Attached files
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, 2017
[ ] 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
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 [ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and "emerging
growth company" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
Non-accelerated
filer
|
☐
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
☒
|
|
|
Emerging
growth company
|
☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuance to Section 13(a) of the Exchange Act. [
]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes
No
X
As of
November 10, 2017, the number of shares outstanding of the
Registrant's $.01 par value common stock was
10,669,229.
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
FieldPoint Petroleum Corporation
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
September
30,
|
December
31,
|
|
2017
|
2016
|
ASSETS
|
||
|
|
|
CURRENT
ASSETS:
|
|
|
Cash and cash
equivalents
|
$486,114
|
$880,067
|
Accounts
receivable:
|
|
|
Oil and natural gas
sales
|
398,512
|
321,500
|
Joint interest
billings, less allowance for doubtful accounts of approximately
$237,000 each period
|
248,652
|
243,106
|
Prepaid income
taxes
|
22,601
|
8,776
|
Prepaid expenses
and other current assets
|
58,967
|
37,837
|
Total current
assets
|
1,214,846
|
1,491,286
|
|
|
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PROPERTY
AND EQUIPMENT:
|
|
|
Oil and natural gas
properties (successful efforts method)
|
39,926,783
|
41,288,964
|
Other
equipment
|
117,561
|
111,750
|
Less accumulated
depletion, depreciation and impairment
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(33,313,037)
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(34,147,053)
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Net property and
equipment
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6,731,307
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7,253,661
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|
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OTHER
ASSETS
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25,000
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25,000
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|
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Total
assets
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$7,971,153
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$8,769,947
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LIABILITIES AND
STOCKHOLDERS’ EQUITY
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||
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CURRENT LIABILITIES:
|
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Line of credit -
current
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$3,363,333
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$6,478,333
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Accounts payable
and accrued expenses
|
994,977
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1,139,596
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Oil and gas
revenues payable
|
441,458
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461,227
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Asset retirement
obligation - current
|
80,821
|
41,438
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Total current
liabilities
|
4,880,589
|
8,120,594
|
|
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ASSET
RETIREMENT OBLIGATION
|
1,715,220
|
1,700,469
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Total
liabilities
|
6,595,809
|
9,821,063
|
|
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STOCKHOLDERS’
EQUITY:
|
|
|
Common
stock, $.01 par value, 75,000,000 shares authorized;
|
|
|
11,596,229 and
11,153,947 shares issued, respectively, and 10,669,229 and
10,226,947 outstanding, respectively
|
115,962
|
111,539
|
Additional paid-in
capital
|
13,715,668
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13,532,871
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Accumulated
deficit
|
(10,489,394)
|
(12,728,634)
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Treasury stock,
927,000 shares, each period, at cost
|
(1,966,892)
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(1,966,892)
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Total
stockholders’ equity (deficit)
|
1,375,344
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(1,051,116)
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Total liabilities
and stockholders’ equity
|
$7,971,153
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$8,769,947
|
See accompanying notes to these
unaudited condensed consolidated financial
statements.
2
FieldPoint Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
|
Three Months
Ended
|
Nine Months
Ended
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||
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September
30,
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September
30,
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||
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2017
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2016
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2017
|
2016
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REVENUE:
|
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Oil and natural gas
sales
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$682,703
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$635,489
|
$2,378,406
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$1,955,263
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Well operational
and pumping fees
|
1,263
|
1,262
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3,786
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3,786
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Disposal
fees
|
17,175
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24,881
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57,066
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67,876
|
Total
revenue
|
701,141
|
661,632
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2,439,258
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2,026,925
|
|
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COSTS
AND EXPENSES:
|
|
|
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Production
expense
|
453,605
|
608,252
|
1,761,123
|
1,949,616
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Depletion and
depreciation
|
168,465
|
267,800
|
538,573
|
895,400
|
Accretion of
discount on asset retirement obligations
|
26,000
|
28,000
|
78,000
|
82,000
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General and
administrative
|
283,968
|
323,223
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847,910
|
988,025
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Total costs and
expenses
|
932,038
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1,227,275
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3,225,606
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3,915,041
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OPERATING
LOSS
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(230,897)
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(565,643)
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(786,348)
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(1,888,116)
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|
|
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OTHER
INCOME (EXPENSE):
|
|
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Interest
income
|
15
|
16
|
44
|
787
|
Interest
expense
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(40,621)
|
(64,819)
|
(173,952)
|
(191,201)
|
Gain on sale of oil
and natural gas property
|
1,173,193
|
-
|
3,203,670
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-
|
Miscellaneous
|
237
|
147
|
494
|
271
|
Total other income
(expense)
|
1,132,824
|
(64,656)
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3,030,256
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(190,143)
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|
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|
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INCOME
(LOSS) BEFORE INCOME TAXES
|
901,927
|
(630,299)
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2,243,908
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(2,078,259)
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|
|
|
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INCOME
TAX EXPENSE – CURRENT
|
(822)
|
-
|
(4,668)
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-
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TOTAL
INCOME TAX PROVISION
|
(822)
|
-
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(4,668)
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-
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|
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NET
INCOME (LOSS)
|
$901,105
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$(630,299)
|
$2,239,240
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$(2,078,259)
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EARNINGS
(LOSS) PER SHARE:
|
|
|
|
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BASIC
|
$0.08
|
$(0.07)
|
$0.21
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$(0.23)
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DILUTED
|
$0.08
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$(0.07)
|
$0.21
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$(0.23)
|
|
|
|
|
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WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
BASIC
|
10,669,229
|
8,899,992
|
10,652,218
|
8,893,386
|
DILUTED
|
10,669,229
|
8,899,992
|
10,652,218
|
8,893,386
|
|
|
|
|
|
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,
|
|
|
2017
|
2016
|
|
|
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
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Net income
(loss)
|
$2,239,240
|
$(2,078,259)
|
Adjustments to
reconcile net income (loss) to net cash used in operating
activities:
|
|
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Depletion and
depreciation
|
538,573
|
895,400
|
Accretion of
discount on asset retirement obligations
|
78,000
|
82,000
|
Stock compensation
expense
|
-
|
13,750
|
Gain on sale of oil
and natural gas property
|
(3,203,670)
|
-
|
Changes in current
assets and liabilities:
|
|
|
Accounts
receivable
|
(82,558)
|
184,838
|
Prepaid income
taxes
|
(13,825)
|
5,240
|
Prepaid expenses
and other current assets
|
(21,130)
|
5,618
|
Accounts payable
and accrued expenses
|
23,035
|
31,554
|
Oil and gas
revenues payable
|
(19,769)
|
(2,483)
|
Net cash used in
operating activities
|
(462,104)
|
(862,342)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
Additions to oil
and natural gas properties and other equipment
|
(349,069)
|
(96,618)
|
Proceeds from sale
of oil and natural gas property
|
3,345,000
|
-
|
Net cash provided
by (used in) investing activities
|
2,995,931
|
(96,618)
|
|
|
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CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
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Payments on line of
credit
|
(3,115,000)
|
-
|
Net proceeds from
issuance of common stock
|
187,220
|
-
|
Net cash used in
financing activities
|
(2,927,780)
|
-
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(393,953)
|
(958,960)
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of
the period
|
880,067
|
1,467,279
|
|
|
|
CASH AND CASH EQUIVALENTS, end of the
period
|
$486,114
|
$508,319
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
Cash paid during
the period for interest
|
$200,758
|
$191,806
|
Cash paid during
the period for income taxes
|
$13,100
|
$2,174
|
Change in accrued
capital expenditures
|
$69,591
|
$54,932
|
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”,
“FieldPoint”, “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. These condensed consolidated financial
statements should be read 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,
2016.
