreements with its majority shareholder whereby the shareholder converted $41,000 he advanced to the Company into 82,000 common shares and purchased an additional 58,000 common shares for $29,000 cash.

 

During the six months ended March 31, 2013, the Company entered into various subscription agreements with accredited investors to sell 144,700 shares of its common stock at $0.50 per share. The total consideration of $72,350 was received upon signing of the subscription agreements.

 

During the three months ended June 30, 2013, the Company entered into various subscription agreements with accredited investors to sell 152,000 shares of its common stock at $0.50 per share. The total consideration of $76,000 was received upon signing of the subscription agreements.

 

On September 15, 2011, the Company adopted the West Texas Resources, Inc. 2011 Stock Incentive Plan (the “Plan”) providing for the grant of non-qualified stock options and incentive stock options to purchase its common stock and for grant of restricted and unrestricted grants. The Company has reserved 3,000,000 shares of its common stock under the Plan. All officers, directors, employees and consultants to the Company are eligible to participate under the Plan. The purpose of the Plan is to provide eligible participants with an opportunity to acquire an ownership interest in the Company.

 

 

WEST TEXAS RESOURCES, INC.

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

June 30, 2013

 

4.	Shareholders’ Equity (continued)

 

The Company granted options to certain consultants to purchase 400,000 shares of the Company’s common stock. The options vest immediately and expire on September 15, 2016. The fair value of each share-based award was estimated using the Black-Scholes option pricing model or a lattice model. The fair value of these options, determined to be $65,402, was included in general and administrative expenses for the year ended September 30, 2011.

 

The following assumptions were used in the fair value method calculation:

 

·

Volatility: 83%

 

·

Risk free rate of return: 1%

 

·

Expected term: 5 years

  

The following information applies to all options outstanding at June 30, 2013:

 

·

Weighted average exercise price: $0.25

 

·

Options outstanding and exercisable: 400,000

 

·

Average remaining life: 3.25 years

 

5.	Subsequent Events

 

Events subsequent to June 30, 2013 have been evaluated through the date these financial statements were issued to determine whether they should be disclosed to keep the financial statements from being misleading. The following events occurred since June 30, 2013:

 

·

In July 2013, the Company entered into various subscription agreements with accredited investors to sell 359,000 shares of its common stock at $0.50 per share. The total amount of $179,500 was received upon signing of the subscription agreements.

 

·

On August 14, 2013, we entered into a loan agreement with our majority shareholder, Gary Bryant, pursuant to which Mr. Bryant loaned us $417,762, the proceeds of which were used to partially finance our acquisition of the Port Hudson interest. The loan bears interest on the unpaid principal amount at the rate of 8% per annum. All principal and interest are payable over a four year period, commencing November 1, 2013, at the amortized rate of $10,198 per month. Our obligations under the loan are secured by our working interest in the Port Hudson field.

   

·

On August 16, 2013, the Company entered into an agreement with Enovation Resources, LLC to purchase a 10.0167% working interest (7.2120% net revenue interest) in an offshore oil and gas field, known as West Cam 225, located in the shallow waters of the Gulf of Mexico near Cameron, Louisiana. The Company’s purchase price for the working interest is $50,000, payable on August 28, 2013.

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Statement

 

The following discussion and analysis should be read in conjunction with our unaudited financial statements and the related notes thereto contained elsewhere in this report. The information contained in this quarterly report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other filings with the Securities and Exchange Commission, or SEC, including our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 filed with the SEC on January 14, 2013 and our subsequently filed periodic reports, which discuss our business in greater detail.

 

In this report we make, and from time to time we otherwise make, written and oral statements regarding our business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements containing the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements, which may appear in documents, reports, filings with the SEC, news releases, written or oral presentations made by officers or other representatives made by us to analysts, stockholders, investors, news organizations and others, and discussions with management and other of our representatives.

 

Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement.

 

General

 

We were formed under the laws of Nevada on December 9, 2010 for the purpose of oil and gas exploration and development in North America. We commenced revenue producing oil and gas operations during the three month period ended June 30, 2013.

