UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________

 

FORM 10-Q

______________________

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED June 30, 2016

 

OR

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______.

 

Commission file number: 000-29219

 

VIKING INVESTMENTS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

98-0199508

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

1330 Avenue of the Americas, Suite 23 A,

New York, New York

10019

(Address of principal executive offices)

(Zip Code)

 

Issuer's telephone number  (212) 653 0946

 

_______________________________________________________________

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No ¨

 

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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

¨

Accelerated Filer

¨

Non Accelerated Filer

¨

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 ¨ No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of August 15, 2016, the registrant had 47,534,919 shares of common stock outstanding.

 

 
 
 

 

EXPLANATORY NOTE

 

The Company has not been able to have its independent auditor complete their review of the financial statements for the three and six months ended June 30, 2016 as reported in this Form 10-Q.

 

The Company understands that this report is deficient because the unaudited financial statements contained in this report for the three and six months ended June 30, 2016 have not been reviewed by an independent registered public accountant as required by rule 10 - 01(d) regulation S-X. The Company understands that completion of this independent review of its quarterly financial statements and the filing of an amendment will make this report current. When the review is complete, the Company will file an amendment to this report which will include the required certifications of the Company's Principal Executive Officer and Principal Financial and Accounting Officer as required by sections 302 and 906 of the Sarbanes-Oxley Act.

 

 
2
 

  

VIKING INVESTMENTS GROUP, INC.

 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

 

Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015

4

Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2016 and 2015 (unaudited)

5

Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited)

6

Consolidated Statements of Stockholders' Equity (unaudited)

7

Notes to the Unaudited Consolidated Financial Statements (unaudited)

8

Item 2.

Management's Discussion and Analysis or Plan of Operation

37

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

40

Item 4.

Controls and Procedures

40

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

41

Item 2.

Unregistered Sales Of Equity Securities And Use Of Proceeds

41

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

43

 

 
3
 

  

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

VIKING INVESTMENTS GROUP, INC.

Consolidated Balance Sheets

(Unaudited)

(Amounts expressed in US dollars)

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$18,404

 

 

$30,585

 

Accounts receivable – oil and gas

 

 

15,828

 

 

 

-

 

Other receivable – related party

 

 

76,719

 

 

 

76,719

 

Prepaid expenses

 

 

641,918

 

 

 

145,561

 

Total current assets

 

 

752,869

 

 

 

252,865

 

 

 

 

 

 

 

 

 

 

Oil and gas properties, full cost method

 

 

 

 

 

 

 

 

Proved developed producing oil and gas properties, net

 

 

1,323,874

 

 

 

49,095

 

Undeveloped and non-producing oil and gas properties, net

 

 

1,594,168

 

 

 

769,135

 

Total oil and gas properties, net

 

 

2,918,042

 

 

 

818,230

 

 

 

 

 

 

 

 

 

 

Long term investment

 

 

239,213

 

 

 

87,156

 

Loan costs

 

 

36,250

 

 

 

11,458

 

TOTAL ASSETS

 

$3,946,374

 

 

$1,169,709

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Other payables

 

$206,480

 

 

$81,700

 

Accounts payable

 

 

47,126

 

 

 

118,649

 

Derivative liability

 

 

787,560

 

 

 

154,297

 

Amount due to directors

 

 

621,693

 

 

 

614,991

 

Secured subordinated notes payable

 

 

230,882

 

 

 

-

 

Convertible notes – current

 

 

1,509,564

 

 

 

20,282

 

Total current liabilities

 

 

3,403,305

 

 

 

989,919

 

Convertible notes – net of current

 

 

-

 

 

 

6,778

 

Asset retirement obligation

 

 

426,525

 

 

 

416,246

 

TOTAL LIABILITIES

 

 

3,829,830

 

 

 

1,412,943

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Capital Stock

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized, 28,092 shares issued

and outstanding as of June 30, 2016 and December 31, 2015

 

 

28

 

 

 

28

 

Common stock, $0.001 par value, 100,000,000 shares Authorized, 47,534,919 and 30,333,993 shares issued,

issuable and outstanding as of June 30, 2016 and December 31, 2015

respectively. (2,250,000 and 0 shares issuable, respectively).

 

 

47,535

 

 

 

30,334

 

Additional Paid-In Capital

 

 

9,638,488

 

 

 

7,864,085

 

Deficit

 

 

(9,563,140)

 

 

(7,979,257)

Accumulated other comprehensive income

 

 

(6,367)

 

 

(158,424)

TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)

 

 

116,544

 

 

 

(243,234)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$3,946,374

 

 

$1,169,709

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
4
 

 

VIKING INVESTMENTS GROUP, INC. 

Consolidated Statements Of Operations And Comprehensive Loss 

(Unaudited)

(Amounts expressed in US dollars)

 

 

  

 

 

Three months ended,

 

 

Six months ended,

 

 

 

June 30,

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

$

 

 

$

 

 

$

 

 

$

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Oil and gas sales

 

 

85,864

 

 

 

32,023

 

 

 

126,586

 

 

 

32,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease operating costs

 

 

58,333

 

 

 

21,775

 

 

 

99,317

 

 

 

21,775

 

General and administrative

 

 

31,719

 

 

 

38,808

 

 

 

72,424

 

 

 

50,702

 

Stock based compensation

 

 

-

 

 

 

108,000

 

 

 

102,500

 

 

 

108,000

 

Professional fees

 

 

338,574

 

 

 

34,795

 

 

 

478,801

 

 

 

103,026

 

Rent

 

 

3,196

 

 

 

1,127

 

 

 

5,515

 

 

 

6,190

 

Wages

 

 

-

 

 

 

3,000

 

 

 

-

 

 

 

63,000

 

Depreciation, depletion and amortization

 

 

120,233

 

 

 

2,250

 

 

 

190,646

 

 

 

6,792

 

Total operating expenses

 

 

552,055

 

 

 

209,755

 

 

 

949,203

 

 

 

359,485

 

Loss from operations

 

 

(466,191)

 

 

(177,732)

 

 

(822,617)

 

 

(327,462)

Interest Expense

 

 

(528,573)

 

 

(41,783)

 

 

(709,830)

 

 

(60,985)

Debt settlement income

 

 

75,000

 

 

 

-

 

 

 

75,000

 

 

 

-

 

Derivative gain (loss)

 

 

400,867

 

 

 

(5,542)

 

 

(126,436)

 

 

(5,542)

Net loss

 

 

(518,897)

 

 

(225,057)

 

 

(1,583,883)

 

 

(393,989)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities available-for-sale

 

 

159,322

 

 

 

(66,990)

 

 

152,057

 

 

 

(12,222)

Total comprehensive income (loss)

 

 

159,322

 

 

 

(66,990)

 

 

152,057

 

 

 

(12,222)

Net Comprehensive Loss

 

 

(359,575)

 

 

(292,047)

 

 

(1,431,826)

 

 

(406,211)

Loss per common share - Basic and diluted

 

 

(0.007)

 

 

(0.012)

 

 

(0.033)

 

 

(0.016)

Weighted average number of common shares outstanding – basic and diluted

 

 

47,150,304

 

 

 

25,252,188

 

 

 

42,445,852

 

 

 

25,008,474

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
5
 

  

VIKING INVESTMENTS GROUP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(Amounts expressed in US dollars)

 

 

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2016

 

 

2015

 

 

 

$

 

 

$

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

 

(1,583,883)

 

 

(393,989)

Derivative loss

 

 

126,436

 

 

 

5,542

 

Stock based compensation

 

 

102,500

 

 

 

108,000

 

Depreciation, depletion and amortization

 

 

190,646

 

 

 

6,792

 

Accretion – Asset retirement obligation

 

 

10,279

 

 

 

-

 

Amortization of debt discount

 

 

493,733

 

 

 

43,241

 

Gain on settlement of debt

 

 

(75,000)

 

 

-

 

Increase(decrease) in other payables

 

 

3,477

 

 

 

70,822

 

Increase in accrued expenses

 

 

128,114

 

 

 

19,517

 

Decrease (increase) in prepaid expenses

 

 

303,643

 

 

 

-

 

Decrease (increase) in other receivables

 

 

-

 

 

 

(76,719)

Decrease (increase) in accounts receivables

 

 

(15,828)

 

 

(10,248)

Net cash used in operating activities

 

 

(315,883)

 

 

(227,042)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Acquisition of oil and gas properties

 

 

(1,350,000)

 

 

(77,158)

Net cash used in investing activities

 

 

(1,350,000)

 

 

(77,158)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Advances from Directors

 

 

52,758

 

 

 

222,391

 

Repayments to Directors

 

 

(46,056)

 

 

-

 

Payment of investment obligation

 

 

-

 

 

 

(52,801)

Sale of common stock

 

 

187,500

 

 

 

-

 

Proceeds from notes payable

 

 

285,500

 

 

 

-

 

Repayments of notes payable

 

 

(98,000)

 

 

-

 

Payment of issuance costs

 

 

(37,500)

 

 

-

 

Proceeds from convertible notes

 

 

1,480,000

 

 

 

211,000

 

Repayment of convertible notes

 

 

(170,500)

 

 

(64,000)

Net cash provided by financing activities

 

 

1,653,702

 

 

 

316,590

 

 

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash

 

 

(12,181)

 

 

12,390

 

Cash, beginning of period

 

 

30,585

 

 

 

1,345

 

 

 

 

 

 

 

 

 

 

Cash, end of period

 

 

18,404

 

 

 

13,735

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$90,254

 

 

$10,442

 

Income taxes

 

$-

 

 

$-

 

Non-Cash transactions:

 

 

 

 

 

 

 

 

Conversion of convertible note

 

$10,111

 

 

$-

 

Issuance of shares as part of oil and gas property acquisition

 

$820,250

 

 

$-

 

Notes payable for oil and gas property acquisition

 

$1,350,000

 

 

$-

 

Issuance of warrants for 4,062,500 common shares as debt discount

 

$415,569

 

 

$-

 

Issuance of shares for prepaid consulting

 

$800,000

 

 

$-

 

Stock issued for debt

 

$-

 

 

$227,807

 

Stock based compensation

 

$102,500

 

 

$108,000

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
6
 

  

VIKING INVESTMENTS GROUP, INC.