2.
Liquidity and Going Concern
Our
condensed consolidated financial statements for the nine months
ended September 30, 2017 and 2016, were prepared assuming that we
will continue as a going concern, which contemplates realization of
assets and the satisfaction of liabilities in the normal course of
business for the twelve-month period following the date of issuance
of these consolidated financial statements. Continued low oil and
natural gas prices during 2016 and 2017 have had a significant
adverse impact on our business, and as a result of our financial
condition, substantial doubt exists that we will be able to
continue as a going concern.
As of
September 30, 2017, and December 31, 2016, the Company has a
working capital deficit of approximately $3,666,000 and $6,629,000,
respectively, primarily due to the classification of our line of
credit as a current liability. The line of credit provides for
certain financial covenants and ratios measured quarterly which
include a current ratio, leverage ratio, and interest coverage
ratio requirements. The Company is out of compliance with all
three ratios as of September 30, 2017, and we do not expect to
regain compliance in 2017. A Forbearance Agreement was
executed in October 2016 as discussed below.
Citibank
is in a first lien position on all our properties. We are current
on all interest payments but Citibank lowered our borrowing base
from $11,000,000 to $5,500,000 on December 1, 2015. During the nine
months ended September 30, 2017, the Company sold non-producing and
non-economic assets in New Mexico, and used $3,115,000 of the
proceeds to pay toward the principal balance of our line of credit
to cure our borrowing base deficiency. Our loan balance is
$3,363,333 as of September 30, 2017.
In
October 2016, we executed a sixth amendment to the original loan
agreement, which provides for Citibank’s forbearance from
exercising remedies relating to the current defaults including the
principal payment deficiencies. The Forbearance Agreement runs
through January 1, 2018, and requires that we make a $500,000 loan
principal pay down by September 30, 2017, and adhere to other
requirements including weekly cash balance reports, quarterly
operating reports, monthly accounts payable reports and that we pay
all associated legal expenses. Furthermore, under the agreement
Citibank may sweep any excess cash balances exceeding a net amount
of $800,000 less equity offering proceeds, which will be applied
towards the outstanding principal balance. The Company paid
$3,115,000 toward the principal balance during the nine months
ended September 30, 2017.
5
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
To
mitigate our current financial situation, we are taking the
following steps. We are actively meeting with investors for
possible equity investments, including business combinations. We
filed a new shelf registration statement on Form S-3 that was
effective August 15, 2016, to permit the future sale of equity
securities, including a limited at the market (ATM) capital raise.
The shelf registration statement will be effective for a period of
three years from its effective date; provided, however, if the
Company’s common stock is delisted from the NYSE American
(formerly NYSE MKT) due to its non-compliance with continued
listing requirements (see disclosures below), the Company will no
longer be eligible to use Form S-3 and will be required to withdraw
its shelf registration statement. We are investigating other
sources of capital.
On
August 12, 2016, the Company entered into a binding Stock and
Mineral Purchase Agreement (the “SMPA”) with HFT
Enterprises, LLC (the “Buyer”), to provide liquidity to
the Company. The Buyer purchased newly-issued shares of common
stock of the Company equal to 19.9% of the total number of issued
and outstanding shares of the Company, as measured on the date of
the Agreement, for a price of $0.45 per share (the shares to be
purchased, the “Shares”). In November 2016, the Buyer
purchased for gross proceeds of $398,053 paid in consideration of
884,564 shares of unregistered common stock. In December 2016, the
Buyer purchased for gross proceeds of $199,027 paid in
consideration of 442,282 shares of unregistered common stock. The
remaining 442,282 shares of the second tranche were purchased in
January 2017 for gross proceeds of $199,027 paid in consideration
of 442,282 shares of unregistered common stock. Euro Pacific
Capital, Inc. acted as the placement agent and garnered a fee of
5%.
The
SMPA also granted to the Buyer, a related party after the purchase
of the stock discussed above, the right to purchase an undivided
100% working interest on or before December 31, 2016, in the
Company’s Elkhorn and JC Kinney leases in the Big Muddy Oil
Field in Converse County, Wyoming for a purchase price of $430,000.
The SMPA was amended on January 9, 2017, to add the right to the
Buyer to purchase an undivided 100% of working interest in the
mineral lease covering the Quinoco Sulimar Field in Chaves County,
New Mexico, in lieu of the Wyoming property, for a purchase price
to be determined. Additionally, it extended the purchase date of
either property to on or before April 1, 2017. The Board of
Directors voted March 24, 2017, to extend the agreement for the
Quinoco Sulimar Field only to June 30, 2017. The agreement has been
verbally extended to December 31, 2017. As a condition of the
purchase, all proceeds from the sale of the working interest must
be used to pay down the Company’s indebtedness owed to
Citibank. Other conditions include the requirement that Citibank
will have agreed to extend the maturity date on the Company’s
current indebtedness owed until December 31, 2017, which was
accomplished in the Forbearance Agreement discussed above. Also,
the Buyer has been granted the right to nominate one member of the
Board of Directors.