 

In September 2011, we acquired our initial property consisting of a 31.25% working interest in an exploratory oil and gas drilling prospect covering 120 acres in Eastland County, Texas. The Eastland County prospect includes two exploratory wells, known as Rutherford #1 and C.M. Knott #1, that had been operating at a minimum level required to maintain the lease rights.  In October 2011, the operator reentered the Rutherford #1 well and conducted drilling and casing activities, which were completed in November 2011.  In January 2012, a third party conducted the fracture stimulation of the Rutherford #1. In February 2013, the operator placed a pump jack on the Rutherford #1 well, however no meaningful revenue has been derived from the well to date. During the three months ended June 30, 2013, we determined that our investment in the Eastland County prospect was impaired due to an unsuccessful fracture stimulation. Accordingly, we recorded an impairment loss of $108,373 to write off the capitalized fracture stimulation costs. We do not expect that the impairment charge will trigger any future cash expenditures.

 

Effective April 1, 2013, we acquired a 7.24625% working interest (5.65158% net revenue interest) in the oil and gas leases, wells and attendant production in the Port Hudson field, Baton Rouge Parish, Louisiana, from Wells Fargo Energy Capital, Inc. for total consideration of $702,900. The Port Hudson field has three producing wells that have produced a total of 1.1 million bbls to date with estimated total remaining recoverable proved developed producing reserves of 294,000 bbls, and 229,000 bbls of proven developed behind pipe reserves and are currently producing approximately 290 bbls per day. The entire purchase consideration was paid in July and August 2013.

 

On August 14, 2013, we entered into a loan agreement with our majority shareholder, Gary Bryant, pursuant to which Mr. Bryant loaned us $417,762, the proceeds of which were used to partially finance our acquisition of the Port Hudson interest. The loan bears interest on the unpaid principal amount at the rate of 8% per annum. All principal and interest are payable over a four year period, commencing November 1, 2013, at the amortized rate of $10,198 per month. Our obligations under the loan are secured by our working interest in the Port Hudson field.

 

On August 16, 2013, we entered into an agreement with Enovation Resources, LLC to purchase a 10.0167% working interest (7.2120% net revenue interest) in an offshore oil and gas field, known as West Cam 225, located in the shallow waters of the Gulf of Mexico near Cameron, Louisiana. Our purchase price for the working interest is $50,000, payable on August 28, 2013.

 

 

Results of Operations

 

We commenced revenue producing oil and gas operations during the three month period ended June 30, 2013. For the three month and nine month periods ended June 30, 2013, we had $127,705 of revenue, all of which was oil and gas sales derived from our working interest in the Port Hudson field which we acquired effective as of April 1, 2013. For the three month and nine month periods ended June 30, 2013, we incurred a net loss ($17,065) and ($131,746), respectively. Our net loss for the periods ended June 30, 2013 included a non-cash impairment charge of $108,373, which is described above.

 

As more fully described below, and subject to our receipt of additional capital, our plan of operations over the next 12 months is to pursue the acquisition of additional oil and natural gas interests in North America.

 

At the present time, we have two employees, our chief executive officer and chief financial officer, Stephen Jones and John Kerr, respectively, neither of whom has any experience in the oil and gas exploration and development business other than as private investors. In connection with our acquisition of the Port Hudson interest, we entered into a consulting agreement with F. Scott Haire pursuant to which he agreed to assist us in completing the acquisition of the project. We are currently in negotiations with Mr. Haire for him to become our president and chief executive officer.

 

We intend to pursue an operating strategy that is based on our participation in exploration prospects as a non-operator.  Based on that strategy, our plan of operations over the next 12 months is to pursue the acquisition of oil and natural gas interests in partnership with other companies with exploration, development and production expertise.  We will also pursue alliances with partners in the areas of geological and geophysical services and prospect generation, evaluation and prospect leasing.  Pursuant to this strategy, we intend to engage and rely on third party geologists and geophysicists, among others, to review the available data concerning each potential acquisition.  In each case, we expect that the operator of the prospect will assemble the appropriate data and conduct the appropriate studies and that our consultants will conduct an independent review of the operator’s data and studies for purposes of advising us of the merits of each potential acquisition.

