Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - FIELDPOINT PETROLEUM CORP | Financial_Report.xls |
EX-31.1 - EXHIBIT 31.1 - FIELDPOINT PETROLEUM CORP | ex31_1.htm |
EX-31.2 - EXHIBIT 31.2 - FIELDPOINT PETROLEUM CORP | ex31_2.htm |
EX-32.2 - EXHIBIT 32.2 - FIELDPOINT PETROLEUM CORP | ex32_2.htm |
EX-32.1 - EXHIBIT 32.1 - FIELDPOINT PETROLEUM CORP | ex32_1.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2013
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: 001-32624
FieldPoint Petroleum Corporation
(Exact name of small business issuer as specified in its charter)
Colorado
|
|
84-0811034
|
(State or Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S. Employer Identification No.)
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1703 Edelweiss Drive
|
||
Cedar Park, Texas 78613
|
||
(Address of Principal Executive Offices) (Zip Code)
|
||
|
||
(512) 250-8692
|
||
(Issuer's Telephone Number, Including Area Code)
|
||
(former name, address and 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 Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No 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. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer o
|
Accelerated filer o
|
|
|
Non-accelerated filer o (Do not check if a smaller reporting company)
|
Smaller reporting company x
|
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 November 14, 2013, the number of shares outstanding of the Registrant's $.01 par value common stock was 8,066,336.
PART I – FINANCIAL INFORMATION
Item 1.
|
Financial Statements
|
FieldPoint Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
September 30,
2013
|
December 31,
2012
|
||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$
|
3,605,349
|
$
|
1,408,075
|
||||
Certificates of deposit
|
44,702
|
44,702
|
||||||
Accounts receivable:
|
||||||||
Oil and natural gas sales
|
1,861,068
|
1,193,495
|
||||||
Joint interest billings, less allowance for doubtful accounts of approximately $174,000 each period
|
263,841
|
229,406
|
||||||
Prepaid income taxes
|
342,421
|
196,555
|
||||||
Deferred income tax asset—current
|
110,000
|
171,000
|
||||||
Prepaid expenses and other current assets
|
65,891
|
42,349
|
||||||
Total current assets
|
6,293,272
|
3,285,582
|
||||||
|
||||||||
PROPERTY AND EQUIPMENT:
|
||||||||
Oil and natural gas properties (successful efforts method)
|
34,761,073
|
32,210,252
|
||||||
Other equipment
|
62,836
|
52,113
|
||||||
Less accumulated depletion and depreciation
|
(13,437,395
|
)
|
(12,412,517
|
)
|
||||
Net property and equipment
|
21,386,514
|
19,849,848
|
||||||
|
||||||||
Total assets
|
$
|
27,679,786
|
$
|
23,135,430
|
||||
|
||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable and accrued expenses
|
$
|
3,234,405
|
$
|
889,796
|
||||
Unrealized loss on commodity derivatives
|
50,000
|
-
|
||||||
Oil and gas revenues payable
|
334,686
|
286,234
|
||||||
Total current liabilities
|
3,619,091
|
1,176,030
|
||||||
|
||||||||
LONG-TERM DEBT
|
6,740,000
|
6,740,000
|
||||||
DEFERRED INCOME TAXES
|
3,073,000
|
2,442,000
|
||||||
ASSET RETIREMENT OBLIGATION
|
1,688,685
|
1,595,935
|
||||||
Total liabilities
|
15,120,776
|
11,953,965
|
||||||
|
||||||||
STOCKHOLDERS’ EQUITY:
|
||||||||
Common stock, $.01 par value, 75,000,000 shares authorized; 8,993,336 and 8,970,936 shares issued, respectively and 8,066,336 and 8,043,936 outstanding, respectively
|
89,933
|
89,709
|
||||||
Additional paid-in capital
|
11,751,298
|
11,661,922
|
||||||
Retained earnings
|
2,684,671
|
1,396,726
|
||||||
Treasury stock, 927,000 shares, each period, at cost
|
(1,966,892
|
)
|
(1,966,892
|
)
|
||||
Total stockholders’ equity
|
12,559,010
|
11,181,465
|
||||||
Total liabilities and stockholders’ equity
|
$
|
27,679,786
|
$
|
23,135,430
|
See accompanying notes to these unaudited condensed consolidated financial statements.