On May
11, 2016, the Company received notification from the NYSE American
(formerly NYSE MKT) that it was noncompliant with the NYSE American
(formerly NYSE MKT) continued listing standards; specifically,
Section 1003(a)(i) of the Company Guide related to financial
impairment. The Company’s stockholders’ equity is below
the $2.0 million threshold required for listed companies that have
reported losses from continuing operations in two of its three most
recently completed fiscal years. The Company submitted a plan to
regain compliance; whereupon NYSE Regulation reviewed the plan and
determined to accept it, as supplemented, and granted a plan period
through November 13, 2017, to regain compliance, the targeted
completion date. NYSE Regulation staff has been reviewing the
Company periodically for compliance with the initiatives outlined
in the plan.
6
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Additionally,
on April 28, 2017, the Company received notification from the NYSE
American (formerly NYSE MKT) that it was noncompliant with the NYSE
American (formerly NYSE MKT) continued listing standards;
specifically, Section 1003(a)(ii) of the Company Guide.
The Company’s stockholders’ equity has been below
the $2.0 million threshold required for listed companies that have
reported losses from continuing operations in two of its three most
recently completed fiscal years (Section 1003(a)(i)) and is now
below the $4.0 million threshold required for listed companies that
have reported losses from continuing operations in three of its
four most recent fiscal years (Section 1003(a)(ii)). The Company
was given the opportunity to and submitted a supplement to the Plan
to address how it intends to regain compliance with Section
1003(a)(ii). The Plan period to regain compliance with all of
the continued listing standards by November 13, 2017, remained the
same. The Company has been subject to periodic reviews by the
Exchange. If the Company is not in compliance with the continued
listing standards by November 13, 2017, or if the Company does not
make progress consistent with the Plan, the Exchange will initiate
delisting procedures as appropriate. If our initiatives to regain
compliance are not successful and the Company is delisted from the
NYSE American (formerly NYSE MKT), it could have a significant
adverse impact on our ability to raise additional
capital.
As of
the date of this Report, the November 13, 2017, deadline to regain
compliance has passed without the Company achieving the needed
increase in equity to be eligible for continued listing on the NYSE
American. The Company continues to explore possible transactions
that would infuse sufficient equity to achieve continued listing
eligibility; however, the Company expects the NYSE American to
begin the delisting process given the passing of the deadline.
There can be no assurance that the Company can consummate a
transaction to increase equity in time to avoid
delisting.
Our
warrants listed on the NYSE American (formerly NYSE MKT) as FPP WS
expire March 23, 2018. If the warrants trade at sub-penny before
that date, the NYSE will immediately suspend and move to delist the
warrants.
Our
ability to continue as a “going concern” is dependent
on many factors, including, among other things, our ability to
comply with the covenants in our existing debt agreements, our
ability to cure any defaults that occur under our debt agreements
or to obtain waivers or forbearances with respect to any such
defaults, and our ability to pay, retire, amend, replace or
refinance our indebtedness as defaults occur or as interest and
principal payments come due. Our ability to continue as a going
concern is also dependent on raising additional capital to fund our
operations and ultimately on generating future profitable
operations. While we are actively involved in seeking new sources
of working capital, there can be no assurance that we will be able
to raise sufficient additional capital or to have positive cash
flow from operations to address all of our cash flow needs.
Additional capital could be on terms that are highly dilutive to
our shareholders. If we are not able to find alternative sources of
cash or generate positive cash flow from operations, our business
and shareholders may be materially and adversely
affected.
3.
Recently Issued Accounting
Pronouncements
In May
2014, the FASB issued Accounting Standards Update No. 2014-09,
“Revenue from Contracts with Customers”. Under this new
standard, revenue is recognized at the time goods or services are
transferred to a customer for the amount of consideration the
entity expects to be entitled in exchange for the specific goods or
services. Additional disclosures will be required to describe the
nature, amount, timing, and uncertainty of revenue and cash flows
from contracts with customers. The Company currently follows the
sales method of accounting for oil, NGL and natural gas production,
which is generally consistent with the revenue recognition
provision of the new standard. However, we are currently evaluating
the impact, if any, that this standard will have on our
consolidated financial statements. Our evaluation process includes
(i) review of revenue contracts and transactions and (ii) assessing
the impact this guidance will have on our processes and internal
controls. This evaluation will continue throughout 2017, and we are
currently planning to adopt this new standard January 1,
2018.
In
February 2016, the FASB issued Update No.
2016-02, “Leases”, to increase transparency and
comparability among organizations by recognizing lease assets and
lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. This authoritative guidance
is effective for fiscal years beginning after December 15, 2018 and
interim periods within those fiscal years. The Company is currently
evaluating the provisions of this guidance and assessing its impact
in relation to the Company's leases.
7
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
In
November 2016, the FASB issued Accounting Standards Update No.
2016-18, “Statement of Cash Flows: Restricted Cash”, to
require amounts generally described as restricted cash and
restricted cash equivalents to be included with cash and cash
equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows.
The guidance is effective for the annual period ending after
December 15, 2017, and interim periods within those fiscal years,
using a retrospective transition method to each period presented.
The Company plans to adopt the new standard December 31, 2017, and
does not expect any impact on our consolidated statement of cash
flows.
4.
Oil and Natural Gas
Properties
No
wells were drilled or completed during the three or nine months
ended June 30, 2017 or 2016.
In the
three months ended September 30, 2017, the Company sold 401 net
acres of non-producing leasehold in Lea County, New Mexico. The
gross proceeds from the sale of our net interest in these
properties was $1,200,000. In the nine months ended September 30,
2017, the Company sold its net interest in the Hermes, Cronos and
Mercury wells. These wells were not economic to our interests. We
also sold our net interest in the unproved Bilbrey acreage that was
held by production. The gross proceeds from the sale of our net
interest in these properties was $2,145,000. For the nine months
ended September 30, 2017, we recognized total gains of
approximately $3,204,000. We continue to evaluate our portfolio for
other properties to divest in order to regain compliance with our
bank’s debt covenants and with the NYSE American (formerly
NYSE MKT).
On a
quarterly basis, the Company compares our most recent engineering
reports to forward strip pricing as of the end of the quarter and
production to determine impairment charges, if needed, in order to
write down the carrying value of certain properties to fair value.