Consolidated Statements of Stockholders' Equity

(Unaudited)

(Amounts expressed in US dollars)

 

 

  

 

 

Common Stock

 

Shares to be issued

 

Preferred Stock

 

Additional
Paid-in

 

Accumulated
Other
Comprehensive

 

 

 

Total Stockholders'

 

 

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Capital

 

Income

 

Deficit

 

Deficiency

 

 

 

 

 

$

 

 

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

Balance at December 31, 2014

 

 

24,094,551

 

 

24,095

 

 

675,000

 

 

675

 

 

28,092

 

 

28

 

 

7,162,660

 

 

(177,452)

 

(7,067,267)

 

(57,261)

Debt discount - convertible debt

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

330,500

 

 

-

 

 

-

 

 

330,500

 

Derivative liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(286,839)

 

 

 

 

 

 

 

(286,839)

Shares issued to investors

 

 

675,000

 

 

675

 

 

(675,000)

 

(675)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Issuance of new shares in satisfaction of debt

 

 

421,571

 

 

421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,579

 

 

 

 

 

 

 

 

30,000

 

Issuance of shares in satisfaction of debt

 

 

2,872,871

 

 

2,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

198,228

 

 

 

 

 

 

 

 

201,101

 

Issuance of new shares for consulting services

 

 

720,000

 

 

720

 

 

 

 

 

 

 

 

 

 

 

 

 

 

107,280

 

 

 

 

 

 

 

 

108,000

 

Derivative liability adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

138,227

 

 

 

 

 

 

 

 

138,227

 

Issuance of new shares as prepayment for consulting services

 

 

1,000,000

 

 

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

164,000

 

 

 

 

 

 

 

 

165,000

 

Issuance of new shares – convertible debt

 

 

550,000

 

 

550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,450

 

 

 

 

 

 

 

 

21,000

 

Unrealized gain on securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,028

 

 

 

 

 

19,028

 

Net loss for the year ended December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(911,990)

 

(911,990)

Balance at December 31, 2015

 

 

30,333,993

 

 

30,334

 

 

-

 

 

-

 

 

28,092

 

 

28

 

 

7,864,085

 

 

(158,424)

 

(7,979,257)

 

(243,234)

Issuances of shares in satisfaction of debt

 

 

300,926

 

 

301

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,810

 

 

 

 

 

 

 

 

10,111

 

Issuance of new shares for consulting services

 

 

1,000,000

 

 

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,500

 

 

 

 

 

 

 

 

102,500

 

Debt discount – convertible debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

415,569

 

 

 

 

 

 

 

 

415,569

 

Derivative liability adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,974

 

 

 

 

 

 

 

 

101,974

 

Derivative liability

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(608,800)

 

 

 

 

 

 

 

(608,800)

Shares committed to be issued in acquisition of  oil and gas investment

 

 

9,650,000

 

 

9,650

 

 

 

 

 

 

 

 

 

 

 

 

 

 

810,600

 

 

 

 

 

 

 

 

820,250

 

Issuance of new shares as prepayment for consulting services

 

 

4,000,000

 

 

4,000

 

 

1,000,000

 

 

1,000

 

 

 

 

 

 

 

 

795,000

 

 

 

 

 

 

 

 

800,000

 

Sale of stock

 

 

 

 

 

 

 

 

1,250,000

 

 

1,250

 

 

 

 

 

 

 

 

186,250

 

 

 

 

 

 

 

 

187,500

 

Capital issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,500)

 

 

 

 

 

 

 

(37,500)

Unrealized loss on securities available for sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

152,057

 

 

 

 

 

152,057

 

Net loss for the six months ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,583,883)

 

(1,583,883)

Balance at June 30, 2016

 

 

45,284,919

 

 

45,285

 

 

2,250,000

 

 

2,250

 

 

28,092

 

 

28

 

 

9,638,488

 

 

(6,367)

 

(9,563,140)

 

116,544

 

 

 The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 
7
 

 

VIKING INVESTMENTS GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

(Amounts expressed in US dollars)

 

 

 

Note 1. Nature of Business and Going Concern

 

The Company was incorporated under the laws of the State of Florida on May 3, 1989, as Sparta Ventures Corp. and remained inactive until June 27, 1998. After several name changes, the Company merged with and into a wholly-owned subsidiary, SinoCubate, Inc., which remained the surviving entity of the merger. SinoCubate, Inc. was formed in the State of Nevada on September 11, 2008. The merger resulted in a change of name of the Company from Synthenol Inc. to SinoCubate, Inc., and a change in the state of incorporation of the Company from Florida to Nevada. On June 13, 2012, the Company changed its name to Viking Investments Group, Inc., and the Company's ticker symbol was changed to "VKIN."

 

Prior to the first quarter of 2016, the Company's business plan consisted of two strategies: (a) identifying target companies that were undergoing or anticipating periods of rapid growth to provide advisory and consulting services, and (b) identifying investments in oil and gas properties for future exploration and development. In November of 2014, the Company entered into its first contract relative to oil and gas activities involving jointly controlled assets and related liabilities by purchasing an undivided 50% interest in the Joffre project located in Alberta, Canada, as explained in note 4.

 

Commencing with the first quarter of 2016, the Company determined that its singular business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties. Consistent with its refocused efforts, on February 23, 2016, the Company closed on the acquisition of working interests in four leases with access to the mineral rights (oil and gas) concerning approximately 281 acres of property in Miami and Franklin Counties in eastern Kansas.

 

These consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had a net comprehensive loss of $1,431,826 and $406,211 for the six months ended June 30, 2016 and 2015, respectively. The Company has accumulated a shareholders' equity of $116,544 as of June 30, 2016. The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.

 

Note 2. Summary of Significant Accounting Policies


a) Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Viking Investments Group, Inc. ("Viking" or the "Company") have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the rules of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited financial statements and notes thereto contained in Viking's latest Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

 

 
8
 

 

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates.

 

b) Basis of Consolidation

 

The financial statements presented herein reflect the consolidated financial results of the Company and its wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, a Canadian corporation formed on March 8, 2016. This subsidiary is intended to provide a base of operations in Canada, although at the time of this filing there has been no activity. All significant intercompany transactions and balances have been eliminated upon consolidation.

 

c) Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates. Significant estimates generally include those with respect to the amount of recoverable oil and gas reserves, the fair value of financial instruments, oil and gas depletion, asset retirement obligations, stock-based compensation, derivative liabilities and impairment of long-term investment.

 

d) Financial Instruments

 

ASC Topic 820-10, "Fair Value Measurements and Disclosures," requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, "Financial Instruments," defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for other receivables, other payable, accrued liabilities, short term loan and due to director each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

·

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

 

·

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

 

·

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

 

The changes in the Level 3 investments during the six months ended June 30, 2016 consisted of an investment in the oil and gas properties acquired in February of 2016 in the amount of $2,170,250 minus depreciation of the recorded Asset Retirement Cost in the amount of $20,311 and depletion of $50,127.

 

 
9
 

 

Assets and liabilities measured at fair value as of June 30, 2016 are classified below based on the three fair value hierarchy described above:

 

Description

 

Quoted Prices in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable

Inputs

(Level 2)

 

 

Significant Unobservable

Inputs

(Level 3)

 

 

Total Gains

(Losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Long term investment

 

$239,213

 

 

$-

 

 

$-

 

 

$152,057

 

Oil and Gas properties - net

 

 

-

 

 

 

-

 

 

 

2,918,042

 

 

 

-

 

 

 

$239,213

 

 

$-

 

 

$2,918,042

 

 

$152,057

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$-

 

 

$787,560

 

 

$-

 

 

$(126,436)

 

 

$-

 

 

$787,560

 

 

$-

 

 

$(126,436)

 

Assets and liabilities measured at fair value as of June 30, 2015 are classified below based on the three fair value hierarchy described above:

 

Description

 

Quoted Prices in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable

Inputs

(Level 2)

 

 

Significant Unobservable

Inputs

(Level 3)

 

 

Total Gains

(Losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Long term investment

 

$55,906

 

 

$-

 

 

$-

 

 

$(12,222)

Oil and Gas properties - net

 

 

-

 

 

 

-

 

 

 

432,326

 

 

 

-

 

 

 

$55,906

 

 

$-

 

 

$432,326

 

 

$(12,222)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$-

 

 

$141,566

 

 

$-

 

 

$(5,542)

 

 

$-

 

 

$141,566

 

 

$-

 

 

$(5,542)

 

 
10
 

 

e) Cash

 

Cash includes bank deposits and cash on hand.

 

f) Accounts receivable

 

Accounts receivable consist of oil and gas receivables. The Company has classified these as short-term assets in the balance sheet because the Company expects repayment or recovery within the next 12 months. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company deems all accounts receivable to be collectable, and has not recorded any allowance for doubtful accounts.

 

g) Prepaid expenses

 

Prepaid expenses represent amounts paid in advance for future contractual benefits to be received. Contracting expenses paid in advance are recorded as a prepaid asset and then amortized to the statements of operations over the life of the contract using the straight-line method. At June 30, 2016 and December 31, 2015, the balances of the prepaid expenses were comprised of the following:

 

 

 

June 30,

2016

 

 

December 31,

2015

 

 

 

 

In November, 2015, a one-year consulting agreement with an unrelated party for services related to the petroleum industry in the amount of $165,000.

 

$63,288

 

 

 

145,561

 

 

 

 

 

 

 

 

 

 

In March, 2016, 3 one-year consulting agreements with 3 unrelated parties for services related to the petroleum industry for a combined total amount of $800,000.

 

 

578,630

 

 

 

-

 

 

 

$641,918

 

 

$145,561

 

 

h) Oil and Gas Properties

 

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.

 

All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Investment in unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from continuing operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.

 

 
11
 

 

Amortization expense utilizing the unit-of-production method for the Company's oil and gas properties in both Canada and the United States for the three and six months ended June 30, 2016 and 2015 were as follows:

 

Oil and Gas Properties by Geographical Cost Center

 

 

Three months ended,

 

 

Six months ended,

 

 

 

June 30,

 

 

June 30,

 

Cost Center

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

$4,165

 

 

$-

 

 

$6,746

 

 

$-

 

United States

 

 

25,079

 

 

 

-

 

 

 

43,381

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$29,244

 

 

$-

 

 

$50,127

 

 

$-

 

 

i) Limitation on Capitalized Costs

 

Under the full-cost method of accounting, we are required, at the end of each fiscal quarter, to perform a test to determine the limit on the book value of our oil and natural gas properties (the "Ceiling" test). If the capitalized costs of our oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling, this excess or impairment is charged to expense and reflected as additional accumulated depreciation, depletion and amortization or as credit to oil and natural gas properties. The expense may not be reversed in future periods, even though higher oil and natural gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of:

 

 

(a)the present value, discounted at 10 percent, and assuming continuation of existing economic conditions, of 1) estimated future gross revenues from proved reserves, which is computed using oil and natural gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month hedging arrangements pursuant to SAB 103, less 2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, plus

 

 

 

 

(b)the cost of properties not being amortized (pursuant to Reg. S-X Rule 4-10 (c)(3)(ii); plus

 

 

 

 

(c)the lower of cost or estimated fair value of unproven properties included in the costs being amortized, net of

 

 

 

 

(d)the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties.