2
FieldPoint Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
||||||||||||||
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
REVENUE:
|
||||||||||||||||
Oil and natural gas sales
|
$
|
2,571,006
|
$
|
2,266,920
|
$
|
7,138,419
|
$
|
7,608,497
|
||||||||
Well operational and pumping fees
|
10,669
|
17,066
|
39,113
|
51,198
|
||||||||||||
Disposal fees
|
-
|
20,000
|
189,974
|
73,996
|
||||||||||||
Total revenue
|
2,581,675
|
2,303,986
|
7,367,506
|
7,733,691
|
||||||||||||
|
||||||||||||||||
COSTS AND EXPENSES:
|
||||||||||||||||
Production expense
|
1,089,469
|
659,227
|
2,560,438
|
2,445,389
|
||||||||||||
Depletion and depreciation
|
501,500
|
507,500
|
1,515,500
|
1,477,500
|
||||||||||||
Exploration expense
|
(11,554
|
)
|
-
|
152,650
|
-
|
|||||||||||
Accretion of discount on asset retirement obligations
|
24,000
|
22,000
|
72,000
|
68,000
|
||||||||||||
General and administrative
|
293,015
|
298,830
|
815,070
|
906,549
|
||||||||||||
Total costs and expenses
|
1,896,430
|
1,487,557
|
5,115,658
|
4,897,438
|
||||||||||||
|
||||||||||||||||
OPERATING INCOME
|
685,245
|
816,429
|
2,251,848
|
2,836,253
|
||||||||||||
|
||||||||||||||||
OTHER INCOME (EXPENSE):
|
||||||||||||||||
Interest income
|
396
|
221
|
1,759
|
2,111
|
||||||||||||
Interest expense
|
(78,376
|
)
|
(67,926
|
)
|
(199,406
|
)
|
(196,194
|
)
|
||||||||
Realized gain on commodity derivative
|
-
|
51,681
|
-
|
129,012
|
||||||||||||
Unrealized gain (loss) on commodity derivatives
|
(50,000
|
)
|
(314,000
|
)
|
(50,000
|
)
|
99,000
|
|||||||||
Miscellaneous
|
11,634
|
-
|
10,744
|
181
|
||||||||||||
Total other income (expense)
|
(116,346
|
)
|
(330,024
|
)
|
(236,903
|
)
|
34,110
|
|||||||||
|
||||||||||||||||
INCOME BEFORE INCOME TAXES
|
568,899
|
486,405
|
2,014,945
|
2,870,363
|
||||||||||||
|
||||||||||||||||
INCOME TAX EXPENSE – CURRENT
|
66,000
|
(2,000
|
)
|
(35,000
|
)
|
(124,000
|
)
|
|||||||||
INCOME TAX EXPENSE – DEFERRED
|
(267,000
|
)
|
(182,000
|
)
|
(692,000
|
)
|
(930,000
|
)
|
||||||||
TOTAL INCOME TAX PROVISION
|
(201,000
|
)
|
(184,000
|
)
|
(727,000
|
)
|
(1,054,000
|
)
|
||||||||
|
||||||||||||||||
NET INCOME
|
$
|
367,899
|
$
|
302,405
|
$
|
1,287,945
|
$
|
1,816,363
|
||||||||
|
||||||||||||||||
EARNINGS PER SHARE:
|
||||||||||||||||
BASIC
|
$
|
0.05
|
$
|
0.04
|
$
|
0.16
|
$
|
0.23
|
||||||||
DILUTED
|
$
|
0.04
|
$
|
0.04
|
$
|
0.16
|
$
|
0.21
|
||||||||
|
||||||||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING:
|
||||||||||||||||
BASIC
|
8,066,336
|
8,016,758
|
8,060,763
|
7,994,541
|
||||||||||||
DILUTED
|
8,656,556
|
8,575,094
|
8,208,810
|
8,484,429
|
See accompanying notes to these unaudited condensed consolidated financial statements.