In order to determine the amounts of the impairment charges, the
Company compares net capitalized costs of proved oil and natural
gas properties to estimated undiscounted future net cash flows
using management's expectations of economically recoverable proved
reserves. If the net capitalized cost exceeds the undiscounted
future net cash flows, the Company impairs the net cost basis down
to the discounted future net cash flows, which is management's
estimate of fair value. In order to determine the fair value, the
Company estimates reserves, future operating and development costs,
future commodity prices and a discounted cash flow model utilizing
a 10 percent discount rate. The estimates used by management for
the fair value measurements utilized in this review include
significant unobservable inputs, and therefore, the fair value
measurements are classified as Level 3 of the fair value hierarchy.
Based on its current circumstances, the Company has not recorded
any impairment charges during the three or nine months ended
September 30, 2017.
5.
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 7,177,010 warrants outstanding with an
exercise price of $4.00 at September 30, 2017 and 2016. The
dilutive effect of the warrants for the three months ended
September 30, 2017 and 2016, is presented below.
8
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
For the Three
Months Ended
September
30,
|
For the Nine
Months Ended
September
30,
|
||
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Net income
(loss)
|
$901,105
|
$(630,299)
|
$2,239,240
|
$(2,078,259)
|
|
|
|
|
|
Weighted average
common stock outstanding
|
10,669,229
|
8,899,992
|
10,652,218
|
8,893,386
|
Weighted average
dilutive effect of stock warrants
|
-
|
-
|
-
|
-
|
Dilutive weighted
average shares
|
10,669,229
|
8,899,992
|
10,652,218
|
8,893,386
|
|
|
|
|
|
Earnings (loss) per
share:
|
|
|
|
|
Basic
|
$0.08
|
$(0.07)
|
$0.21
|
$(0.23)
|
Diluted
|
$0.08
|
$(0.07)
|
$0.21
|
$(0.23)
|
6.
Income Taxes
For the
three and nine months ended September 30, 2017 and 2016, the
Company’s deferred tax assets were reduced in full by a
valuation allowance due to our determination that it is more likely
than not that some or all of the deferred tax assets will not be
realized in the future. As a result, the Company has not recognized
an income tax benefit associated with its net loss for the three or
nine months ended September 30, 2016. For the three and nine months
ended September 30, 2017, the Company recognized $822 and $4,606,
respectively, in state income tax expense, which is less than 1%
income tax rate. This rate differs from the statutory federal and
state rate due to net operating losses from prior years. The
Company had no income tax expense for the three or nine months
ended September 30, 2016.
7.
Line of Credit
The
Company has a line of credit with a bank with a borrowing base of
$5,500,000 at September 30, 2017, and December 31, 2016. The amount
outstanding under this line of credit was $6,478,333 which is
$978,333 over the borrowing base at December 31, 2016. During the
nine months ended September 30, 2017, the company sold three of its
undeveloped, non-producing and non-economic assets in New Mexico,
and used $3,115,000 of the proceeds to pay toward the principal
balance of our line of credit to cure our borrowing base
deficiency. Our loan balance is $3,363,333 as of September 30,
2017. Although our borrowing base is $5,500,000, we cannot draw
additional amounts on the line of credit while we remain in
technical default on the loan. We plan to continue evaluating our
portfolio for non-producing assets which can be liquidated to
reduce debt further.
The
sixth amendment to the original loan agreement requires quarterly
interest-only payments until maturity on January 1, 2018. The
interest rate is based on a LIBOR or Prime option. The Prime option
provides for the interest rate to be prime plus a margin ranging
between 1.75% and 2.25% and the LIBOR option to be the 3-month
LIBOR rate plus a margin ranging between 2.75% and 3.25%, both
depending on the borrowing base usage. Currently, we have elected
the LIBOR interest rate option in which our interest rate was
approximately 4% as of September 30, 2017, and December 31, 2016,
respectively. The commitment fee is .50% of the unused borrowing
base. Citibank is in a first lien position on all our properties
and assets.
9
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
line of credit provides for certain financial covenants and ratios
which include a current ratio that cannot be less than 1.10:1.00, a
leverage ratio that cannot be more than 3.50:1.00, and an interest
coverage ratio that cannot be less than 3.50:1.00. The Company is
out of compliance with all three ratios as of September 30, 2017,
and December 31, 2016, and is in technical default of the
agreement.
In
October 2016, we executed a sixth amendment to the original loan
agreement, which provides for Citibank’s forbearance from
exercising remedies relating to the current defaults including the
principal payment deficiencies. The Forbearance Agreement runs
through January 1, 2018, and requires that we make a $500,000 loan
principal pay down by September 30, 2017, and adhere to other
requirements including weekly cash balance reports, quarterly
operating reports, monthly accounts payable reports and that we pay
all associated legal expenses. Furthermore, under the agreement
Citibank may sweep any excess cash balances exceeding a net amount
of $800,000 less equity offering proceeds, which will be applied
towards the outstanding principal balance. The Company paid
$3,115,000 toward the principal balance in the nine months ended
September 30, 2017.
8.
Stockholders’ Equity
There
were 7,177,010 warrants with an exercise price of $4.00 outstanding
at September 30, 2017. There have been no warrants issued or
exercised during the three and nine months ended September 30,
2017. The weighted average expected life of the warrants was less
than one year at September 30, 2017.
As a
signing bonus to his “at will” employment agreement,
Phillip Roberson, as President and CFO, received a total of 50,000
shares of common stock that vested over a three year period
beginning on July 1, 2014. On January 1, 2016, 10,000 shares were
vested and issued. The final 10,000 shares vested at the last
six-month anniversary date on July 1, 2016. The fair value of this
stock grant was $275,000 on July 1, 2014, of which $13,750 was
recognized as non-cash stock compensation expense during the nine
months ended September 30, 2016. Mr. Roberson was awarded, as part
of his annual compensation, on his third anniversary date 5,000
shares, and will receive on his fourth anniversary date 6,000
shares, on his fifth anniversary date 7,000 shares, on his sixth
anniversary date 8,000 shares, on his seventh anniversary date
9,000 shares, and each annual anniversary date thereafter 10,000
shares. However, Mr. Roberson declined the 5,000 shares that would
have been awarded on this third anniversary date on July 1, 2017.