 

 
12
 

 

j) Oil and Gas Reserves

 

Our proved oil and gas reserves are estimated by independent petroleum engineers. Reserve engineering is a subjective process that is dependent upon the quality of available data and the interp0retation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.

 

The standardized measure of discounted future net cash flows and changes in such cash flows are prepared using assumptions required by the Financial Accounting Standards Board and the Securities and Exchange Commission. Such assumptions include using a 10% rate. Changes in any of these assumptions could have a significant impact on the standardized measure. Accordingly, the standardized measure does not represent management's estimated current market value of proved reserves. At June 30, 2016, the Company's net book value of oil and natural gas properties did not exceed the ceiling amount calculated for the quarter.

 

k) Revenue Recognition

 

All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and collectability is reasonably assured. Revenue is derived from the sale of crude oil and natural gas. Revenue from crude oil and natural gas sales is recognized when the product is delivered to the purchaser and collectability is reasonably assured. The Company follows the "sales method" of accounting for oil and natural gas revenue, so it recognizes revenue on all natural gas or crude oil sold to purchasers.

 

l) Comprehensive Income

 

FASB ASC 220 "Comprehensive Income," establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. The comprehensive loss for the three and six months ended June 30, 2016 was $359,575 and 1,431,826 respectively, and the comprehensive loss for the three and six months ended June 30, 2015 was $292,047 and $406,211 respectively.

 

m) Loss per Share

 

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and, adjusted by any effects of warrants and options outstanding, if dilutive, that may add to the number of common shares during the period. At June 30, 2016, there were approximately 4,000,000 common stock equivalents that were anti-dilutive and not included in the calculation.

 

n) Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 ("ASC 740-10-25"). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets likely. The Company did not incur any material impact to its financial condition or results of operations due to the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company is subject to U.S federal jurisdiction income tax examinations for the tax years 2006 through 2014. In addition, the Company is subject to state and local income tax examinations for the tax years 2006 through 2015.

 

 
13
 

 

o) Stock-Based Compensation

 

The Company may issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs. The Company has adopted ASC Topic 718 (formerly SFAS 123R), "Accounting for Stock-Based Compensation," which establishes a fair value method of accounting for stock-based compensation plans. In accordance with guidance now incorporated in ASC Topic 718, the cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.

 

The fair value of stock warrants was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company's stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.

 

The following table represents stock warrant activity as of and for the six months ended June 30, 2016:

 

 

 

Number
of Shares

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual Life

 

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants Outstanding – December 31, 2015

 

 

-

 

 

 

-.

 

 

 

-

 

 

 

-

 

Granted

 

 

4,062,500

 

 

 

0.20

 

 

5.0 years

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited/expired/cancelled

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

Warrants Outstanding – June 30, 2016

 

 

4,062,500

 

 

$0.20

 

 

5.0 years

 

 

$-

 

Outstanding Exercisable – December 31, 2015

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

Outstanding Exercisable – June 30, 2016

 

 

4,062,500

 

 

$0.20

 

 

5.0 years

 

 

$-

 

 

p) Long-term Investment

 

Management determines the appropriate classification of investment securities at the time of purchase. Securities are classified held-to-maturity when the Company has both the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Securities that are bought and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Securities not classified as held-to-maturity or trading are classified as available-for-sale. Available-for-sale securities are stated at fair value, the changes in the market value of available-for-sale securities, excluding other-than-temporary impairments, are reflected in Other Comprehensive Income, with the impairment losses, net of income taxes, charged to net income in the period in which it occurs.

 

 
14
 

  

The fair value of securities is based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. A decline in the market value of any available-for-sale or held-for-maturity security below cost that is deemed to be other-then-temporary results in a reduction in carrying amount to fair value.

 

Impairments that are considered other-than-temporary are recognized as a loss in the consolidated statements of operations. The Company considers various factors in reviewing impairments, including the length of time and extent to which fair value has been less than the Company's cost basis, the financial condition and near-term prospects of the issuer, and the Company's intent and ability to hold the investments for a period of time sufficient to allow for any anticipated recovery in market value.

 

As of June 30, 2016 and December 31, 2015, the Company had no trading and held-to-maturity securities.

 

On September 9, 2014, the Company subscribed for 1,265,593 units of Tanager Energy Inc. ("Tanager"), a Canadian mining company listed on the Canadian TSXVenture Exchange as a Tier 2 company and trading under the stock symbol "TAN," at a price of C$0.08 per unit. Each unit consists of one share of Tanager's common stock and one warrant to purchase one additional common share at a price of C$0.15 at any time until October 5, 2016. The warrants expire on October 5, 2016. The total price for the units subscribed for was C$101,247.47. The Company paid $92,000, which was equivalent to C$101,247.47 on September 11, 2014.

 

On October 6, 2014, the Company subscribed for an additional 2,187,500 units of Tanager at a price of C$0.08 per unit. Each unit consists of one share of Tanager's common stock to purchase one additional common share at a price of C$0.15 at any time until October 5, 2016. The warrants expire on October 5, 2016. The total price for the units subscribed for was C$175,000. The Company paid $155,444, which was equivalent to C$175,000 on October 17, 2014.

 

The Company's investment in Tanager is considered as "available-for-sale" securities, and an unrealized gain of $152,057 was recorded in other comprehensive income for the six months ended June 30, 2016.

 

q) Impairment of long-lived assets

 

In accordance with ASC 360, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

 

Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally determined by using the asset's expected future discounted cash flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections, and other available information as considered necessary. There is no impairment of long-lived assets during the six months ended June 30, 2016 and 2015.

 

r) Foreign Currency Exchange

 

An entity's functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management's judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. Functional currency of the parent company is the U.S. Dollar. The reporting currency of the Company is the U.S. Dollar. The Company has oil and gas operations in Alberta, Canada in which the Canadian Dollar ("CAD" or "C$" herein) is the primary economic environment. The reporting currency of these consolidated financial statements is the U.S. Dollar.

 

 
15
 

 

For financial reporting purposes, the operational results of the Company's oil and gas operations in Canada are prepared using the CAD, and are translated in the Company's reporting currency, the U.S. Dollar. Revenue and expenses applicable to the oil and gas operations in Alberta, Canada are translated using average rates prevailing during each reporting period. Gains or losses resulting from the settlement of foreign currency transactions are recorded as a separate component of accumulated other comprehensive income in stockholders; equity when realized. There have been no settlement transactions that resulted in the recognition of a foreign currency exchange gain or loss during the three or six months ended June 30, 2016 and 2015.

 

s) Convertible Notes Payable

 

The Company accounts for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free standing derivative financial instruments.

 

The Company has evaluated the terms and conditions of the convertible note under the guidance of ASC 815. The conversion feature did not meet the definition of "indexed to a company's own stock" provided for in ASC 815 due to the down round protection feature. Therefore, the conversion feature requires bifurcation and liability classification. Additionally, the default put requires bifurcation because it is indexed to risks that are not associated with credit or interest risk. As a result, the compound embedded derivative comprises of (i) the embedded conversion feature and (i) the default put. Rather than bifurcating and recording the compound embedded derivative as a derivative liability, the Company elected to initially and subsequently measure the convertible note in its entirety at fair value, with changes in fair value recognized in earnings in accordance with ASC 815-15-25-4.

 

t) Derivative Liability

 

We review the terms of convertible debt issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument

 

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense.

 

u) Accounting for Asset Retirement Obligations

 

On July 1, 2015, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 143, Accounting for Asset Retirement Obligations, which addresses the financial accounting and reporting obligations and retirement costs related to the retirement of tangible long-lived assets. Among other things, SFAS No. 143 requires oil and gas companies to reflect decommissioning liabilities on the face of the balance sheet at fair value on a discounted basis. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. The associated asset retirement costs are capitalized as part of the carrying cost of the asset. Our asset retirement obligations consist of estimated costs for dismantlement, removal, site reclamation and similar activities associated with our oil and gas properties.

 

 
16
 

 

With the adoption of SFAS No. 143, an asset retirement obligation and the related asset retirement cost in the amount of $406,214 have been recorded. This asset retirement cost was determined and discounted to present value using a credit-adjusted risk-free rate. After the initial recording, the liability is increased for the passage of time, with the increase being reflected as accretion expense in the statement of operations. Subsequent adjustments in the cost estimate are reflected in the liability and the amounts continue to be amortized over the useful life of the related long-lived asset.

 

Pursuant to the terms of the operating agreement associated with the oil and gas property acquisitions in the United States made during the quarter ended March 31, 2016, the Company has not incurred any additional asset retirement obligations as a result of this acquisition.

 

The following table describes the changes in the Company's asset retirement obligations for the six months ended June 30, 2016:

 

Asset retirement obligation at December 31, 2015

 

$416,246

 

Accretion expense

 

 

10,279

 

 

 

 

 

 

Asset retirement obligation at June 30, 2016

 

$426,525

 

 

v) Recent Accounting Pronouncements

 

The Financial Accounting Standards Board and other entities issued new or modifications to, or interpretations of, existing accounting guidance during 2016. Management has carefully considered the new pronouncements that altered generally accepted accounting principles and does not believe that any other new or modified principles will have a material impact on the Company's reported financial position or operations in the near term.

 

w) Subsequent events

 

The Company has evaluated all transactions through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

 

Note 3. Related Party Transactions

 

During April 2015, the Company made an advance to Tanager Energy Inc., in conjunction with a joint investment in the second oil well of the Joffre Project. As of June 30, 2016, the balance owed by Tanager to the Company is $76,719, which is shown as "Other receivable – related party" on the balance sheet.

 

During the six months ended June 30, 2016, the Company's Executive Chairman and Director, Tom Simeo did not accrue payroll and made no advances to the Company. The Company paid a total of $1,056 against prior advances by Mr. Simeo. Any accruals and advances do not bear interest, are unsecured and have no specific terms of repayment. As of June 30, 2016, the net amount due for prior accruals and expenses paid on behalf of the Company is $36,103. The Company has not imputed interest as the amount is deemed immaterial.