3
FieldPoint Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
For the Nine Months Ended
September 30,
|
|||||||
|
2013
|
2012
|
||||||
|
||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$
|
1,287,945
|
$
|
1,816,363
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Gain on sale of oil and natural gas properties
|
(4,000
|
)
|
-
|
|||||
Unrealized (gain) loss on commodity derivatives
|
50,000
|
(99,000
|
)
|
|||||
Depletion and depreciation
|
1,515,500
|
1,477,500
|
||||||
Exploration expense
|
152,650
|
-
|
||||||
Accretion of discount on asset retirement obligations
|
72,000
|
68,000
|
||||||
Deferred income tax expense
|
692,000
|
930,000
|
||||||
Changes in current assets and liabilities:
|
||||||||
Accounts receivable
|
(702,008
|
)
|
(394,934
|
)
|
||||
Income taxes receivable
|
(145,866
|
)
|
(17,575
|
)
|
||||
Prepaid expenses and other assets
|
(23,542
|
)
|
69,396
|
|||||
Accounts payable and accrued expenses
|
416,769
|
(1,100,244
|
)
|
|||||
Oil and gas revenues payable
|
48,452
|
16,128
|
||||||
Other
|
-
|
(206
|
)
|
|||||
Net cash provided by operating activities
|
3,359,900
|
2,765,428
|
||||||
|
||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Additions to oil and natural gas properties
|
(1,257,226
|
)
|
(3,666,153
|
)
|
||||
Proceeds from sale of oil and natural gas properties
|
5,000
|
-
|
||||||
Net cash used in investing activities
|
(1,252,226
|
)
|
(3,666,153
|
)
|
||||
|
||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Sale of common stock
|
-
|
193,589
|
||||||
Common stock issued from the exercise of warrants
|
89,600
|
-
|
||||||
Net cash provided by financing activities
|
89,600
|
193,589
|
||||||
|
||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
2,197,274
|
(707,136
|
)
|
|||||
|
||||||||
CASH AND CASH EQUIVALENTS, beginning of the period
|
1,408,075
|
2,037,593
|
||||||
|
||||||||
CASH AND CASH EQUIVALENTS, end of the period
|
$
|
3,605,349
|
$
|
1,330,457
|
||||
|
||||||||
SUPPLEMENTAL INFORMATION:
|
||||||||
Cash paid during the period for interest
|
$
|
199,406
|
$
|
196,194
|
||||
Cash paid during the period for taxes
|
$
|
249,301
|
$
|
5,410
|
||||
Capital items in accounts payable
|
$
|
1,927,840
|
$
|
-
|
See accompanying notes to these unaudited condensed consolidated financial statements.
4
FieldPoint Petroleum Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business, Organization and Basis of Preparation and Presentation
FieldPoint Petroleum Corporation (the “Company”, “our”, or “we”) is incorporated under the laws of the state of Colorado. The Company is engaged in the acquisition, operation and development of oil and natural gas properties, which are located in Louisiana, New Mexico, Oklahoma, Texas, and Wyoming.
The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. However, in the opinion of management, all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods presented have been made. You should read these condensed consolidated financial statements in conjunction with the consolidated financial statements and the notes thereto included in the Company's Form 10-K filing for the year ended December 31, 2012.
2. Oil and Natural Gas Properties
The Company completed drilling the East Lusk 15 Federal #3 in the third quarter 2013 and has incurred approximately $2,231,000 of drilling costs, of which approximately $1,917,000 is payable as of September 30, 2013.
The Irby #1 on the Riverdale Prospect in Goliad County, Texas, was drilled to a total depth of 8,904 feet and deemed to be non-economic after analysing the electric logs. The decision was made to plug and abandon the well and no other exploratory wells are planned for this prospect. Dry hole expenses of $152,650 were recognized for the nine months ending September 30, 2013.
3. Earnings Per Share
Basic earnings per share are computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share take common stock equivalents (such as options and warrants) into consideration using the treasury stock method. The potential dilutive effect of the warrants was 7,960,775 shares as of September 30, 2013. The dilutive effect of the warrants for the three and nine months ended September 30, 2013 and 2012 is presented below.
5
FieldPoint Petroleum Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
For the Three Months Ended
September 30,
|
For the Nine Months Ended
September 30,
|
||||||||||||||
|
2013
|
2012
|
2013
|
2012
|
||||||||||||
|
||||||||||||||||
Net income
|
$
|
367,899
|
$
|
302,405
|
$
|
1,287,945
|
$
|
1,816,363
|
||||||||
|
||||||||||||||||
Weighted average common stock outstanding
|
8,066,336
|
8,016,758
|
8,060,763
|
7,994,541
|
||||||||||||
Weighted average dilutive effect of stock warrants
|
590,220
|
558,336
|
148,047
|
489,888
|
||||||||||||
Dilutive weighted average shares
|
8,656,556
|
8,575,094
|
8,208,810
|
8,484,429
|
||||||||||||
|
||||||||||||||||
Earnings per share:
|
||||||||||||||||
Basic
|
$
|
0.05
|
$
|
0.04
|
$
|
0.16
|
$
|
0.23
|
||||||||
Diluted
|
$
|
0.04
|
$
|
0.04
|
$
|
0.16
|
$
|
0.21
|
4. Related Party Transactions
The Company leases office space from the estate of its former president. Rent expense for this month-to-month lease was $22,500 for each of the nine month periods ended September 30, 2013 and 2012 and $7,500 for each of the three month periods ended September 30, 2013 and 2012.