Mr. Roberson’s contract was extended by the Compensation
Committee to July 1, 2018.
On
August 12, 2016, the Company entered into a binding Stock and
Mineral Purchase Agreement (the “SMPA”) with HFT
Enterprises, LLC (the “Buyer”) in order to provide
liquidity to the Company. The Buyer purchased newly-issued
restricted shares of common stock of the Company equal to 19.9% of
the total number of issued and outstanding shares of the Company,
as measured on the date of the Agreement, for a price of $0.45 per
share. In 2016, the Buyer purchased for gross proceeds of $597,080
paid in consideration of 1,326,846 shares of unregistered common
stock. The remaining shares were purchased in January 2017, for
gross proceeds of $199,027 paid in consideration of 442,282 shares
of unregistered common stock. Costs incurred by the Company to
issue the stock was $11,807 for the nine months ended September 30,
2017.
10
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
SMPA also granted to the Buyer, a related party after the purchase
of the stock discussed above, the right to purchase an undivided
100% working interest on or before December 31, 2016, in the
Company’s Elkhorn and JC Kinney leases in the Big Muddy Oil
Field in Converse County, Wyoming for a purchase price of $430,000.
The SMPA was amended on January 9, 2017, to add the right to the
Buyer to purchase an undivided 100% of working interest in the
mineral lease covering the Quinoco Sulimar Field in Chaves County,
New Mexico, in lieu of the Wyoming property, for a purchase price
to be determined. Additionally, it extended the purchase date of
either property to on or before April 1, 2017. The Board of
Directors voted March 24, 2017, to extend the agreement for the
Quinoco Sulimar Field only to June 30, 2017. The agreement has been
verbally extended to December 31, 2017. As a condition of the
purchase, all proceeds from the sale of the working interest must
be used to pay down the Company’s indebtedness owed to
Citibank. Other conditions include the requirement that Citibank
will have agreed to extend the maturity date on the Company’s
current indebtedness owed until December 31, 2017, which was
accomplished in the Forbearance Agreement discussed above. Also,
the Buyer has been granted the right to nominate one member of the
Board of Directors.
9.
Subsequent Events
On
October 2, 2017, the Company sold its 25.23% working interest in a
waterflood project consisting of 23 producing and 9 injection wells
in the Apache field in Caddo County, Oklahoma for $900,000. The
Company anticipates it will recognize a gain on the sale of
approximately $642,000. The Company used $600,000 of the proceeds
to reduce our credit line with Citibank to $2,763,333.
On
November 1, 2017, the Company sold its working interest in the Rush
Springs Field in Oklahoma for $13,000. The Company will pay a
placement fee of 10%.
As of the date of this Report, the November 13, 2017, deadline to
regain compliance with the NYSE American continued listing
requirements has passed without the Company achieving the needed
increase in equity to be eligible for continued listing on the NYSE
American. The Company continues to explore possible transactions
that would infuse sufficient equity to achieve continued listing
eligibility; however, the Company expects the NYSE American to
begin the delisting process given the passing of the deadline.
There can be no assurance that the Company can consummate a
transaction to increase equity in time to avoid
delisting.
11
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.
The
Company has temporarily suspended drilling and exploration
activities due to low commodity prices and has no near-term plans
at this time to continue development of the Taylor Serbin field.
Furthermore, we plan to limit any remedial work that does not
increase production and reduce general and administrative costs as
much as possible until commodity pricing improves. As we are out of
compliance with our revolving line of credit and our borrowing base
has been decreased, we do not expect to reinstate our drilling
programs until commodity prices and our cash flow
improve.
Going concern
We had
net income of $901,105 and $2,239,240 for the three and nine months
ended September 30, 2017, due to the sale of non-producing and
non-economic assets in New Mexico, but continue to have negative
operating cash flow. We incurred a net loss of $630,299 and
$2,078,259 for the nine months ended September 30, 2016. We expect
that the Company will continue to experience operating losses and
negative cash flow for so long as commodity prices remain
depressed. The audit report of our independent registered public
accountants covering our financial statements for the fiscal years
ended December 31, 2016 and 2015, include an explanatory paragraph
expressing substantial doubt as to our ability to continue as a
going concern. The financial statements have been prepared
"assuming that the Company will continue as a going concern." Our
ability to continue as a going concern is dependent on raising
additional capital to fund our operations and ultimately on
generating future profitable operations. We filed a new shelf
registration statement on Form S-3 which was declared effective by
the SEC on August 15, 2016, which will permit the future sale of
equity securities, including a limited at the market (ATM) capital
raise. We are investigating other sources of capital. There can be
no assurance that we will be able to raise sufficient additional
capital or have positive cash flow from operations to address all
of our cash flow needs. If we are not able to find alternative
sources of cash or generate positive cash flow from operations, our
business and shareholders may be materially and adversely
affected.
On
August 12, 2016, the Company entered into a binding Stock and
Mineral Purchase Agreement (the “SMPA”) with HFT
Enterprises, LLC (the “Buyer”) in order to provide
liquidity to the Company. The Buyer purchased newly-issued shares
of common stock of the Company equal to 19.9% of the total number
of issued and outstanding shares of the Company, as measured on the
date of the Agreement, for a price of $0.45 per share (the shares
to be purchased, the “Shares”). In November 2016, the
Buyer purchased for gross proceeds of $398,053 paid in
consideration of 884,564 shares of unregistered common stock. In
December 2016, the Buyer purchased for gross proceeds of $199,027
paid in consideration of 442,282 shares of unregistered common
stock. The remaining 442,282 shares were purchased in January 2017,
for gross proceeds of $199,027 paid in consideration of 442,282
shares of unregistered common stock. Euro Pacific Capital, Inc.
acted as the placement agent and garnered a fee of 5%.
12
The
SMPA also granted to the Buyer, a related party after the purchase
of the stock discussed above, the right to purchase an undivided
100% working interest on or before December 31, 2016, in the
Company’s Elkhorn and JC Kinney leases in the Big Muddy Oil
Field in Converse County, Wyoming for a purchase price of $430,000.