 

The business of oil and gas acquisition, drilling and development is capital intensive and the level of operations attainable by an oil and gas company is directly linked to and limited by the amount of available capital.  Therefore, a principal part of our plan of operations is to acquire the additional capital required to finance the acquisition of such properties and our share of the development costs.  As explained under “Financial Condition” below, we will seek additional working capital through the sale of our securities and, subject to the successful deployment of our cash on hand, we will endeavor to obtain additional capital through bank lines of credit and project financing.

 

Financial Condition

 

As of June 30, 2013, we had total assets of $924,731 and negative working capital of $(577,561). During the quarter ended on June 30, 2013, we commenced the private placement sale of our common shares at the offering price of $0.50 per share in order to fund our acquisition of the interest in the Port Hudson field. As of the date of this report, we have sold a total of 511,000 common shares for the gross proceeds of $255,500. In addition, and as described above, our principal shareholder, Gary Bryant, loaned us a total of $417,762 subsequent to June 30, 213 for purposes of financing a portion of the Port Hudson acquisition. The loan bears interest on the unpaid principal amount at the rate of 8% per annum. All principal and interest are payable over a four year period, commencing November 1, 2013, at the amortized rate of $10,198 per month. Our obligations under the loan are secured by our working interest in the Port Hudson field.

 

Our ability to achieve commercial success is dependent on our ability to obtain additional capital either through the additional sale of our equity or debt securities, bank lines of credit, project financing or cash generated from oil and gas operations. We will seek to obtain additional working capital through the sale of our securities and, subject to the successful deployment of our cash on hand, we will endeavor to obtain additional capital through bank lines of credit and project financing.  However, we have no agreements or understandings with any third parties at this time for our receipt of additional working capital and we have no history of generating cash from oil and gas operations.  We may not be able to obtain access to capital as and when needed and, if so, the terms of any available financing may not be subject to commercially reasonable terms.  

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet financing arrangements.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risks

 

Not applicable.

 

Item 4. Controls and Procedures

 

(a)  Evaluation of Disclosure Controls and Procedures.

 

Our management, with the participation of our chief executive officer and chief accounting officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 15d-15 of the Securities Exchange Act of 1934.  Based on this evaluation, our management concluded that our disclosure controls and procedures were effective as of June 30, 2013.

 

(b)  Changes in Internal Control Over Financial Reporting.

 

There were no changes in our internal control over financial reporting that occurred during the three-month period ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

During the three months ended June 30, 2013, we commenced the private placement sale of our common stock at the offering price of $0.50 per share.  As of the date of this report, we have sold 511,000 shares of common stock to 22 parties for the gross proceeds of $255,500. The issuances were exempt under Section 4(a)(2) of the Securities Act of 1933 and Rule 506 there under.  All of the investors were accredited investors, as such term is defined in Rule 501 under the Securities Act.   The offering was conducted by our management.  No sales commissions or finders’ fees were paid by us or anyone else.

 

Item 6.  Exhibits

 

Exhibit No.		Description		Method of Filing
10.1		Letter Agreement dated July 3, 2013 between the Registrant and Wells Fargo Energy Capital, Inc.		Filed electronically herewith
10.2		Letter Agreement dated August 1, 2013 between Registrant and Gulfex Resources, LLC		Filed electronically herewith
10.3		Loan Agreement dated August 14, 2013 between Registrant and Gary Bryant		Filed electronically herewith
10.4		Promissory Note dated August 14, 2013 made by Registrant in favor of Gary Bryant		Filed electronically herewith
10.5		Letter Agreement dated August 16, 2013 between Registrant and Enovation Resources LLC.		Filed electronically herewith
31.1		Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed electronically herewith
31.2		Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed electronically herewith
32.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).		Filed electronically herewith
101.INS*		XBRL Instance Document		Filed electronically herewith
101.SCH*		XBRL Taxonomy Extension Schema Document		Filed electronically herewith
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document		Filed electronically herewith
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document		Filed electronically herewith
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document		Filed electronically herewith
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document		Filed electronically herewith

 

* Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		WEST TEXAS RESOURCES, INC.
Date:	August 19 , 2013	By:	/s/ Stephen E. Jones
			Stephen E. Jones
		Its:	President and Chief Executive Officer
Date:	August 19, 2013	By:	/s/ John D. Kerr
			John D. Kerr
		Its:	Chief Financial Officer