Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - FIELDPOINT PETROLEUM CORP | ex31_2.htm |
EX-31.1 - EXHIBIT 31.1 - FIELDPOINT PETROLEUM CORP | ex31_1.htm |
EXCEL - IDEA: XBRL DOCUMENT - FIELDPOINT PETROLEUM CORP | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - FIELDPOINT PETROLEUM CORP | ex32_1.htm |
EX-32.2 - EXHIBIT 32.2 - FIELDPOINT PETROLEUM CORP | ex32_2.htm |
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 March 31, 2014
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.)
|
609 Castle Ridge Road, Suite 335
Austin, Texas 78746
|
(Address of Principal Executive Offices) (Zip Code)
|
(512) 579-3560
|
(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 May 12, 2014, the number of shares outstanding of the Registrant's $.01 par value common stock was 8,071,901.
Item 1. Financial Statements
FieldPoint Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
March 31,
|
December 31,
|
||||||
|
2014
|
2013
|
||||||
ASSETS
|
||||||||
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$
|
1,880,904
|
$
|
2,648,487
|
||||
Certificates of deposit
|
44,728
|
44,721
|
||||||
Accounts receivable:
|
||||||||
Oil and natural gas sales
|
1,517,176
|
1,078,333
|
||||||
Joint interest billings, less allowance for doubtful accounts of approximately $174,000 each period
|
240,916
|
226,743
|
||||||
Prepaid income taxes
|
268,456
|
319,097
|
||||||
Deferred income tax asset—current
|
64,000
|
64,000
|
||||||
Prepaid expenses and other current assets
|
100,440
|
64,751
|
||||||
Prepaid drilling costs
|
556,358
|
-
|
||||||
Total current assets
|
4,672,978
|
4,446,132
|
||||||
|
||||||||
PROPERTY AND EQUIPMENT:
|
||||||||
Oil and natural gas properties (successful efforts method)
|
36,865,575
|
35,256,754
|
||||||
Other equipment
|
67,043
|
62,836
|
||||||
Less accumulated depletion and depreciation
|
(15,628,394
|
)
|
(14,802,894
|
)
|
||||
Net property and equipment
|
21,304,224
|
20,516,696
|
||||||
|
||||||||
Total assets
|
$
|
25,977,202
|
$
|
24,962,828
|
||||
|
||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable and accrued expenses
|
$
|
818,805
|
$
|
742,493
|
||||
Oil and gas revenues payable
|
194,193
|
240,588
|
||||||
Unrealized loss on commodity derivatives
|
50,209
|
4,000
|
||||||
Total current liabilities
|
1,063,207
|
987,081
|
||||||
|
||||||||
|
||||||||
LONG-TERM DEBT
|
7,240,000
|
6,740,000
|
||||||
DEFERRED INCOME TAXES
|
3,074,000
|
2,973,000
|
||||||
ASSET RETIREMENT OBLIGATION
|
1,741,997
|
1,712,685
|
||||||
Total liabilities
|
13,119,204
|
12,412,766
|
||||||
|
||||||||
STOCKHOLDERS’ EQUITY:
|
||||||||
Common stock, $.01 par value, 75,000,000 shares authorized; 8,993,336 shares issued each period, and 8,066,336 outstanding each period
|
89,933
|
89,933
|
||||||
Additional paid-in capital
|
11,751,298
|
11,751,298
|
||||||
Retained earnings
|
2,983,659
|
2,675,723
|
||||||
Treasury stock, 927,000 shares, each period, at cost
|
(1,966,892
|
)
|
(1,966,892
|
)
|
||||
Total stockholders’ equity
|
12,857,998
|
12,550,062
|
||||||
Total liabilities and stockholders’ equity
|
$
|
25,977,202
|
$
|
24,962,828
|
See accompanying notes to these unaudited condensed consolidated financial statements.