The SMPA was amended on January 9, 2017, to add the right to the
Buyer to purchase an undivided 100% of working interest in the
mineral lease covering the Quinoco Sulimar Field in Chaves County,
New Mexico, in lieu of the Wyoming property, for a purchase price
to be determined. Additionally, it extended the purchase date of
either property to on or before April 1, 2017. The Board of
Directors voted March 24, 2017, to extend the agreement for the
Quinoco Sulimar Field only to June 30, 2017. The agreement has been
verbally extended to December 31, 2017. As a condition of the
purchase, all proceeds from the sale of the working interest must
be used to pay down the Company’s indebtedness owed to
Citibank. Other conditions include the requirement that Citibank
will have agreed to extend the maturity date on the Company’s
current indebtedness owed until December 31, 2017, which was
accomplished in the Forbearance Agreement discussed above. Also,
the Buyer has been granted the right to nominate one member of the
Board of Directors.
On May 11, 2016, the Company received notification from the NYSE
American (formerly NYSE MKT) that it was noncompliant with the NYSE
American (formerly NYSE MKT) continued listing standards;
specifically, Section 1003(a)(i) of the Company Guide related to
financial impairment. The Company’s stockholders’
equity is below the $2.0 million threshold required for listed
companies that have reported losses from continuing operations in
two of its three most recently completed fiscal years.
The
Company submitted a plan to regain compliance; whereupon NYSE
Regulation reviewed the plan and determined to accept it, as
supplemented, and granted a plan period through November 13, 2017,
to regain compliance, the targeted completion date. NYSE Regulation
staff has been reviewing the Company periodically for compliance
with the initiatives outlined in the plan.
Additionally,
on April 28, 2017, the Company received notification from the NYSE
American (formerly NYSE MKT) that it was noncompliant with the NYSE
American (formerly NYSE MKT) continued listing standards;
specifically, Section 1003(a)(ii) of the Company Guide.
The Company’s stockholders’ equity has been below
the $2.0 million threshold required for listed companies that have
reported losses from continuing operations in two of its three most
recently completed fiscal years (Section 1003(a)(i)) and is now
below the $4.0 million threshold required for listed companies that
have reported losses from continuing operations in three of its
four most recent fiscal years (Section 1003(a)(ii)). The Company
was given the opportunity to and submitted a supplement to the Plan
to address how it intends to regain compliance with Section
1003(a)(ii). The Plan period to regain compliance with all of
the continued listing standards by November 13, 2017, remain the
same. The Company has been subject to periodic reviews by the
Exchange. If the Company is not in compliance with the continued
listing standards by November 13, 2017, or if the Company does not
make progress consistent with the Plan, the Exchange will initiate
delisting procedures as appropriate. If our initiatives to regain
compliance are not successful and the Company is delisted from the
NYSE American (formerly NYSE MKT), it could have a significant
adverse impact on our ability to raise additional
capital.
As of
the date of this Report, the November 13, 2017, deadline to regain
compliance has passed without the Company achieving the needed
increase in equity to be eligible for continued listing on the NYSE
American. The Company continues to explore possible transactions
that would infuse sufficient equity to achieve continued listing
eligibility; however, the Company expects the NYSE American to
begin the delisting process given the passing of the deadline.
There can be no assurance that the Company can consummate a
transaction to increase equity in time to avoid
delisting.
During
the nine months ended September 30, 2017, the company sold
non-producing and non-economic assets in New Mexico, and used
$3,115,000 of the proceeds to pay toward the principal balance of
our line of credit to cure our borrowing base deficiency. Our loan
balance is $3,363,333 as of September 30, 2017. We plan to continue
evaluating our portfolio for non-producing assets which can be
liquidated to reduce debt further.
13
The
Company’s plans to mitigate our current financial situation
and more details about the SMPA are discussed in Note 2 –
Liquidity and Going Concern in the financial statements for the
quarter ended September 30, 2017.
Results of Operations
Comparison of three months ended September 30, 2017, to the three
months ended September 30, 2016
|
Quarter Ended
September 30,
|
|
|
2017
|
2016
|
Revenue:
|
|
|
Oil
sales
|
$632,970
|
$564,496
|
Natural gas
sales
|
49,733
|
70,993
|
Total oil and
natural gas sales
|
$682,703
|
$635,489
|
|
|
|
Sales
volumes:
|
|
|
Oil
(Bbls)
|
14,233
|
15,288
|
Natural gas
(Mcf)
|
17,807
|
30,562
|
Total
(BOE)
|
17,201
|
20,382
|
|
|
|
Average sales
prices:
|
|
|
Oil
($/Bbl)
|
$44.47
|
$36.92
|
Natural gas
($/Mcf)
|
2.79
|
2.32
|
Total
($/BOE)
|
$39.69
|
$31.18
|
|
|
|
Costs and expenses
($/BOE)
|
|
|
Production expense
(lifting costs)
|
$26.37
|
$29.84
|
Depletion and
depreciation
|
9.80
|
13.14
|
Accretion of
discount on asset retirement obligations
|
1.51
|
1.37
|
General and
administrative
|
16.51
|
15.86
|
Total
|
$54.19
|
$60.21
|
Oil and
natural gas sales revenues increased 7% or $47,214 to $682,703 for
the three months ended September 30, 2017, from the comparable 2016
period. Average oil sales prices increased 20% to $44.47 for the
three months ended September 30, 2017, compared to $36.92 for the
period ended September 30, 2016. Average natural gas sales prices
increased 20% to $2.79 for the three months ended September 30,
2017, compared to $2.32 for the period ended September 30, 2016.
Decreased oil production accounted for a decrease in revenue of
approximately $39,000. Decreased natural gas production accounted
for a decrease in revenue of approximately $30,000. Higher
commodity prices for oil and natural gas accounted for an increase
in revenue of approximately $116,000. We have temporarily suspended
drilling and exploration activity due to low commodity prices and
expect our volumes to decline in the coming quarters until drilling
and exploration activities are re-established.
Production
expense decreased 25% or $154,647 to $453,605 for the three months
ended September 30, 2017, from the comparable 2016 period. This was
primarily due to a decrease in unexpected workover activity and
operating costs. Lifting costs per BOE decreased $3.47 to $26.37
for the 2017 period compared to $29.84 for the three months ended
September 30, 2016, due mainly to decreased workover activity and
general decreases in costs and lease operating expenses. We
anticipate lease operating expenses to decline slightly over the
following quarters due to a cessation of new well activity as a
result of low commodity pricing.