 

During the six months ended June 30, 2016, the Company's CEO and Director, James Doris incurred expenses on behalf of, and made advances to the Company in the amount of $52,758 in order to provide the Company with funds to carry on its operations, and the Company made repayments of $45,000 against prior advances. These advances by Mr. Doris do not bear interest, are unsecured and have no specific terms of repayment. As of June 30, 2016, the amount due for expenses paid on behalf of the Company is $226,254. The Company has not imputed interest as the amount is deemed immaterial. Additionally, Mr. Doris made several loans to the Company totaling $359,336, all accruing interest at 12%, and payable on demand. As of June 30, 2016, the total amount due to Mr. Doris for advances and expenses paid on behalf of the Company and loans is $585,590. Accrued interest of $41,542 is included in other payables at June 30, 2016.

   

On June 5, 2015, the Company authorized and approved the issuance of 2,000,000 and 872,871 restricted shares of common stock in settlement and cancellation of a total of $201,101 of amounts owed to directors at a cost basis of $0.07 per share.

 

 
17
 

 

Note 4. Oil and Gas Properties

 

The following table summarizes the Company's oil and gas activities by classification and geographical cost center for the six months ended June 30, 2016:

 

 

 

December 31,

 

 

 

 

 

 

 

 

June 30,

 

 

 

2015

 

 

Additions

 

 

Disposals

 

 

2016

 

Proved developed producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

Canada cost center

 

 

50,313

 

 

 

-

 

 

 

-

 

 

 

50,313

 

United States cost center

 

 

-

 

 

 

1,308,938

 

 

 

-

 

 

 

1,308,938

 

Accumulated depletion and impairment

 

 

-

 

 

 

(32,940)

 

 

-

 

 

 

(32,940)

Accumulated depreciation, asset retirement costs

 

 

(1,218)

 

 

(1,219)

 

 

-

 

 

 

(2,437)

 Proved developed producing oil and gas properties, net

 

 

49,095

 

 

 

1,274,779

 

 

 

-

 

 

 

1,323,874

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undeveloped and non-producing oil and gas properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada cost center

 

 

788,227

 

 

 

 

 

 

 

-

 

 

 

788,227

 

United States cost center

 

 

-

 

 

 

861,312

 

 

 

-

 

 

 

861,312

 

Accumulated depletion and impairment

 

 

-

 

 

 

(17,187)

 

 

-

 

 

 

(17,187)

Accumulated depreciation, asset retirement costs

 

 

(19,092)

 

 

(19,092)

 

 

-

 

 

 

(38,184)

 Undeveloped and non-producing oil and gas properties, net

 

 

769,135

 

 

 

825,033

 

 

 

-

 

 

 

1,594,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Oil and Gas Properties, Net

 

 

818,230

 

 

 

2,099,812

 

 

 

-

 

 

 

2,918,042

 

 

On November 3, 2014, the Company entered into a Purchase and Sale, Petroleum and Natural Gas Conveyance Agreement (the "Agreement"), with Tanager Energy Inc., a Canadian corporation listed on the TSX Venture Exchange as a Tier 2 company and trading under the stock symbol "TAN" ("Tanager Energy"). Pursuant to the Agreement, the Company was to receive a 50% working interest in the Joffre oil and gas property located in Alberta, Canada (the "Joffre Property"), and the Company was obligated to pay Tanager C$400,000 for the interest in the Joffre Property, with C$340,000 payable at closing.

 

On November 4, 2014, the Company closed the transaction by paying Tanager $302,367, with the balance of $52,801 (C$60,000) paid in January of 2015. Tanager owns the remaining 50% working interest in the property and operates and manages the property in accordance with an operating agreement pursuant to the Canadian Association of Petroleum Landman Operating Procedure. The proceeds were to be used by Tanager to complete and place on production the first of four suspended Devonian oil wells in the Joffre D-3 B oil pool (the "Joffre Project"). The Company's (and Tanager's) working interest in the Joffre Property will generally terminate when future production, if any, ceases (or in the case of the water disposal well on the Joffre Property, on the date that production ceases after 5 years has elapsed).

 

In April 2015, the Company advanced to Tanager Energy Inc., an additional $153,877 (C$190,000) as an investment in the second well in the Joffre D-3 oil pool. As the Company and Tanager each own 50% of each phase of this project, the Company has accounted for this transaction as an investment by the Company of $77,158 (C$95,270), with a loan receivable from Tanager of $76,719 (C$94,730).

 

 
18
 

 

On February 23, 2016, the Company closed on the acquisition of working interests in four leases with access to the mineral rights (oil and gas) concerning approximately 281 acres of property in Miami and Franklin Counties in eastern Kansas. This project produces oil from the Cherokee formation at a depth of approximately 600 feet. These leases offer the potential for several future drilling locations. The purchase includes an undivided interest in all oil and gas wells, equipment, fixtures and other personal property located upon the leased properties and used in connection with oil and gas operations upon the leases attributable to the working interests purchased by the Company. The names of the four leases and Viking's percentage ownership of the working interest of each lease is as follows:

 

Lease Name

 

Viking's Working Interest Percentage

 

 

 

 

 

HAHN

 

 

32.299%

JOHNSTON

 

 

84.041%

WILSON, EAST

 

 

15.000%

WILSON, WEST

 

 

55.003%

  

The effective date of the acquisitions is February 1, 2016, so the Company was entitled to net revenues from its share of production as of such date. As consideration for this transaction, the Company paid $1,350,000, plus 4,650,000 shares of common stock valued at $0.10 per share, or $465,000.

 

The Company also purchased a 100% working interest (a net revenue interest of 83%) in certain non-producing leases as follows: (i) three leases with access to the mineral rights (oil and gas) concerning approximately 270 acres of property in Miami and Franklin Counties in eastern Kansas; and (ii) 31 leases with access to the mineral rights (oil and gas) concerning approximately 5,500 acres of property in Cass and Bates Counties in Missouri. The purchase includes an undivided interest in all oil and gas wells, equipment, fixtures and other personal property located upon the leased properties and used in connection with oil and gas operations upon the leases attributable to the working interests purchased by Viking. As consideration for this transaction, Viking agreed to issue the vendors 5,000,000 shares of common stock valued at $0.10 per share, or $500,000.

 

The total purchase of these oil and gas interests is calculated as follows, and is included as an investment in Petroleum and Gas properties on the balance sheet at June 30, 2016:

 

Cash consideration

 

$1,350,000

 

Stock for producing interests

 

 

395,250

 

Stock for non-producing interests

 

 

425,000

 

 

 

 

 

 

Total purchase price

 

$2,170,250

 

  

Proforma condensed selected financial data for the three and six months ended June 30, 2016 and 2015, as though this acquisition had taken place at January 1, 2015, are as follows:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$55,934

 

 

$114,618

 

 

$141,022

 

 

$174,723

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$(351,935)

 

$(248,376)

 

$(1,426,093)

 

$(347,076)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share

 

$(0.007)

 

$(0.010)

 

$(0.034)

 

$(0.014)

 

 
19
 

 

For the three and six months ended June 30, 2016, the Company has included $56,545 and $86,103 of revenue providing $26,584 and $34,191 of net earnings in its consolidated income statement from the date of acquisition.

 

To facilitate these acquisitions, the Company borrowed $1,450,000 from private lenders pursuant to a 15% Senior Secured Convertible Promissory Note (the "Note"), arranged through a licensed broker/dealer, with the primary terms of the loan being as follows: (i) Term – 6 months; (ii) Rate – 15% per annum; (iii) Security – 1st ranking charge against company assets pursuant to a Security and Pledge Agreement (the "Security Agreement"); (iv) Conversion – the lenders have a right to convert all or part of the note into common stock of Viking at a price of $0.15 per share, subject to certain ownership restrictions; and (v) Warrants – the lenders were given an option to purchase, within the next 5 years, 3,750,000 shares of common stock of Viking at an exercise price of $0.20 per share pursuant to a Common Stock Purchase Warrant. Viking's CEO and director, James Doris, also personally guaranteed repayment of the loan and granted the lenders a security interest in his assets.

 

Note 5. Capital Stock and Additional Paid-in Capital
 

(a) Preferred Stock

 

The Company is authorized to issue 5,000,000 shares of Preferred Stock, par value $0.001 per share (the "Preferred Stock"), of which 50,000 have been designated as Series C Preferred Stock (the "Series C Preferred Stock").

 

On October 3, 2012, the Company issued 28,092 shares of Series C Preferred Stock to Tom Simeo in exchange for the return of the equal amount of shares of common stock, owned by Tom Simeo, deposited in a brokerage account, to the Company for cancellation. On or about September 1, 2015, Tom Simeo instructed the Company's Stock Transfer Agent, VStock Transfer LLC, to cancel stock certificate number 3032, representing 28,092 shares of common stock, in consideration for the missing 28,092 shares of common stock. Neither the common stock, nor the preferred stock, were assessed any value.

 

Each share of Series C Preferred Stock shall entitle the holder thereof to two thousand (2,000) votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time on or after the date that Preferred Stock has been issued ("Distribution Date) declare or pay any dividend on common stock payable in shares of common stock, or effect a subdivision or combination or consolidation of the outstanding shares of common stock (by reclassification or otherwise than by payment of a dividend in shares of common stock) into a greater or lesser number of shares of common stock, then in each such case the number of votes per share to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction of the numerator of which is the number of shares of common stock outstanding immediately after such event and the denominator of which is the number of shares of common stock that were outstanding immediately prior to such event.

 

Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into one share of fully paid and non-assessable common stock (the "Conversion Rate").

 

On July 16, 2015, Tom Simeo, Executive Chairman, and a director of the Company, who owned 28,092 shares of the Company's Series C Preferred Stock (the "Shares"), transferred 50% (14,046) of the Shares to James A. Doris, President, CEO and a director of the Company in consideration of the purchase price of $10,000, paid from the personal funds of Mr. Doris. Mr. Simeo retained 14,046 shares of the Company's Series C Preferred Stock, and no other shares of Series C Preferred Stock are issued or outstanding. Since each of the preferred shares entitles the voter of 2,000 votes per share, or 70,230,000 each, Mr. Simeo and Mr. Doris effectively control the Company jointly, neither of them solely controls the Company, and the transfer of the preferred shares constituted a change of control of the Company.

 

 
20
 

  

(b) Common Stock

 

The Company is authorized to issue 100,000,000 shares of common stock, par value $0.001 per share.

 

In May 2015, the Company authorized and approved the issuance of 720,000 shares of its common stock in conjunction with a six month consulting agreement, at a cost basis of $0.15 per share, the current fair market value at the time of the agreement.