2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended
|
|||||||
|
March 31,
|
|||||||
|
2014
|
2013
|
||||||
REVENUE:
|
||||||||
Oil and natural gas sales
|
$
|
2,904,215
|
$
|
2,401,082
|
||||
Well operational and pumping fees
|
8,950
|
17,066
|
||||||
Disposal fees
|
-
|
70,000
|
||||||
Total revenue
|
2,913,165
|
2,488,148
|
||||||
|
||||||||
COSTS AND EXPENSES:
|
||||||||
Production expense
|
979,468
|
790,729
|
||||||
Depletion and depreciation
|
825,500
|
523,500
|
||||||
Accretion of discount on asset retirement obligations
|
26,000
|
24,000
|
||||||
General and administrative
|
495,552
|
243,996
|
||||||
Total costs and expenses
|
2,326,520
|
1,582,225
|
||||||
|
||||||||
OPERATING INCOME
|
586,645
|
905,923
|
||||||
|
||||||||
OTHER INCOME (EXPENSE):
|
||||||||
Interest income
|
323
|
564
|
||||||
Interest expense
|
(68,452
|
)
|
(59,978
|
)
|
||||
Unrealized loss on commodity derivatives
|
(46,209
|
)
|
-
|
|||||
Miscellaneous
|
629
|
-
|
||||||
Total other income (expense)
|
(113,709
|
)
|
(59,414
|
)
|
||||
|
||||||||
INCOME BEFORE INCOME TAXES
|
472,936
|
846,509
|
||||||
|
||||||||
INCOME TAX EXPENSE – CURRENT
|
(64,000
|
)
|
(99,000
|
)
|
||||
INCOME TAX EXPENSE – DEFERRED
|
(101,000
|
)
|
(204,000
|
)
|
||||
TOTAL INCOME TAX PROVISION
|
(165,000
|
)
|
(303,000
|
)
|
||||
|
||||||||
NET INCOME
|
$
|
307,936
|
$
|
543,509
|
||||
|
||||||||
EARNINGS PER SHARE:
|
||||||||
BASIC
|
$
|
0.04
|
$
|
0.07
|
||||
DILUTED
|
$
|
0.03
|
$
|
0.07
|
||||
|
||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING:
|
||||||||
BASIC
|
8,066,336
|
8,049,732
|
||||||
DILUTED
|
8,953,701
|
8,049,732
|
See accompanying notes to these unaudited condensed consolidated financial statements.
3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
For the Three Months Ended
|
|||||||
|
March 31,
|
|||||||
|
2014
|
2013
|
||||||
|
||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$
|
307,936
|
$
|
543,509
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Unrealized loss on commodity derivatives
|
46,209
|
-
|
||||||
Depletion and depreciation
|
825,500
|
523,500
|
||||||
Accretion of discount on asset retirement obligations
|
26,000
|
24,000
|
||||||
Deferred income tax expense
|
101,000
|
204,000
|
||||||
Changes in current assets and liabilities:
|
||||||||
Accounts receivable
|
(453,016
|
)
|
(55,195
|
)
|
||||
Income taxes receivable
|
50,641
|
141,740
|
||||||
Prepaid expenses and other assets
|
(592,047
|
)
|
(30,486
|
)
|
||||
Accounts payable and accrued expenses
|
76,305
|
(505,376
|
)
|
|||||
Oil and gas revenues payable
|
(46,395
|
)
|
18,195
|
|||||
Net cash provided by operating activities
|
342,133
|
863,887
|
||||||
|
||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Additions to oil and natural gas properties and other equipment
|
(1,609,716
|
)
|
(104,190
|
)
|
||||
Net cash used in investing activities
|
(1,609,716
|
)
|
(104,190
|
)
|
||||
|
||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from long term debt
|
500,000
|
-
|
||||||
Common stock issued from the exercise of warrants
|
-
|
83,600
|
||||||
Net cash provided by financing activities
|
500,000
|
83,600
|
||||||
|
||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
(767,583
|
)
|
843,297
|
|||||
|
||||||||
CASH AND CASH EQUIVALENTS, beginning of the period
|
2,648,487
|
1,408,075
|
||||||
|
||||||||
CASH AND CASH EQUIVALENTS, end of the period
|
$
|
1,880,904
|
$
|
2,251,372
|
||||
|
||||||||
SUPPLEMENTAL INFORMATION:
|
||||||||
Cash paid during the period for interest
|
$
|
64,237
|
$
|
59,978
|
||||
Cash paid during the period for taxes
|
$
|
17,752
|
$
|
29,032
|
||||
Capital items in accounts payable
|
$
|
-
|
$
|
124,541
|
See accompanying notes to these unaudited condensed consolidated financial statements.