5. Long-Term Debt
Effective January 17, 2013, the borrowing base under our line of credit was redetermined to remain at $11,000,000. The Company is in compliance with debt covenants as of September 30, 2013.
6. Stockholders’ Equity
The Company issued a stock warrant dividend of one warrant per one common share outstanding as of the record date of March 23, 2012. A total of 7,983,175 warrants were issued and have an exercise price of $4.00. The warrants are exercisable over 6 years from the record date. The Company has the right to call the warrants in the future if the market price of the common stock exceeds 150% of the exercise price of the warrant ($6.00). A total of 22,400 warrants to purchase an equal number of common shares for proceeds of $89,600 were exercised during the nine months ending September 30, 2013. The following table summarizes the warrants outstanding at December 31, 2012 and September 30, 2013:
Warrants outstanding, December 31, 2012
|
7,983,175
|
|||
Warrants exercised
|
(22,400
|
)
|
||
Warrants outstanding, September 30, 2013
|
7,960,775
|
6
FieldPoint Petroleum Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Commodity Derivatives
On September 26, 2013, we entered into the following commodity positions to hedge our oil production price risk, effective from October 1, 2013, to March 31, 2014. These positions were outstanding at September 30, 2013:
Period
|
Volume (Barrels)
|
$/Barrel
|
||||||||||||||
|
Daily
|
Total
|
Floor
|
Ceiling
|
||||||||||||
NYMEX –WTI Collars October 2013 –March 2014
|
200
|
36,400
|
$
|
87.00
|
$
|
108.00
|
The following table summarizes the fair value of our open commodity derivatives as of September 30, 2013 and December 31, 2012:
Liability Derivatives
|
||||||||||
Fair Value
|
||||||||||
Balance Sheet
|
September 30,
|
December 31,
|
||||||||
Location
|
2013
|
2012
|
||||||||
Derivatives not designated as hedging instruments
|
|
|||||||||
|
|
|||||||||
Commodity derivatives
|
Current Liabilities
|
$
|
50,000
|
$
|
-
|
The following table summarizes the change in fair value of our commodity derivatives:
Fair Value
|
||||||||||||||||||
Income
Statement
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
||||||||||||||||
Location
|
2013
|
2012
|
2013
|
2012
|
||||||||||||||
Derivatives not designated as hedging instruments
|
|
|||||||||||||||||
|
|
|||||||||||||||||
Unrealized gain (loss) on commodity derivatives
|
Other Income (Expense)
|
$
|
(50,000
|
)
|
$
|
(314,000
|
)
|
$
|
(50,000
|
)
|
$
|
99,000
|
||||||
Realized gain on commodity derivatives
|
Other Income (Expense)
|
$
|
-
|
$
|
51,681
|
$
|
-
|
$
|
129,012
|
7
FieldPoint Petroleum Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unrealized gains and losses, at fair value, are included on our consolidated balance sheets as current or non-current assets or liabilities based on the anticipated timing of cash settlements under the related contracts. Changes in the fair value of our commodity derivative contracts are recorded in earnings as they occur and included in other income (expense) on our consolidated statements of operations. We estimate the fair values of collar contracts based on the present value of the difference in exchange-quoted forward price curves and contractual settlement prices multiplied by notional quantities. We internally valued the option contracts using industry-standard option pricing models and observable market inputs. We use our internal valuations to determine the fair values of the contracts that are reflected on our consolidated balance sheets. Realized gains and losses are also included in other income (expense) on our consolidated statements of operations.We are exposed to credit losses in the event of non-performance by the counterparties on our commodity derivatives positions and have considered the exposure in our internal valuations. However, we do not anticipate non-performance by the counterparties over the term of the commodity derivatives positions.To estimate the fair value of our commodity derivatives positions, we use market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for recurring fair value measurements and attempt to use the best available information. We determine the fair value based upon the hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and lowest priority to unobservable inputs (Level 3 measurement). The three levels of fair value hierarchy are as follows:
· | Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. At September 30, 2013, we had no Level 1 measurements |
· | Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Our derivatives, which consist of commodity collars, are valued using commodity market data which is derived by combining raw inputs and quantitative models and processes to generate forward curves. Where observable inputs are available, directly or indirectly, for substantially the full term of the asset or liability, the instrument is categorized in Level 2. At September 30, 2013, all of our commodity derivatives were valued using Level 2 measurements. |
· | Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. At September 30, 2013, we had no Level 3 measurements. |
8. Subsequent Events
On November 12, 2013, we entered into an agreement with Stephens, Inc. as a financial advisor. Stephens will provide general and strategic advice to the Company and will help us evaluate our strategic alternatives for enhancing shareholder value.