 

On August 3, 2015, the Company issued 421,571 restricted shares of common stock in settlement and cancellation of $30,000 of accrued payroll, and 2,000,000 and 872,871 restricted shares of common stock in settlement and cancellation of a total of $201,101 of amounts owed to directors, at a cost basis of $0.07 per share.

 

On November 18, 2015, the Company issued 1,000,000 restricted shares of its common stock in conjunction with a one-year consulting agreement, at a cost of $0.165 per share, the current fair market value at the time of agreement.

 

On November 23, 2015, a convertible note holder elected to convert $4,200 of the principal amount of the convertible note dated May 22, 2015, into 100,000 shares of the Company's common stock in accordance with the convertible note agreement.

 

On December 1, 2015, a convertible note holder elected to convert $8,400 of the principal amount of the convertible note dated May 22, 2015, into 200,000 shares of the Company's common stock in accordance with the convertible note agreement.

 

On December 24, 2015, a convertible note holder elected to convert $8,400 of the principal amount of the convertible note dated May 22, 2015, into 250,000 shares of the Company's common stock in accordance with the convertible note agreement.

 

On January 12, 2016, the Company issued 300,926 common shares upon the conversion of convertible debt in the amount of $10,111.

 

On March 16, 2016, the Company issued 1,000,000 common shares for services, valued at $102,500.

 

As of February 1, 2016, the Company authorized the issuance of 9,650,000 common shares as part of the consideration for the acquisition of the oil and gas investment made at that time.

 

On March 21, 2016, the Company executed two one-year consulting agreements requiring the issuance of 2,000,000 common shares for each contract. The shares were issued during April 2016.

 

On March 21, 2016, the Company executed a one-year advisory services agreement requiring the issuance of 1,000,000 common shares for the contract. The shares are to be issued as 375,002 upon execution of the contract, with 56,818 shares being issued at the beginning of each month for the remaining eleven months. Although none of the shares stipulated pursuant to this agreement have been issued as of the date of this report, the Company has determined to account for all 1,000,000 common shares valued at $0.16 per share, as issuable as of June 30, 2016.

 

As of April 29, 2016, the Company, pursuant to a securities purchase agreement, sold 1,250,000 shares of its common stock at $0.15 per share. As of the date of this report, the Company has yet to issue these shares, but has accounted for them as issuable as of June 30, 2016.

 

 
21
 

 

Note 6.   Convertible Notes

 

Convertible notes payable at June 30, 2016, and December 31, 2015, as detailed below, are summarized as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

(e) - JMJ Financial

 

$-

 

 

$6,778

 

(f) - LG Capital

 

 

-

 

 

 

63,000

 

(g) - GW Holdings

 

 

-

 

 

 

30,000

 

(h) - EMA Financial

 

 

-

 

 

 

50,000

 

(i) - JDF Capital

 

 

-

 

 

 

27,500

 

(j) – (p) Senior Secured 15% Convertible Promissory Notes (7)

 

 

1,625,000

 

 

 

-

 

 

 

 

1,625,000

 

 

 

177,278

 

Net of unamortized debt discount

 

 

(115,436)

 

 

(150,218)

 

 

$1,509,564

 

 

$27,060

 

Less current portion

 

 

(1,509,564)

 

 

(20,282)

 

 

$-

 

 

$6,778

 

 

(a) March 11, 2015 Convertible Note

 

On March 11, 2015, the Company issued a $50,000 8% convertible note with a term expiring on March 11, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. In the event the Company prepays the note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 121% if prepaid 31 days following the closing through 60 days following the closing, (iii) 127% if prepaid 61 days following the closing through 90 days following the closing, (iv) 133% if prepaid 91 days following the closing through 120 days following the closing, (v) 139% if prepaid 121 days following the closing through the 150 days following the closing, (vi) 145% if prepaid 151 days following the closing through the 180 days following the closing, and (vii) the Company shall have no right of prepayment after the expiration of 180 days following the closing. This note was paid in full on September 8, 2015.

 

(b) March 12, 2015 Convertible Note

 

On March 12, 2015, the Company issued a $25,000 8% convertible note with a term expiring on March 12, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. In the event the Company prepays the note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 121% if prepaid 31 days following the closing through 60 days following the closing, (iii) 127% if prepaid 61 days following the closing through 90 days following the closing, (iv) 133% if prepaid 91 days following the closing through 120 days following the closing, (v) 139% if prepaid 121 days following the closing through the 150 days following the closing, (vi) 145% if prepaid 151 days following the closing through the 180 days following the closing, and (vii) the Company shall have no right of prepayment after the expiration of 180 days following the closing. This note was paid in full on September 8, 2015.

 

 
22
 

  

(c) March 12, 2015 Convertible Note

 

On March 12, 2015, the Company issued a $25,000 8% convertible note with a term expiring on March 12, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. In the event the Company prepays the note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 121% if prepaid 31 days following the closing through 60 days following the closing, (iii) 127% if prepaid 61 days following the closing through 90 days following the closing, (iv) 133% if prepaid 91 days following the closing through 120 days following the closing, (v) 139% if prepaid 121 days following the closing through the 150 days following the closing, (vi) 145% if prepaid 151 days following the closing through the 180 days following the closing, and (vii) the Company shall have no right of prepayment after the expiration of 180 days following the closing. This note was paid in full on September 8, 2015.

 

(d) March 25, 2015 Convertible Note

 

On March 25, 2015, the Company issued a $35,000 12% convertible note with a term expiring on March 24, 2016 (the "Maturity Date"), and which was funded on April 23 2015. The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. This note was paid in full on October 22, 2015.

 

(e) May 22, 2015 Convertible Note

 

On May 22, 2015, the Company issued a convertible promissory note with a cap of $50,000 with a 0% interest rate for the first three months. The terms of the note include a $5,000 Original Issue Discount, providing for a maximum funding of $45,000. The amount of the note funded as of June 30, 2016 was $25,000. The Company may repay this Note at any time on or before 90 days from the effective date. If the Company does not make a payment on or before 90 days from the notes effective date, a one-time interest charge of 12%shall be applied to the principal sum. The maturity date of the note is two years from the effective date of the note. The investor has the right, at any time after the Effective Date, at its election, to convert all of part of the outstanding and unpaid Principal Sum and accrued interest. The conversion price is the lesser of $0.10 or 60% of the lowest trade price in the 25 trading days previous to the conversion. As of June 30, 2016 the full amount of the note has been converted to common shares.

 

(f) November 3, 2015 Convertible Note

 

On November 3, 2015, the Company issued a $63,000 8% convertible note with a term expiring on November 3, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 58% of the lowest trading price of the common stock for the fifteen prior trading days including the day upon which a Notice of Conversion is received by the Company. The note was paid in full on April 29, 2016.

 

(g) November 20, 2015 Convertible Note

 

On November 20, 2015, the Company issued a $30,000 12% convertible note with a term expiring on November 20, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 52% of the lowest trading price of the common stock for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company. The note was paid in full on May 9, 2016.

 

 
23
 

  

(h) November 19, 2015 Convertible Note

 

On November 19, 2015, the Company issued a $50,000 12% convertible note with a term expiring on November 19, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 52% of the lowest trading price of the common stock for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company. The note was paid in full on May 12, 2016.

 

(i) November 25, 2015 Convertible Note

 

On November 25, 2015, the Company issued a $27,500 8% convertible note with a term expiring on November 25, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, at a price equal to 42% of the lowest trading price of the common stock for the twenty-five prior trading days including the day upon which a Notice of Conversion is received by the Company. The note was paid in full on May 2, 2016.

 

(j) February 19, 2016 Senior Secured Convertible Promissory Note

 

On February 19, 2016, the Company issued a $75,000 15% convertible note with a term expiring August 18, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company's securities that are sold in any offering of the Company's securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date.

 

(k) February 19, 2016 Senior Secured Convertible Promissory Note

 

On February 19, 2016, the Company issued a $50,000 15% convertible note with a term expiring August 18, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company's securities that are sold in any offering of the Company's securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date.

 

(l) February 19, 2016 Senior Secured Convertible Promissory Note

 

On February 19, 2016, the Company issued a $50,000 15% convertible note with a term expiring August 18, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company's securities that are sold in any offering of the Company's securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date.

 

(m) February 19, 2016 Senior Secured Convertible Promissory Note

 

On February 19, 2016, the Company issued a $1,100,000 15% convertible note with a term expiring August 18, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company's securities that are sold in any offering of the Company's securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date.

 

 
24
 

 

(n) February 19, 2016 Senior Secured Convertible Promissory Note

 

On February 19, 2016, the Company issued a $200,000 15% convertible note with a term expiring August 18, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company's securities that are sold in any offering of the Company's securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date.

 

(o) February 19, 2016 Senior Secured Convertible Promissory Note

 

On February 19, 2016, the Company issued a $100,000 15% convertible note with a term expiring August 18, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company's securities that are sold in any offering of the Company's securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date.

 

(p) February 19, 2016 Senior Secured Convertible Promissory Note

 

On February 19, 2016, the Company issued a $50,000 15% convertible note with a term expiring August 18, 2016 (the "Maturity Date"). The principal amount of the note and interest is payable on the maturity date. The note is convertible into common stock at any time, at the holder's option, The conversion price shall be the lowest of (i) $0.15, (ii) 58% of the price of the Company's securities that are sold in any offering of the Company's securities in excess of $100,000, of (iii) the conversion price of any Equity converted on or prior to the Conversion Date.

 

Note 7. Secured Subordinated Notes

 

As of April 29, 2016, the Company issued a total of $375,000 of 10% Secured Subordinated promissory notes with a term expiring January 12, 2017 (the "Maturity Date"), and an original issue discount of fifty percent (50%). Interest is payable on the outstanding principal of these notes at 10% per annum on the Maturity Date. The balance of these notes as of June 30, 2016, is $230,882, net of an unamortized discount of $144,118.

 

Note 8. Subsequent Events

 

The Company has evaluated subsequent events from June 30, 2016, through the date of filing this report, and determined there are no other items to disclose other than those disclosed below:

 

On August 2, 2016, the Company instructed the Company's transfer agent to issue 1,250,000 common shares in satisfaction of its obligation associated with the sale of these shares executed as of April 29, 2016.

 

SUPPLEMENTAL INFORMATION – OIL AND NATURAL GAS PRODUCTION – (unaudited)

 

As of June 30, 2016, the Company has two separate oil and gas production projects as follows:

 

 

(1)

The Company has a 50% undivided interest in an oil property located approximately ten miles northeast of Red Deer, Alberta in Canada. The property consists of one oil well producing from the Leduc Formation, three suspended oil wells, one abandoned oil well, and a suspended water injector.