14
Depletion
and depreciation decreased 37% or $99,335 to $168,465 for the three
months ended September 30, 2017, versus $267,800 in the 2016
comparable period. This was primarily due to a lower depletable
base and lower production volumes during the three months ended
September 30, 2017.
General
and administrative costs decreased 12% or $39,255 to $283,968 for
the three months ended September 30, 2017, from the three months
ended September 30, 2016. This was primarily attributable to a
decrease in salaries and professional services. At this time, the
Company anticipates general and administrative expenses to remain
stable or decrease slightly in the coming quarters.
Other
income, net for the quarter ended September 30, 2017, was
$1,132,824, which included gain on sale of oil and natural gas
properties of $1,173,193. Other expense, net for the quarter ended
September 30, 2016, was $64,656. Interest expense was $40,621 and
$64,819 for the three months ended September 30, 2017 and 2016,
respectively.
Results of Operations
Comparison of nine months ended September 30, 2017, to the nine
months ended September 30, 2016
|
Nine Months
Ended
September
30,
|
|
|
2017
|
2016
|
Revenue:
|
|
|
Oil
sales
|
$2,143,326
|
$1,782,213
|
Natural gas
sales
|
235,080
|
173,050
|
Total oil and
natural gas sales
|
$2,378,406
|
$1,955,263
|
|
|
|
Sales
volumes:
|
|
|
Oil
(Bbls)
|
44,947
|
50,230
|
Natural gas
(Mcf)
|
79,732
|
84,633
|
Total
(BOE)
|
58,235
|
64,336
|
|
|
|
Average sales
prices:
|
|
|
Oil
($/Bbl)
|
$47.69
|
$35.48
|
Natural gas
($/Mcf)
|
2.95
|
2.04
|
Total
($/BOE)
|
$40.84
|
$30.39
|
|
|
|
Costs and expenses
($/BOE)
|
|
|
Production expense
(lifting costs)
|
$30.24
|
$30.30
|
Depletion and
depreciation
|
9.25
|
13.92
|
Accretion of
discount on asset retirement obligations
|
1.34
|
1.27
|
General and
administrative
|
14.56
|
15.36
|
Total
|
$55.39
|
$60.85
|
Oil and
natural gas sales revenues increased 22% or $423,143 to $2,378,406
for the nine months ended September 30, 2017, from the comparable
2016 period. Average oil sales prices increased 34% to $47.69 for
the nine months ended September 30, 2017, compared to $35.48 for
the nine months ended September 30, 2016. Average natural gas sales
prices increased 45% to $2.95 for the nine months ended September
30, 2017, compared to $2.04 for the nine months ended September 30,
2016. Decreased oil and natural gas production accounted for a
decrease in revenue of approximately $198,000. Higher commodity
prices for oil and natural gas accounted for an increase in revenue
of approximately $621,000. We have temporarily suspended drilling
and exploration activity due to low commodity prices and expect our
volumes to decline in the coming quarters until drilling and
exploration activities are re-established.
15
Production
expense decreased 10% or $188,493 to $1,761,123 for the nine months
ended September 30, 2017, from the comparable 2016 period. This was
primarily due to a decrease in unexpected workover activity and
operating costs. Lifting costs per BOE decreased $0.06 to $30.24
for the 2017 period compared to $30.30 for the nine months ended
September 30, 2016, due mainly to decreased workover activity and
general increases in costs and lease operating expenses. We
anticipate lease operating expenses to decline slightly over the
following quarters due to a cessation of new well activity as a
result of low commodity pricing.
Depletion
and depreciation decreased 40% or $356,827 to $538,573 for the nine
months ended September 30, 2017, versus $895,400 in the 2016
comparable period. This was primarily due to a lower depletable
base and lower production volumes during the nine months ended
September 30, 2017.
General
and administrative costs decreased 14% or $140,115 to $847,910 for
the nine months ended September 30, 2017, from the nine months
ended September 30, 2016. This was primarily attributable to a
decrease in salaries and professional services. At this time, the
Company anticipates general and administrative expenses to remain
stable or decrease slightly in the coming quarters.
Other
income, net for the nine months ended September 30, 2017, was
$3,030,256 which included gain on sale of oil and natural gas
properties of $3,203,670. Other expense, net for the nine months
ended September 30, 2016, was $190,143. Interest expense was
$173,952 and $191,201 for the nine months ended September 30, 2017
and 2016, respectively.
Liquidity and Capital Resources
Cash
flow used in operating activities was $462,104 for the nine months
ended September 30, 2017, as compared to $862,342 of cash flow used
in operating activities in the comparable 2016 period. The decrease
in cash flows used in operating activities was primarily due to the
increase in oil and natural gas revenue during the nine months
ended 2017.
Cash
flow provided by investing activities was $2,995,931 for the nine
months ended September 30, 2017, which included proceeds of
$3,345,000 from the sale of oil and natural gas properties, offset
by $349,069 in additions to oil and natural gas properties and
equipment. Cash flow used in investing activities was $96,618 for
the nine months ended September 30, 2016, due to additions to oil
and natural gas properties and equipment.
Cash
flow used in financing activities was $2,927,780 primarily due to
payments of $3,115,000 principal on the long term debt that was
partially offset by proceeds of $187,220 from the sale of common
stock during the nine months ended September 30, 2017. No cash flow
was provided by or used in financing activities for the nine months
ended September 30, 2016.
We are
out of compliance with the current ratio, leverage ratio, and
interest coverage ratio required by our line of credit as of
September 30, 2017, and are in technical default of the
agreement. In October 2016, we executed a sixth amendment to the
original loan agreement, which provides for Citibank’s
forbearance from exercising remedies relating to the current
defaults including the principal payment deficiencies. The
Forbearance Agreement runs through January 1, 2018, and requires
that we make a $500,000 loan principal pay down by September 30,
2017, and adhere to other requirements including weekly cash
balance reports, quarterly operating reports, monthly accounts
payable reports and pay all associated legal expenses. Furthermore,
under the agreement Citibank may sweep any excess cash balances
exceeding a net amount of $800,000 less equity offering proceeds,
which will be applied towards the outstanding principal balance.
The Company paid $3,115,000 toward the principal balance during the
nine months ended September 2017.