8
PART I
Item 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion should be read in conjunction with the Company’s Condensed Consolidated Financial Statements, and respective notes thereto, included elsewhere herein. The information below should not be construed to imply that the results discussed herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of the management of FieldPoint Petroleum Corporation.
General
FieldPoint Petroleum Corporation derives its revenues from its operating activities including sales of oil and natural gas and operating oil and natural gas properties. The Company's capital for investment in producing oil and natural gas properties has been provided by cash flow from operating activities and from bank financing. The Company categorizes its operating expenses into the categories of production expenses and other expenses.
On June 6, 2013, the Founder and President of FieldPoint Petroleum Corporation, Mr. Ray D. Reaves, died in an automobile accident near Giddings, Texas. On June 9, 2013, the board of directors elected Mr. Roger D. Bryant to serve as its executive Chairman and granted him executive powers to oversee the management of the Company. Mr. Bryant continues to serve as the Company’s highest ranking executive officer. On June 14, 2013, Mr. Phillip H. Roberson was engaged to take operational control of the business, and on July 1, 2013, he was named COO/CFO. During this transitional period, every member of the board of directors has been actively involved with the ongoing efforts to ensure no loss in continuity of the business. The Company has received overwhelming support from shareholders, bankers, attorneys, accountants, contractors, suppliers, field operators and partners, all of which have expressed great respect for Mr. Reaves and their personal loss from this tragic event.
The Company completed drilling the East Lusk 15 Federal #3 on July 31, 2013 and began flowing it back. The well produced 6,411 barrels of oil net during the month of August and we expect a significant decline profile that is similar to the East Lusk 15 Federal #2 in the coming months.
9
Results of Operations
Comparison of three months ended September 30, 2013 to the three months ended September 30, 2012
|
Quarter Ended September 30,
|
|||||||
|
2013
|
2012
|
||||||
Revenue:
|
||||||||
Oil sales
|
$
|
2,365,946
|
$
|
2,131,526
|
||||
Natural gas sales
|
205,060
|
135,394
|
||||||
Total oil and natural gas sales
|
$
|
2,571,006
|
$
|
2,266,920
|
||||
|
||||||||
Sales volumes:
|
||||||||
Oil (Bbls)
|
24,632
|
24,214
|
||||||
Natural gas (Mcf)
|
47,047
|
40,565
|
||||||
Total (BOE)
|
32,473
|
30,975
|
||||||
|
||||||||
Average sales prices:
|
||||||||
Oil ($/Bbl)
|
$
|
96.05
|
$
|
88.03
|
||||
Natural gas ($/Mcf)
|
4.36
|
3.34
|
||||||
Total ($/BOE)
|
$
|
79.17
|
$
|
73.19
|
||||
|
||||||||
Costs and expenses ($/BOE)
|
||||||||
Lease operating expense
|
$
|
33.55
|
$
|
21.28
|
||||
Depletion and depreciation
|
15.44
|
16.38
|
||||||
Exploration expense
|
(0.36
|
)
|
-
|
|||||
Accretion of discount on asset retirement obligations
|
0.74
|
0.71
|
||||||
General and administrative
|
9.02
|
9.65
|
||||||
Total
|
$
|
58.39
|
$
|
48.02
|
Oil and natural gas sales revenues increased 13% or $304,086 to $2,571,006 for the three-month period ended September 30, 2013 from the comparable 2012 period. Average oil sales prices increased 9% to $96.05 for the three-month period ended September 30, 2013 compared to $88.03 for the period ended September 30, 2012. Average natural gas sales prices increased to $4.36 for the three-month period ended September 30, 2013 compared to $3.34 for the period ended September 30, 2012. Increased oil and natural gas production accounted for an increase in revenue of approximately $58,000. Higher commodity prices for oil and natural gas account for an increase in revenue of approximately $246,000. We anticipate volumes to increase in the coming quarters primarily due to additional drilling in New Mexico expected in the fourth quarter of 2013 and first quarter of 2014.