 

 

 

 

 

The Lake Devonian Leduc formation is represented by large barrier reef and smaller pinnacle reef bioherms which grew on the Cooking Lake platform carbonates. Trending northeast to southwest, the limestones and dolostones of the Leduc/Cooking Lake Formations were deposited on the bathymetric highs of the Lake Devonian seas. Hydrocarbons are trapped by lateral stratigraphic pinch out of these dolomitic carbonates into deeper water shale sediments.

 

Proved developed producing reserves have been assigned to the first producing oil well. The well was re-activated and came on production in January 2015. The well has produced sporadically since January averaging seven to ten days of production per month. Production forecasts have taken into account this workover and reflect the increase of reserves in the total proved and proved plus probable cases.

 

The Company plans on installing a pumpjack to the well in early 2016 to enhance performance. The three suspended wells are scheduled to be re-activated in 2016. Proved reserves are assigned to these wells as the wells have demonstrated production over a number of years.

 

 
25
 

 

 

(2)The Company has various working interests in four leases with access to the mineral rights (oil and gas) concerning approximately 281 acres of property in Miami and Franklin Counties in eastern Kansas. This project produces oil from the Cherokee formation at a depth of approximately 600 feet. These leases offer the potential for several future drilling locations.

 

 

 

 

 

The Company also purchased a 100% working interest (a net revenue interest of 83%) in certain non-producing leases as follows: (i) three leases with access to the mineral rights (oil and gas) concerning approximately 270 acres of property in Miami and Franklin Counties in eastern Kansas; and (ii) 31 leases with access to the mineral rights (oil and gas) concerning approximately 5,500 acres of property in Cass and Bates Counties in Missouri.

 

Results of Operations

 

The results of operations for petroleum and natural gas production for the three and six months ended June 30, 2016, consist of both the 50% undivided interest in the Joffre oil and gas property located in Alberta, Canada as well as the various working interests in the four leases in eastern Kansas, as follows:

 

 

 

Three Months Ended June 30, 2016

 

 

 

Canada

 

 

United States

 

 

Total

 

 

 

 

 

 

 

 

Results of Operations by Geographic Area

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

Oil

 

$24,035

 

 

$56,545

 

 

$80,580

 

Gas

 

 

2,517

 

 

 

-

 

 

 

2,517

 

Liquids

 

 

2,767

 

 

 

-

 

 

 

2,767

 

Sulphur

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

29,319

 

 

 

56,545

 

 

 

85,864

 

Production costs

 

 

25,768

 

 

 

32,565

 

 

 

58,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$3,551

 

 

$23,980

 

 

$27,531

 

 

Oil and Gas Production and Sales by Geographic Area

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

 

United States

 

 

Totals

 

 

 

 

 

 

 

 

 

 

 

Production

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

 

650

 

 

 

1,470

 

 

 

2,120

 

Natural Gas - (mcf)

 

 

3,913

 

 

 

-

 

 

 

3,913

 

Natural Gas Liquids - (barrels)

 

 

283

 

 

 

-

 

 

 

283

 

Sulphur - (tonnes)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

 

601

 

 

 

1,470

 

 

 

2,071

 

Natural Gas - (mcf)

 

 

2,524

 

 

 

-

 

 

 

2,524

 

Natural Gas Liquids - (barrels)

 

 

314

 

 

 

-

 

 

 

314

 

Sulphur - (tonnes)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Sales Prices

 

 

 

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

$39.99

 

 

$38.48

 

 

$38.92

 

Natural Gas - (mcf)

 

$1.00

 

 

$-

 

 

$1.00

 

Natural Gas Liquids - (barrels)

 

$8.82

 

 

$-

 

 

$8.82

 

Sulphur - (tonnes)

 

$-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mcf = thousands of cubic feet

 

 

 

 

 

 

 

 

 

 

 

 

Tonnes = Metric tons

 

 

 

 

 

 

 

 

 

 

 

 

 

 
26
 

  

 

 

Six Months Ended June 30, 2016

 

 

 

Canada

 

 

United States

 

 

Total

 

 

 

 

 

 

 

 

Results of Operations by Geographic Area

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

Oil

 

$31,997

 

 

$86,101

 

 

$118,098

 

Gas

 

 

4,484

 

 

 

-

 

 

 

4,484

 

Liquids

 

 

3,911

 

 

 

-

 

 

 

3,911

 

Sulphur

 

 

93

 

 

 

-

 

 

 

93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

40,485

 

 

 

86,101

 

 

 

126,586

 

Production costs

 

 

49,630

 

 

 

49,687

 

 

 

99,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$(9,145)

 

$36,414

 

 

$27,269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil and Gas Production and Sales by Geographic Area

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canada

 

 

United States

 

 

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Production

 

 

 

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

 

957

 

 

 

2,550

 

 

 

3,507

 

Natural Gas - (mcf)

 

 

5,853

 

 

 

-

 

 

 

5,853

 

Natural Gas Liquids - (barrels)

 

 

472

 

 

 

-

 

 

 

472

 

Sulphur - (tonnes)

 

 

9

 

 

 

-

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

 

 

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

 

910

 

 

 

2,550

 

 

 

3,460

 

Natural Gas - (mcf)

 

 

3,784

 

 

 

-

 

 

 

3,784

 

Natural Gas Liquids - (barrels)

 

 

526

 

 

 

-

 

 

 

526

 

Sulphur - (tonnes)

 

 

9

 

 

 

-

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Sales Prices

 

 

 

 

 

 

 

 

 

 

 

 

Oil - (barrels)

 

$35.16

 

 

$33.77

 

 

$34.13

 

Natural Gas - (mcf)

 

$1.18

 

 

$-

 

 

$1.18

 

Natural Gas Liquids - (barrels)

 

$7.44

 

 

$-

 

 

$7.44

 

Sulphur - (tonnes)

 

$-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mcf = thousands of cubic feet

 

 

 

 

 

 

 

 

 

 

 

 

Tonnes = Metric tons

 

 

 

 

 

 

 

 

 

 

 

 

 

 
27
 

   

Petroleum and Natural Gas Exploration and Production Costs

 

The amounts shown as net capitalized costs for petroleum and natural gas rights of $2,918,042 and $818,230 consist of the initial investment to acquire the undivided interest in the Joffre Project, as well as additional licensing costs at that location, as well as the investment made during the first quarter of this year, to acquire the oil and gas properties in Kansas. The Company does not incur any production or exploratory costs as the entire project is operated through a subcontract relationship.

 

Petroleum and Natural Gas Reserves

 

Reserves are estimated remaining quantities of oil and natural gas and related substances, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations – prior to the time at which contracts providing the right to operate expire. The detailed reserve information and production forecasts for the Joffre project in Alberta, Canada were presented in the Company's annual report on Form 10-K for the year ended December 31, 2015, and is incorporated herein.

 

The following information is an estimate of the proved oil reserve, and the associated economic values of those certain properties in Franklin, Linn and Miami counties, Kansas, acquired by the Company in February 2016

 

The following tables summarize projected revenues, expenses and discounted cash flows:

 

Proved, Developed Producing Reserves

 

The Proved, Developed Producing (PDP) reserves were determined by extrapolation of the lease production decline curves. Waterflood reserves are classified as PDP on these leases by virtue of the successful past operations in these, and regional analogous, reservoirs. Developed reserves are those expected to be recovered from existing wells (including reserves behind pipe). Improved recovery reserves are considered developed only after the necessary equipment has been installed, or when the costs to do so are relatively minor. The gross PDP reserves (November 1, 2015) of the subject leases are:

 

 

 

Gross PDP Reserves

 

 

Working Interest PDP Reserves

 

 

Viking PDP Reserves

 

Lease Name

 

Cumulative Production to Date

 

 

Remaining Reserve

 

 

Ultimate Production

 

 

Net Revenue Interest % (Working Interest)

 

 

NRI Remaining Reserve

 

 

Viking % of Working Interest

 

 

Viking Reserve Balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HAHN

 

 

5,092

 

 

 

64,908

 

 

 

70,000

 

 

86.500%

 

 

56,145

 

 

32.299%

 

 

18,134

 

JOHNSTON

 

 

40,738

 

 

 

81,762

 

 

 

122,500

 

 

83.000%

 

 

67,862

 

 

84.041%

 

 

57,032

 

WILSON, EAST

 

 

16,346

 

 

 

153,654

 

 

 

170,000

 

 

83.000%

 

 

127,533

 

 

15.000%

 

 

19,130

 

WILSON, WEST

 

 

7,962

 

 

 

134,438

 

 

 

142,400

 

 

83.000%

 

 

111,584

 

 

55.003%

 

 

61,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70,138

 

 

 

434,762

 

 

 

504,900

 

 

 

 

 

 

363,124

 

 

 

 

 

 

155,671

 

  

 
28
 

 

The following table summarizes PDP projected revenues, expenses and discounted cash flows for the HAHN lease as of November 1, 2015:

 

Projected Revenues and Discounted Cash Flows - Hahn Lease

 

Proved, Developed, Producing Reserves - (PDP)

 

Year

 

Number of Wells

 

 

Volume

(mbbl)

 

 

Price

($/bbl)

 

 

Revenue

(m$)

 

 

Sev + Adv Taxes (m$)

 

 

Net Operating Expenses

(m$)

 

 

Capital Outlay (m$)

 

 

Annual Cash Flow

(m$)

 

 

Cumulative Discounted Cash Flow at 10% (m$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

14

 

 

 

0.184

 

 

 

39.68

 

 

 

7.318

 

 

 

0.073

 

 

 

2.035

 

 

 

-

 

 

 

5.210

 

 

 

5.168

 

2016

 

14

 

 

 

1.450

 

 

 

44.55

 

 

 

64.579

 

 

 

0.646

 

 

 

12.209

 

 

 

-

 

 

 

51.724

 

 

 

53.708

 

2017

 

14

 

 

 

1.475

 

 

 

48.43

 

 

 

71.439

 

 

 

0.714

 

 

 

12.209

 

 

 

-

 

 

 

58.515

 

 

 

103.629

 

2018

 

14

 

 

 

1.367

 

 

 

51.03

 

 

 

69.753

 

 

 

0.698

 

 

 

12.209

 

 

 

-

 

 

 

56.846

 

 

 

147.717

 

2019

 

14

 

 

 

1.261

 

 

 

52.87

 

 

 

66.684

 

 

 

0.667

 

 

 

12.209

 

 

 

-

 

 

 

53.808

 

 

 

185.655

 

2020

 

14

 

 

 

1.164

 

 

 

54.08

 

 

 

62.952

 