4
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, 2013.
2.
|
Oil and Natural Gas Properties
|
In January 2014, the Company drilled and completed a successful development well in Lee County, Texas. The net cost to the Company was approximately $1,000,000.
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 Company had 7,960,775 and 7,962,275 warrants outstanding with an exercise price of $4.00 at March 31, 2014, and 2013, respectively. The dilutive effect of the warrants for the three months ended March 31, 2014 and 2013 is presented below.
|
For the Three Months Ended
March 31,
|
|||||||
|
2014
|
2013
|
||||||
|
||||||||
Net income
|
$
|
307,936
|
$
|
543,509
|
||||
Weighted average common stock outstanding
|
8,066,336
|
8,049,732
|
||||||
Weighted average dilutive effect of stock warrants
|
887,365
|
-
|
||||||
Dilutive weighted average shares
|
8,953,701
|
8,049,732
|
||||||
|
||||||||
Earnings per share:
|
||||||||
Basic
|
$
|
0.04
|
$
|
0.07
|
||||
Diluted
|
$
|
0.03
|
$
|
0.07
|
5
FieldPoint Petroleum Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4.
|
Income Taxes
|
For the three months ending March 31, 2014, and 2013, the tax provision is approximately 35% and 36%, respectively, of book income before tax. The rate for March 31, 2014 differed slightly from the statutory federal and state rates due primarily to permanent differences in book and taxable income related to the domestic production activities deduction.
5.
|
Related Party Transactions
|
The Company leased office space from the estate of its former president through January 2014 for $2,500 a month. Rent expense for this month-to-month lease was $7,500 for the three month period ended March 31, 2013. Beginning February 1, 2014, the Company no longer rents office space from the estate.
During the three month period ended March 31, 2014, the Company paid a relative of a Board member $28,000 for petroleum engineering services.
6.
|
Long-Term Debt
|
The Company has a line of credit with a bank with a borrowing base of $11,000,000 at March 31, 2014, and December 31, 2013. The credit line was amended on March 19, 2014 on the substantially identical terms, except that the requirement for a personal guarantee by the former President and CEO was removed, and the maturity date was extended to October 18, 2016. The amount outstanding under this line of credit was $7,240,000 and $6,740,000 as of March 31, 2014 and December 31, 2013, respectively. The agreement requires monthly interest-only payments until maturity on October 18, 2016. The line of credit provides for certain financial covenants and ratios which include a current ratio, leverage ratio, and interest coverage ratio requirements. The Company was in compliance with debt covenants as of March 31, 2014.