Lease operating expenses increased 65% or $430,242 to $1,089,469 for the three month period ended September 30, 2013 from the comparable 2012 period. This was primarily due to increases in costs associated with new field production in 2013, remediation and workover expenses mainly in the Taylor Serbin field, and workover expenses in the Apache Bromide field initiated by the operator, Quantum Resources. Lifting costs per BOE increased $12.27 to $33.55 for the 2013 period compared to $21.28 for the three months ended September 30, 2012. We anticipate lease operating expenses to increase over the following quarters due to additional remedial repairs and workover expenses in the Taylor Serbin and Apache Bromide fields.
Depletion and depreciation decreased 1% or $6,000 to $501,500 for the three month period ended September 30, 2013 versus $507,500 in the 2012 comparable period. This was primarily due to the increase in reserves related to the addition of the new East Lusk #3 well since the prior period.
10
Exploration expense was reduced by $11,554 during the three month period ended September 30, 2013 due to an adjustment in the cost incurred to drill on the Riverdale lease in Texas. The well was non-economic and the decision was made to plug and abandon the well. There was no comparable expense in the same period in 2012.
General and administrative overhead cost decreased 2% or $5,815 to $293,015 for the three-month period ended September 30, 2013 from the three-month period ended September 30, 2012. This was primarily attributable to a decrease in bonus expense during the 2013 period. At this time, the Company anticipates general and administrative expenses to remain stable or increase slightly in the coming quarters.
Other expenses, net for the quarter ended September 30, 2013, were $116,346 compared to other expense, net of $330,024 for quarter ended September 30, 2012. The net decrease was primarily due to a $50,000 unrealized loss on commodity derivatives during the three months ended September 30, 2013 compared to a $314,000 unrealized loss and a $51,681 realized gain on commodity derivatives during the 2012 period.
Results of Operations
Comparison of Nine Months Ended September 30, 2013 to the Nine Months Ended September 30, 2012
|
Nine Months Ended September 30,
|
|||||||
|
2013
|
2012
|
||||||
Revenues:
|
||||||||
Oil sales
|
$
|
6,574,024
|
$
|
7,062,474
|
||||
Natural gas sales
|
564,395
|
546,023
|
||||||
Total
|
$
|
7,138,419
|
$
|
7,608,497
|
||||
|
||||||||
Sales volumes:
|
||||||||
Oil (Bbls)
|
71,885
|
77,312
|
||||||
Natural gas (Mcf)
|
124,842
|
126,759
|
||||||
Total (BOE)
|
92,692
|
98,439
|
||||||
|
||||||||
Average sales prices
|
||||||||
Oil ($/Bbl)
|
$
|
91.45
|
$
|
91.35
|
||||
Natural gas ($/Mcf)
|
4.52
|
4.31
|
||||||
Total ($/BOE)
|
$
|
77.01
|
$
|
77.29
|
||||
|
||||||||
Costs and expenses ($/BOE)
|
||||||||
Lease operating expense
|
$
|
27.62
|
$
|
24.84
|
||||
Depletion and depreciation
|
16.35
|
15.01
|
||||||
Exploration expense
|
1.65
|
-
|
||||||
Accretion of discount on asset retirement obligations
|
0.78
|
0.69
|
||||||
General and administrative
|
8.79
|
9.21
|
||||||
Total
|
$
|
55.19
|
$
|
49.75
|
11
Oil and natural gas sales revenues decreased 6% or $470,078 to $7,138,419 for the nine month period ended September 30, 2013 from $7,608,497 for the comparable 2012 period. An overall decrease in oil and natural gas production accounted for a $504,000 decrease in revenue while an increase in oil and natural gas commodity prices increased revenue by $34,000. Sales volumes decreased 6% on a BOE basis primarily due to natural declines in production but were offset slightly by production from the East Lusk #3. Average oil sales prices increased $0.10 to $91.45 for the nine month period ended September 30, 2013 compared to $91.35 for the nine month period ended September 30, 2012. Average natural gas sales prices increased 5% to $4.52 for the nine month period ended September 30, 2013 compared to $4.31 for the nine month period ended September 30, 2012. We anticipate volumes to increase in the fourth quarter primarily due to production from the new well completed in New Mexico in August, 2013.