 

 

0.630

 

 

 

12.209

 

 

 

-

 

 

 

50.114

 

 

 

217.776

 

2021

 

14

 

 

 

1.074

 

 

 

56.25

 

 

 

60.409

 

 

 

0.604

 

 

 

12.209

 

 

 

-

 

 

 

47.596

 

 

 

245.510

 

2022

 

14

 

 

 

0.991

 

 

 

58.00

 

 

 

57.474

 

 

 

0.575

 

 

 

12.209

 

 

 

-

 

 

 

44.691

 

 

 

269.183

 

2023

 

14

 

 

 

0.915

 

 

 

58.00

 

 

 

53.053

 

 

 

0.531

 

 

 

12.209

 

 

 

-

 

 

 

40.313

 

 

 

288.597

 

2024

 

14

 

 

 

0.844

 

 

 

58.00

 

 

 

48.932

 

 

 

0.489

 

 

 

12.209

 

 

 

-

 

 

 

36.233

 

 

 

304.459

 

2025

 

14

 

 

 

0.779

 

 

 

58.00

 

 

 

45.166

 

 

 

0.452

 

 

 

12.209

 

 

 

-

 

 

 

32.506

 

 

 

317.396

 

2026

 

14

 

 

 

0.719

 

 

 

58.00

 

 

 

41.682

 

 

 

0.417

 

 

 

12.209

 

 

 

-

 

 

 

29.056

 

 

 

327.909

 

2027

 

14

 

 

 

0.663

 

 

 

58.00

 

 

 

38.460

 

 

 

0.385

 

 

 

12.209

 

 

 

-

 

 

 

25.866

 

 

 

336.417

 

2028

 

14

 

 

 

0.611

 

 

 

58.00

 

 

 

35.462

 

 

 

0.355

 

 

 

12.209

 

 

 

-

 

 

 

22.899

 

 

 

343.264

 

2029

 

14

 

 

 

0.565

 

 

 

58.00

 

 

 

32.746

 

 

 

0.328

 

 

 

12.209

 

 

 

-

 

 

 

20.209

 

 

 

348.758

 

2030

 

14

 

 

 

0.521

 

 

 

58.00

 

 

 

30.198

 

 

 

0.302

 

 

 

12.209

 

 

 

-

 

 

 

17.687

 

 

 

353.129

 

2031

 

14

 

 

 

0.481

 

 

 

58.00

 

 

 

27.875

 

 

 

0.279

 

 

 

12.209

 

 

 

-

 

 

 

15.388

 

 

 

356.586

 

2032

 

14

 

 

 

0.444

 

 

 

58.00

 

 

 

25.740

 

 

 

0.257

 

 

 

12.209

 

 

 

-

 

 

 

13.273

 

 

 

359.297

 

2033

 

14

 

 

 

0.409

 

 

 

58.00

 

 

 

23.717

 

 

 

0.237

 

 

 

12.209

 

 

 

-

 

 

 

11.270

 

 

 

361.389

 

2034

 

14

 

 

 

0.378

 

 

 

58.00

 

 

 

21.899

 

 

 

0.219

 

 

 

12.209

 

 

 

-

 

 

 

9.471

 

 

 

362.988

 

Sub-Total

 

 

 

 

 

16.293

 

 

 

54.35

 

 

 

885.538

 

 

 

8.856

 

 

 

234.006

 

 

 

-

 

 

 

642.676

 

 

 

362.988

 

Remaining

 

 

 

 

 

1.841

 

 

 

58.00

 

 

 

106.799

 

 

 

1.068

 

 

 

79.672

 

 

 

-

 

 

 

26.059

 

 

 

366.444

 

Total

 

 

 

 

 

18.134

 

 

 

54.72

 

 

 

992.337

 

 

 

9.924

 

 

 

313.678

 

 

 

-

 

 

 

668.735

 

 

 

366.444

 

 

 
29
 

  

The following table summarizes PDP projected revenues, expenses and discounted cash flows for the JOHNSTON lease as of November 1, 2015:

 

Projected Revenues and Discounted Cash Flows - Johnston Lease

 

Proved, Developed, Producing Reserves - (PDP)

 

Year

 

Number of

Wells

 

 

Volume

(mbbl)

 

 

Price

($/bbl)

 

 

Revenue

(m$)

 

 

Sev + Adv Taxes (m$)

 

 

Net Operating Expenses

(m$)

 

 

Capital Outlay (m$)

 

 

Annual    Cash Flow

(m$)

 

 

Cumulative Discounted Cash Flow at 10% (m$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

29

 

 

 

0.490

 

 

 

39.68

 

 

 

19.442

 

 

 

0.194

 

 

 

10.967

 

 

 

-

 

 

 

8.280

 

 

 

8.214

 

2016

 

 

29

 

 

 

5.085

 

 

 

44.55

 

 

 

226.551

 

 

 

2.266

 

 

 

65.804

 

 

 

-

 

 

 

158.481

 

 

 

156.939

 

2017

 

 

29

 

 

 

6.721

 

 

 

48.43

 

 

 

325.486

 

 

 

3.255

 

 

 

65.804

 

 

 

-

 

 

 

256.427

 

 

 

375.704

 

2018

 

 

29

 

 

 

5.390

 

 

 

51.03

 

 

 

275.072

 

 

 

2.751

 

 

 

65.804

 

 

 

-

 

 

 

206.517

 

 

 

535.871

 

2019

 

 

29

 

 

 

4.200

 

 

 

52.87

 

 

 

222.029

 

 

 

2.220

 

 

 

65.804

 

 

 

-

 

 

 

154.005

 

 

 

644.453

 

2020

 

 

29

 

 

 

3.506

 

 

 

54.08

 

 

 

189.615

 

 

 

1.896

 

 

 

65.804

 

 

 

-

 

 

 

121.915

 

 

 

722.596

 

2021

 

 

29

 

 

 

3.043

 

 

 

56.25

 

 

 

171.176

 

 

 

1.712

 

 

 

65.804

 

 

 

-

 

 

 

103.660

 

 

 

782.998

 

2022

 

 

29

 

 

 

2.709

 

 

 

58.00

 

 

 

157.101

 

 

 

1.571

 

 

 

65.804

 

 

 

-

 

 

 

89.726

 

 

 

830.528

 

2023

 

 

29

 

 

 

2.453

 

 

 

58.00

 

 

 

142.283

 

 

 

1.423

 

 

 

65.804

 

 

 

-

 

 

 

75.056

 

 

 

866.673

 

2024

 

 

29

 

 

 

2.250

 

 

 

58.00

 

 

 

130.487

 

 

 

1.305

 

 

 

65.804

 

 

 

-

 

 

 

63.378

 

 

 

894.419

 

2025

 

 

29

 

 

 

2.085

 

 

 

58.00

 

 

 

120.933

 

 

 

1.209

 

 

 

65.804

 

 

 

-

 

 

 

53.920

 

 

 

915.879

 

2026

 

 

29

 

 

 

1.946

 

 

 

58.00

 

 

 

112.891

 

 

 

1.129

 

 

 

65.804

 

 

 

-

 

 

 

45.958

 

 

 

932.506

 

2027

 

 

29

 

 

 

1.830

 

 

 

58.00

 

 

 

106.115

 

 

 

1.061

 

 

 

65.804

 

 

 

-

 

 

 

39.250

 

 

 

945.416

 

2028

 

 

29

 

 

 

1.728

 

 

 

58.00

 

 

 

100.217

 

 

 

1.002

 

 

 

65.804

 

 

 

-

 

 

 

33.411

 

 

 

955.407

 

2029

 

 

29

 

 

 

1.640

 

 

 

58.00

 

 

 

95.148

 

 

 

0.951

 

 

 

65.804

 

 

 

-

 

 

 

28.392

 

 

 

963.125

 

2030

 

 

29

 

 

 

1.562

 

 

 

58.00

 

 

 

90.615

 

 

 

0.906

 

 

 

65.804

 

 

 

-

 

 

 

23.905

 

 

 

969.032

 

2031

 

 

29

 

 

 

1.493

 

 

 

58.00

 

 

 

86.618

 

 

 

0.866

 

 

 

65.804

 

 

 

-

 

 

 

19.947

 

 

 

973.513

 

2032

 

 

29

 

 

 

1.431

 

 

 

58.00

 

 

 

83.011

 

 

 

0.830

 

 

 

65.804

 

 

 

-

 

 

 

16.376

 

 

 

976.858

 

2033

 

 

29

 

 

 

1.376

 

 

 

58.00

 

 

 

79.794

 

 

 

0.798

 

 

 

65.804

 

 

 

-

 

 

 

13.192

 

 

 

979.307

 

2034

 

 

29

 

 

 

1.324

 

 

 

58.00

 

 

 

76.820

 

 

 

0.768

 

 

 

65.804

 

 

 

-

 

 

 

10.248

 

 

 

981.037

 

Sub-Total

 

 

 

 

 

 

52.263

 

 

 

53.79

 

 

 

2,811.403

 

 

 

28.113

 

 

 

1,261.245

 

 

 

-

 

 

 

1,522.044

 

 

 

981.037

 

Remaining

 

 

 

 

 

 

4.768

 

 

 

58.00

 

 

 

276.523

 

 

 

2.765

 

 

 

257.225

 

 

 

-

 

 

 

16.533

 

 

 

983.392

 

Total

 

 

 

 

 

 

57.031

 

 

 

54.14

 

 

 

3,087.926

 

 

 

30.878

 

 

 

1,518.470

 

 

 

-

 

 

 

1,538.577

 

 

 

983.392

 

 

 
30
 

 

The following table summarizes PDP projected revenues, expenses and discounted cash flows for the WILSON, EAST lease as of November 1, 2015:

 

Projected Revenues and Discounted Cash Flows - Wilson, East Lease

 

Proved, Developed, Producing Reserves - (PDP)

 

Year

 

Number of Wells

 

 

Volume (mbbl)

 

 

Price ($/bbl)

 

 

Revenue (m$)

 

 

Sev + Adv Taxes (m$)

 

 

Net Operating Expenses (m$)

 

 

Capital Outlay (m$)

 

 

Annual Cash Flow (m$)

 

 

Cumulative Discounted Cash Flow at 10% (m$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

43

 

 

 

0.115

 

 

 

39.68

 

 

 

4.553

 

 

 

0.046

 

 

 

2.903

 

 

 

-

 

 

 

1.605

 

 

 

1.592

 

2016

 

 

43

 

 

 

1.075

 

 

 

44.55

 

 

 

47.893

 

 

 

0.479

 

 

 

17.415

 

 