16
On May
11, 2016, the Company received notification from the NYSE American
(formerly NYSE MKT) that it was noncompliant with the NYSE American
(formerly NYSE MKT) continued listing standards; specifically,
Section 1003(a)(i) of the Company Guide related to financial
impairment. The Company’s stockholders’ equity is below
the $2.0 million threshold required for listed companies that have
reported losses from continuing operations in two of its three most
recently completed fiscal years. The Company submitted a plan to
regain compliance; whereupon NYSE Regulation reviewed the plan and
determined to accept it, as supplemented, and granted a plan period
through November 13, 2017, to regain compliance, the targeted
completion date. NYSE Regulation staff has been reviewing the
Company periodically for compliance with the initiatives outlined
in the plan.
Additionally,
on April 28, 2017, the Company received notification from the NYSE
American (formerly NYSE MKT) that it was noncompliant with the NYSE
American (formerly NYSE MKT) continued listing standards;
specifically, Section 1003(a)(ii) of the Company Guide.
The Company’s stockholders’ equity has been below
the $2.0 million threshold required for listed companies that have
reported losses from continuing operations in two of its three most
recently completed fiscal years (Section 1003(a)(i)) and is now
below the $4.0 million threshold required for listed companies that
have reported losses from continuing operations in three of its
four most recent fiscal years (Section 1003(a)(ii)). The Company
was given the opportunity to and submitted a supplement to the Plan
to address how it intends to regain compliance with Section
1003(a)(ii). The Plan period to regain compliance with all of
the continued listing standards by November 13, 2017, remain the
same. The Company has been subject to periodic reviews by the
Exchange. If the Company is not in compliance with the continued
listing standards by November 13, 2017, or if the Company does not
make progress consistent with the Plan, the Exchange will initiate
delisting procedures as appropriate. If our initiatives to regain
compliance are not successful and the Company is delisted from the
NYSE American (formerly NYSE MKT), it could have a significant
adverse impact on our ability to raise additional
capital.
As of
the date of this Report, the November 13, 2017, deadline to regain
compliance has passed without the Company achieving the needed
increase in equity to be eligible for continued listing on the NYSE
American. The Company continues to explore possible transactions
that would infuse sufficient equity to achieve continued listing
eligibility; however, the Company expects the NYSE American to
begin the delisting process given the passing of the deadline.
There can be no assurance that the Company can consummate a
transaction to increase equity in time to avoid
delisting.
Subsequent Events
On
October 2, 2017, the Company sold its 25.23% working interest in a
waterflood project consisting of 23 producing and 9 injection wells
in the Apache field in Caddo County, Oklahoma for $900,000. The
Company anticipates it will recognize a gain on the sale of
approximately $642,000. The Company used $600,000 of the proceeds
to reduce our credit line with Citibank to $2,763,333.
On
November 1, 2017, the Company sold its working interest in the Rush
Springs Field in Oklahoma for $13,000. The Company will pay a
placement fee of 10%.
We plan
to continue evaluating our portfolio for non-producing assets which
can be liquidated to reduce debt further.
As of the date of this Report, the November 13, 2017, deadline to
regain compliance with the NYSE American continued listing
requirements has passed without the Company achieving the needed
increase in equity to be eligible for continued listing on the NYSE
American. The Company continues to explore possible transactions
that would infuse sufficient equity to achieve continued listing
eligibility; however, the Company expects the NYSE American to
begin the delisting process given the passing of the deadline.
There can be no assurance that the Company can consummate a
transaction to increase equity in time to avoid
delisting.
17
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. There were
no commodity positions open at September 30, 2017 or
2016.
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 September 30, 2017,
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.
18
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.
19
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,
except as previously disclosed on Current Reports on Form
8-K.
Item 3. Default Upon Senior Securities
Our
line of credit is a senior secured credit facility and provides for
certain financial covenants and ratios which include a current
ratio that cannot be less than 1.10:1.00, a leverage ratio that
cannot be more than 3.50:1.00, and an interest coverage ratio that
cannot be less than 3.50:1.00. The Company is out of compliance
with all three ratios as of September 30, 2017, and is in technical
default of the agreement. As a result of the redetermination
of the credit base, the Company had a borrowing base deficiency in
the amount of $1,495,000 on December 1, 2015. As an election
under the Loan Agreement, the Company agreed to pay and cure the
deficiency in three equal monthly installments of $498,333 each,
due on December 31, 2015, January 31, 2016 and February 29, 2016.
We made our first required deficiency payment in the amount of
$516,667 on December 29, 2015. However, we did not make the
required deficiency payments in January or February 2016. As of
December 31, 2016, our loan balance was $6,478,333 and our
borrowing base deficiency was $978,333. During the nine months
ended September 30, 2017, the Company sold several non-producing
and non-economic assets in New Mexico, and used $3,115,000 of the
proceeds to pay toward the principal balance of our line of credit
to cure our borrowing base deficiency. Our loan balance was
$3,363,333 as of September 30, 2017. We plan to continue evaluating
our portfolio for non-producing assets which can be liquidated to
reduce debt further.
In
October 2016, we executed a sixth amendment to the original loan
agreement, which provides for Citibank’s forbearance from
exercising remedies relating the current defaults including the
principal payment deficiencies. The Forbearance Agreement runs
through January 1, 2018, and requires that we make a $500,000 loan
principal pay down by September 30, 2017, and adhere to other
requirements including weekly cash balance reports, quarterly
operating reports, monthly accounts payable reports and that we pay
all associated legal expenses. Furthermore, under the agreement
Citibank may sweep any excess cash balances exceeding a net amount
of $800,000 less equity offering proceeds, which will be applied
towards the outstanding principal balance. We are currently in
compliance with the agreement, however the Agreement was
supplemented by a closing letter agreement to allow the Company
time to pay the associated legal costs and solidify the
Deposit/Withdraw at Custodian Agreements (“DEWAC”) as
provided for in the Forbearance Agreement. Citibank is in a first
lien position on all of our properties and assets.
Item 4. Mine Safety Disclosures
None.
20
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
|
21
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, 2017
|
By:
|
/s/
Roger
D. Bryant
|
|
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Roger D.
Bryant
|
|
|
|
Principal Executive
Officer
|
|
Date: November
14, 2017
|
By:
|
/s/
Phillip
H. Roberson
|
|
|
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Phillip H.
Roberson
|
|
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Principal Financial
Officer
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22