7.
|
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). No warrants were exercised during the three months ending March 31, 2014. The following table summarizes the warrants outstanding at December 31, 2013 and March 31, 2014:
Warrants outstanding, December 31, 2013
|
7,960,775
|
|||
Warrants exercised
|
-
|
|||
Warrants outstanding, March 31, 2014
|
7,960,775
|
6
FieldPoint Petroleum Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8.
|
Commodity Derivatives
|
On March 27, 2014, we entered into the following commodity positions to hedge our oil production price risk, effective from April 1, 2014, to September 30, 2014. These positions were outstanding at March 31, 2014:
Period
|
Volume (Barrels)
|
$/Barrel
|
||||||||||||||
|
Daily
|
Total
|
Floor
|
Ceiling
|
||||||||||||
NYMEX –WTI Collars April 1 – September 2014
|
200
|
36,600
|
$
|
87.50
|
$
|
105.00
|
The following table summarizes the fair value of our open commodity derivatives as of March 31, 2014 and December 31, 2013:
Liability Derivatives
|
|||||||||
Fair Value
|
|||||||||
Balance Sheet
|
March 31,
|
December 31,
|
|||||||
Location
|
2014
|
2013
|
|||||||
Derivatives not designated as hedging instruments
|
|
||||||||
|
|
||||||||
Commodity derivatives
|
Current Liabilities
|
$
|
50,209
|
$
|
4,000
|
The following table summarizes the change in fair value of our commodity derivatives:
Income Statement
|
Fair Value
Three Months Ended
March 31,
|
||||||||
|
Location
|
2014
|
2013
|
||||||
Derivatives not designated as hedging instruments
|
|
||||||||
|
|
||||||||
Unrealized loss on commodity derivatives
|
Other Income (Expense)
|
$
|
(46,209
|
)
|
$
|
-
|
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.
7
FieldPoint Petroleum Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 March 31, 2014, 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 March 31, 2014, 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 March 31, 2014, we had no Level 3 measurements. |
9.
|
Commitments
|
In January 2014, the Company entered into a two year lease for office space in Austin, Texas. Contractual lease payments are approximately $3,000 per month through January, 2016.
10.
|
Subsequent Events
|
On April 1, 2014, the Company began drilling a developmental well in Lee County, Texas, and expect to complete the well in the second quarter of 2014. Net cost to the company to drill and complete the well is approximately $1,000,000. The Company recently elected to drill two additional development wells in Lee County, Texas. Net cost to drill and complete the wells is expected to be $1,000,000 per well.
Subsequent to March 31, 2014, the Company received approximately $22,000 proceeds from the exercise of 5,565 warrants at $4.00 per share.
8
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.
The Company completed drilling the Ranger 8A 1H well in the Taylor Serbin field in Texas. Production began February 1, 2014. We plan to drill ten to twelve more wells in this same area during 2014. In addition, the Company plans to drill the fourth well in the East Lusk field in New Mexico during the fourth quarter 2014.
Results of Operations
Comparison of three months ended March 31, 2014 to the three months ended March 31, 2013
|
Quarter Ended March 31,
|
|||||||
|
2014
|
2013
|
||||||
Revenue:
|
||||||||
Oil sales
|
$
|
2,605,280
|
$
|
2,208,733
|
||||
Natural gas sales
|
298,935
|
192,349
|
||||||
Total oil and natural gas sales
|
$
|
2,904,215
|
$
|
2,401,082
|
||||
|
||||||||
Sales volumes:
|
||||||||
Oil (Bbls)
|
28,009
|
24,631
|
||||||
Natural gas (Mcf)
|
44,483
|
41,185
|
||||||
Total (BOE)
|
35,423
|
31,495
|
||||||
|
||||||||
Average sales prices:
|
||||||||
Oil ($/Bbl)
|
$
|
93.02
|
$
|
89.67
|
||||
Natural gas ($/Mcf)
|
6.72
|
4.67
|
||||||
Total ($/BOE)
|
$
|
81.99
|
$
|
76.24
|
|
||||||||
Costs and expenses ($/BOE)
|
||||||||
Lease operating expense (lifting costs)
|
$
|
27.65
|
$
|
25.11
|
||||
Depletion and depreciation
|
23.30
|
16.62
|
||||||
Accretion of discount on asset retirement obligations
|
0.74
|
0.76
|
||||||
General and administrative
|
13.99
|
7.75
|
||||||
Total
|
$
|
65.68
|
$
|
50.24
|
9
Oil and natural gas sales revenues increased 21% or $503,133 to $2,904,215 for the three-month period ended March 31, 2014 from the comparable 2013 period. Average oil sales prices increased 4% to $93.02 for the three-month period ended March 31, 2014 compared to $89.67 for the period ended March 31, 2013. Average natural gas sales prices increased to $6.72 for the three-month period ended March 31, 2014 compared to $4.67 for the period ended March 31, 2013. Increased oil and natural gas production accounted for an increase in revenue of approximately $318,000. Higher commodity prices for oil and natural gas account for an increase in revenue of approximately $185,000. We anticipate volumes to increase in the coming quarters primarily due to additional drilling in New Mexico expected in the fourth quarter of 2014 and drilling of ten to twelve wells in the Taylor Serbin field in Texas during 2014.