Lease operating expenses increased 5% or $115,049 to $2,560,438 for the nine month period ended September 30, 2013 from the comparable 2012 period. This was primarily due to the costs associated with operating expenses on the new well completed in New Mexico during the third quarter of 2013 and workover expenses in the Taylor Serbin and Apache Bromide fields. Lifting cost per BOE increased 11%, from $24.84 to $27.62 for the 2013 period. We anticipate lease operating expense to increase over the following quarters due to additional remedial repairs and workover expenses and operating expenses related to the new well completed in New Mexico.
Depletion and depreciation expense increased 3% to $1,515,500, compared to $1,477,500 for the comparable 2012 period. This was primarily due to the addition of the new East Lusk #3 well during the current period.
Exploration expense was $1.65 on a BOE basis for the nine month period ended September 30, 2013. The adjusted cost incurred to drill on the Riverdale lease in Texas was $152,650. The well was non-economic and the decision was made to plug and abandon the well. There was no comparable expense in the same period in 2012.
General and administrative overhead cost decreased 10% or $91,479 to $815,070 for the nine month period ended September 30, 2013 from the nine month period ended September 30, 2012. This was attributable primarily to a decrease in salary expenses. In the coming quarters we anticipate general and administrative expenses to remain stable or increase slightly.
Other expense, net for the nine months ended September 30, 2013, amounted to $236,903 compared to other income, net of $34,110 for the comparable 2012 period. The net decrease was primarily due to a $50,000 unrealized loss on commodity derivatives during the 2013 period compared to a $99,000 unrealized gain and a $129,012 realized gain on commodity derivatives during the 2012 period.
Liquidity and Capital Resources
Cash flow provided by operating activities was $3,359,900 for the nine month period ended September 30, 2013, as compared to $2,765,428 of cash flow provided by operating activities in the comparable 2012 period. The increase in cash flows from operating activities was primarily due to changes in accounts payable offset by lower net income and deferred income tax expense.
Cash flow used in investing activities was $1,252,226 for the nine month period ended September 30, 2013 and $3,666,153 in the comparable 2012 period due to the additions to oil and natural gas properties and equipment in each period.
Cash flow provided by financing activities for the nine month period ended September 30, 2013 was $89,600 from the exercise of 22,400 of our outstanding publicly traded common stock purchase warrants at an exercise price of $4.00 per share. Cash flow provided by financing activities for the nine month period ended September 30, 2012 was $193,589, net after expenses of approximately $63,769, from the sale of 60,761 shares of our common stock.
12
We may continue to raise financing through draws from our line of credit which has a borrowing base of $11,000,000. We anticipate our operating cash flow and other capital resources, including our Citibank revolving credit facility, if needed, will adequately fund planned capital expenditures and other capital uses over the near term. Based on industry outlook for the remainder of 2013, prices for oil and gas may be lower than the comparable period in 2012.
Effective May 16, 2012, we executed an At Market Issuance Sales Agreement with MLV & Co., LLC (“MLV”) providing for an at-the-market offering of securities of up to 900,000 shares of one common stock (the “ATM Offering”). The ATM Offering is being undertaken pursuant to Rule 415 and a universal shelf Registration Statement on Form S-3 which was declared effective by the SEC on December 9, 2011. Through September 30, 2013, we have sold an aggregate of 60,761 shares of common stock in the ATM Offering, realizing net proceeds of $193,589 during 2012. An additional 839,239 shares of common stock have been registered for sale in the ATM Offering, which may continue until May 16, 2014 unless terminated sooner as provided for in the Sales Agreement with MLV. As there is no commitment for future sales of additional shares, we cannot predict how much, if any, additional proceeds may be realized in the ATM Offering.
PART I
Item 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We periodically enter into certain commodity price risk management transactions to manage our exposure to oil and natural gas price volatility. These transactions may take the form of futures contracts, swaps or options. All data relating to our derivative positions is presented in accordance with authoritative guidance. Accordingly, unrealized gains and losses related to the change in fair value of derivative contracts that qualify and are designated as cash flow hedges are recorded as other comprehensive income or loss and such amounts are reclassified to oil and natural gas sales revenues as the associated production occurs. Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at fair value in the consolidated balance sheet, and the associated unrealized gains and losses are recorded as current expense or income in the consolidated statement of operations. While such derivative contracts do not qualify for hedge accounting, management believes these contracts can be utilized as an effective component of commodity price risk management activities. On September 26, 2013, we entered into a commodity derivative position effective October 1, 2013. The collars have a floor of $87.00 and a ceiling of $108.00 for 200 barrels of oil per day from October 1, 2013 to March 31, 2014. We had an unrealized loss of $50,000 on commodity derivative transactions during the three month and nine month periods ending September 30, 2013.