Lease operating expenses increased 24% or $188,739 to $964,468 for the three month period ended March 31, 2014 from the comparable 2013 period. This was primarily due to increases in costs associated with new field production in 2013, remediation and workover expenses mainly in our operated properties including Taylor Serbin, the Block A49 & Block 6 and Big Muddy fields and workover expenses in the Apache Bromide field initiated by the operator, Quantum Resources. Lifting costs per BOE increased $2.54 to $27.65 for the 2014 period compared to $25.11 for the three months ended March 31, 2013. 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, as well as additional costs related to production from new wells in Texas and New Mexico.
Depletion and depreciation increased 58% or $302,000 to $825,500 for the three month period ended March 31, 2014 versus $523,500 in the 2013 comparable period. This was primarily due to the addition of the new East Lusk #3 and the Ranger 8A wells since the prior period.
General and administrative overhead cost increased 103% or $251,556 to $495,552 for the three-month period ended March 31, 2014 from the three-month period ended March 31, 2013. This was primarily attributable to increases in professional services and directors’ fees during the 2014 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 March 31, 2014, were $113,709 compared to other expense, net of $59,414 for quarter ended March 31, 2013. During the three months ended March 31, 2014, the net increase was primarily due to an $8,000 increase in interest expense and a $46,000 unrealized loss on commodity derivatives.
Cash flow provided by operating activities was $342,133 for the three month period ended March 31, 2014, as compared to $863,887 of cash flow provided by operating activities in the comparable 2013 period. The decrease in cash flows from operating activities was primarily due to changes in accounts receivable, prepaid expenses and lower net income offset by changes in accounts payable.
Cash flow used in investing activities was $1,609,716 for the three month period ended March 31, 2014 and $104,190 in the comparable 2013 period due to the additions to oil and natural gas properties and equipment in each period.
Cash flow provided by financing activities for the three month period ended March 31, 2014 was $500,000 from the draw on our line of credit. Cash flow provided by financing activities for the three month period ended March 31, 2013 was $83,600 from the exercise of 20,900 of our outstanding publicly traded common stock purchase warrants at an exercise price of $4.00 per share.
10
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 2014, prices for oil and gas may be lower than the comparable period in 2013.
11
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 March 27, 2014, we entered into a commodity derivative position effective April 1, 2014. The collars have a floor of $87.50 and a ceiling of $105.00 for 200 barrels of oil per day from April 1, 2014, to September 30, 2014. We had a net unrealized loss of $46,209 on commodity derivative transactions during the three month period ending March 31, 2014. We had no unrealized gains or losses on derivative positions during the three month period ending March 31, 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.
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 |
There have been no changes to the Company’s system of internal controls over financial reporting during the quarter ended March 31, 2014, 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.
12
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.
13
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
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
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
|
14
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: |
May 14, 2014
|
By:
|
/s/ Roger D. Bryant
|
|
Roger D. Bryant, Principal Executive Officer | ||||
Date: | May 14, 2014 | By: | /s/ Phillip H. Roberson | |
Phillip H. Roberson, Principal Financial Officer |
15