PART I
Item 4.
|
CONTROLS AND PROCEDURES
|
a) | Disclosure Controls and Procedures |
Our Principal Executive Officer, Roger D. Bryant, and our Principal Financial Officer, Phillip H. Roberson, have established and are currently maintaining disclosure controls and procedures for the Company. The disclosure controls and procedures have been designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure.
Our former Principal Executive Officer and Principal Financial Officer, Ray D. Reaves, passed away on June 6, 2013. As a result, on June 9, 2013 the board of directors appointed Roger D. Bryant to serve as the Executive Chairman of the Board of Directors and oversee management of the Company. On June 14, 2013, Mr. Phillip H. Roberson was engaged to take operational control of the business, and on July 1, 2013, he was named Chief Operating Officer and Chief Financial Officer.
13
The Principal Executive Officer and the Principal Financial Officer conducted a review and evaluation of the effectiveness of the Company’s disclosure controls and procedures and have concluded, based on their evaluation as of the end of the period covered by this Report, that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosure and we refer you to Exchange Act Rule 13a-15(e).
b) | Changes in Internal Control over Financial Reporting |
During the period covered by this Report, certain internal control procedures previously performed by our former Principal Executive Officer and Principal Financial Officer, Ray D. Reaves, are now being performed by our Executive Chairman, Roger D. Bryant, and our Chief Operating Officer and Chief Financial Officer, Phillip H. Roberson. There have been no other changes to the Company’s system of internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s system of controls over financial reporting. As part of a continuing effort to improve the Company’s business processes, management is evaluating its internal controls and may update certain controls to accommodate any modifications to its business processes or accounting procedures.
c) | Limitations of Any Internal Control Design |
Our principal executive and financial officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive and financial officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following sets forth information required by Item 701(f) of Regulation S-K with respect to the sale of securities registered for sale under the Securities Act of 1933, as amended (“Securities Act”):
1. The Company’s universal shelf Registration Statement on Form S-3 (the “Registration Statement”) was declared effective by the SEC on December 9, 2011. On May 16, 2012, the Company filed its Prospectus Supplement in accordance with Rule 424(b)(5) under the Securities Act covering the sale of up to 900,000 shares of common stock through MLV in the ATM Offering.
2. The ATM Offering commenced on May 16, 2012.
3. The ATM Offering is continuing until May 16, 2014, unless sooner terminated pursuant to the terms of the Sales Agreement between the Company and MLV & Co., LLC (“MLV”).
4. The Sales Agent in the ATM Offering is MLV.
5. The Registration Statement registers for sale in the ATM Offering up to 900,000 shares of common stock.
6. Cumulative expenses incurred through September 30, 2013 in connection with the ATM Offering have been:
a. Expenses paid to affiliates of the Company: none.
b. Expenses paid to others:
Sales Agent commissions:
|
$
|
18,179
|
||
Other expenses:
|
$
|
45,590
|
||
|
$
|
63,769
|
7. Net ATM Offering cumulative proceeds through September 30, 2013: $193,589
8. Use of net ATM Offering proceeds: working capital. Such use consisted exclusively of payments to persons other than affiliates of the Company.
Item 3. Default Upon Senior Securities
None.
15
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
|
Exhibits
|
|
|
Certifications of Chief Executive Officer
|
|
|
Certifications of Chief Financial Officer
|
|
|
Certification of Chief Executive Officer Pursuant to U.S.C. Section 1350
|
|
|
Certification of Chief Financial Officer Pursuant to U.S.C. Section 1350
|
|
|
101.INS
|
XBRL Instance Document
|
|
101.SCH
|
XBRL Schema Document
|
|
101.CAL
|
XBRL Calculation Linkbase Document
|
|
101.LAB
|
XBRL Label Linkbase Document
|
|
101.PRE
|
XBRL Presentation Linkbase Document
|
|
101.DEF
|
XBRL Definition Linkbase Document
|
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.
Date: November 14, 2013
|
By:
|
/s/ Roger D. Bryant
|
|
|
Roger D. Bryant, Principal Executive Officer
|
|
|
|
Date: November 14, 2013
|
By:
|
/s/ Phillip H. Roberson
|
|
|
Phillip H. Roberson, Principal Financial Officer
|
16