 

-

 

 

 

30.000

 

 

 

29.745

 

2017

 

 

43

 

 

 

1.530

 

 

 

48.43

 

 

 

74.083

 

 

 

0.741

 

 

 

17.415

 

 

 

-

 

 

 

55.928

 

 

 

77.458

 

2018

 

 

43

 

 

 

1.455

 

 

 

51.03

 

 

 

74.241

 

 

 

0.742

 

 

 

17.415

 

 

 

-

 

 

 

56.084

 

 

 

120.955

 

2019

 

 

43

 

 

 

1.347

 

 

 

52.87

 

 

 

71.224

 

 

 

0.712

 

 

 

17.415

 

 

 

-

 

 

 

53.097

 

 

 

158.391

 

2020

 

 

43

 

 

 

1.247

 

 

 

54.08

 

 

 

67.435

 

 

 

0.674

 

 

 

17.415

 

 

 

-

 

 

 

49.346

 

 

 

190.020

 

2021

 

 

43

 

 

 

1.155

 

 

 

56.25

 

 

 

64.943

 

 

 

0.650

 

 

 

17.415

 

 

 

-

 

 

 

46.879

 

 

 

217.336

 

2022

 

 

43

 

 

 

1.069

 

 

 

58.00

 

 

 

61.996

 

 

 

0.620

 

 

 

17.415

 

 

 

-

 

 

 

43.961

 

 

 

240.623

 

2023

 

 

43

 

 

 

0.990

 

 

 

58.00

 

 

 

57.394

 

 

 

0.574

 

 

 

17.415

 

 

 

-

 

 

 

39.405

 

 

 

259.599

 

2024

 

 

43

 

 

 

0.916

 

 

 

58.00

 

 

 

53.131

 

 

 

0.531

 

 

 

17.415

 

 

 

-

 

 

 

35.185

 

 

 

275.003

 

2025

 

 

43

 

 

 

0.848

 

 

 

58.00

 

 

 

49.190

 

 

 

0.492

 

 

 

17.415

 

 

 

-

 

 

 

31.283

 

 

 

287.453

 

2026

 

 

43

 

 

 

0.785

 

 

 

58.00

 

 

 

45.545

 

 

 

0.455

 

 

 

17.415

 

 

 

-

 

 

 

27.674

 

 

 

297.466

 

2027

 

 

43

 

 

 

0.727

 

 

 

58.00

 

 

 

42.160

 

 

 

0.422

 

 

 

17.415

 

 

 

-

 

 

 

24.324

 

 

 

305.466

 

2028

 

 

43

 

 

 

0.673

 

 

 

58.00

 

 

 

39.028

 

 

 

0.390

 

 

 

17.415

 

 

 

-

 

 

 

21.223

 

 

 

311.812

 

2029

 

 

43

 

 

 

0.623

 

 

 

58.00

 

 

 

36.140

 

 

 

0.361

 

 

 

17.415

 

 

 

-

 

 

 

18.363

 

 

 

316.804

 

2030

 

 

43

 

 

 

0.577

 

 

 

58.00

 

 

 

33.452

 

 

 

0.335

 

 

 

14.175

 

 

 

-

 

 

 

18.942

 

 

 

321.485

 

2031

 

 

43

 

 

 

0.534

 

 

 

58.00

 

 

 

30.972

 

 

 

0.310

 

 

 

14.175

 

 

 

-

 

 

 

16.487

 

 

 

325.188

 

2032

 

 

43

 

 

 

0.494

 

 

 

58.00

 

 

 

28.675

 

 

 

0.287

 

 

 

14.175

 

 

 

-

 

 

 

14.213

 

 

 

328.091

 

2033

 

 

43

 

 

 

0.458

 

 

 

58.00

 

 

 

26.544

 

 

 

0.266

 

 

 

14.175

 

 

 

-

 

 

 

12.103

 

 

 

330.338

 

2034

 

 

43

 

 

 

0.424

 

 

 

58.00

 

 

 

24.578

 

 

 

0.246

 

 

 

14.175

 

 

 

-

 

 

 

10.157

 

 

 

332.053

 

Sub-Total

 

 

 

 

 

 

17.040

 

 

 

54.76

 

 

 

933.177

 

 

 

9.332

 

 

 

317.588

 

 

 

-

 

 

 

606.257

 

 

 

332.053

 

Remaining

 

 

 

 

 

 

2.089

 

 

 

58.00

 

 

 

121.182

 

 

 

1.212

 

 

 

92.457

 

 

 

-

 

 

 

27.514

 

 

 

335.712

 

Total

 

 

 

 

 

 

19.130

 

 

 

55.12

 

 

 

1,054.359

 

 

 

10.544

 

 

 

410.044

 

 

 

-

 

 

 

633.771

 

 

 

335.712

 

 

 
31
 

  

The following table summarizes PDP projected revenues, expenses and discounted cash flows for the WILSON, WEST lease as of November 1, 2015:

 

Projected Revenues and Discounted Cash Flows - Wilson, West Lease

 

Proved, Developed, Producing Reserves - (PDP)

 

Year

 

Number of Wells

 

 

Volume

(mbbl)

 

 

Price

($/bbl)

 

 

Revenue

(m$)

 

 

Sev + Adv Taxes (m$)

 

 

Net Operating Expenses

(m$)

 

 

Capital Outlay (m$)

 

 

Annual Cash Flow (m$)

 

 

Cumulative Discounted Cash Flow at 10% (m$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

53

 

 

 

0.372

 

 

 

39.68

 

 

 

14.754

 

 

 

0.147

 

 

 

13.118

 

 

 

-

 

 

 

1.488

 

 

 

1.477

 

2016

 

 

53

 

 

 

4.056

 

 

 

44.55

 

 

 

180.716

 

 

 

1.807

 

 

 

78.709

 

 

 

-

 

 

 

100.199

 

 

 

95.507

 

2017

 

 

53

 

 

 

6.812

 

 

 

48.43

 

 

 

329.884

 

 

 

3.299

 

 

 

78.709

 

 

 

-

 

 

 

247.876

 

 

 

306.976

 

2018

 

 

53

 

 

 

6.494

 

 

 

51.03

 

 

 

331.399

 

 

 

3.314

 

 

 

78.709

 

 

 

-

 

 

 

249.376

 

 

 

500.384

 

2019

 

 

53

 

 

 

5.787

 

 

 

52.87

 

 

 

305.981

 

 

 

3.060

 

 

 

78.709

 

 

 

-

 

 

 

224.212

 

 

 

658.467

 

2020

 

 

53

 

 

 

5.155

 

 

 

54.08

 

 

 

278.776

 

 

 

2.788

 

 

 

78.709

 

 

 

-

 

 

 

197.279

 

 

 

784.916

 

2021

 

 

53

 

 

 

4.592

 

 

 

56.25

 

 

 

258.311

 

 

 

2.583

 

 

 

78.709

 

 

 

-

 

 

 

177.019

 

 

 

888.064

 

2022

 

 

53

 

 

 

4.091

 

 

 

58.00

 

 

 

237.253

 

 

 

2.372

 

 

 

78.709

 

 

 

-

 

 

 

156.172

 

 

 

970.792

 

2023

 

 

53

 

 

 

3.644

 

 

 

58.00

 

 

 

211.349

 

 

 

2.114

 

 

 

78.709

 

 

 

-

 

 

 

130.526

 

 

 

1033.649

 

2024

 

 

53

 

 

 

3.246

 

 

 

58.00

 

 

 

188.252

 

 

 

1.883

 

 

 

78.709

 

 

 

-

 

 

 

107.660

 

 

 

1080.781

 

2025

 

 

53

 

 

 

2.892

 

 

 

58.00

 

 

 

167.707

 

 

 

1.677

 

 

 

78.709

 

 

 

-

 

 

 

87.321

 

 

 

1115.533

 

2026

 

 

53

 

 

 

2.576

 

 

 

58.00

 

 

 

149.396

 

 

 

1.494

 

 

 

78.709

 

 

 

-

 

 

 

69.193

 

 

 

1140.568

 

2027

 

 

53

 

 

 

2.294

 

 

 

58.00

 

 

 

133.062

 

 

 

1.331

 

 

 

78.709

 

 

 

-

 

 

 

53.022

 

 

 

1158.008

 

2028

 

 

53

 

 

 

2.044

 

 

 

58.00

 

 

 

118.547

 

 

 

1.185

 

 

 

78.709

 

 

 

-

 

 

 

38.652

 

 

 

1169.566

 

2029

 

 

53

 

 

 

1.821

 

 

 

58.00

 

 

 

105.595

 

 

 

1.056

 

 

 

78.709

 

 

 

-

 

 

 

25.829

 

 

 

1176.587

 

2030

 

 

53

 

 

 

1.622

 

 

 

58.00

 

 

 

94.078

 

 

 

0.941

 

 

 

62.373

 

 

 

-

 

 

 

30.764

 

 

 

1184.189

 

2031

 

 

53

 

 

 

1.444

 

 

 

58.00

 

 

 

83.774

 

 

 

0.838

 

 

 

62.373

 

 

 

-

 

 

 

20.563

 

 

 

1188.809

 

2032

 

 

53

 

 

 

1.287

 

 

 

58.00

 

 

 

74.650

 

 

 

0.746

 

 

 

62.373

 

 

 

-

 

 

 

11.530

 

 

 

1191.164

 

2033

 

 

53

 

 

 

1.146

 

 

 

58.00

 

 

 

66.483

 

 

 

0.665

 

 

 

62.373

 

 

 

-

 

 

 

3.445

 

 

 

1191.803

 

2034

 

 

53

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1191.803

 

Sub-Total

 

 

 

 

 

 

61.375

 

 

 

54.26

 

 

 

3,329.968

 

 

 

33.299

 

 

 

1,364.542

 

 

 

-

 

 

 

1,932.127

 

 

 

1191.803

 

Remaining

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1191.803

 

Total

 

 

 

 

 

 

61.375

 

 

 

54.26

 

 

 

3,329.968

 

 

 

33.299

 

 

 

1,364.542

 

 

 

-

 

 

 

1,932.127

 

 

 

1191.803

 

  

Proved Undeveloped Reserves

 

The Proved Undeveloped (PUD) reserves were determined by analogy to existing wells on the evaluated leases, or to similar production in the area. Waterflood reserves are included. Undeveloped reserves are those expected to be recovered: (1) from new wells on undrilled acreage, (2) from deepening existing wells to a different reservoir, or (3) where a relatively large expenditure is required to (a) recomplete an existing well or (b) install production or transportation facilities for primary or improved recovery projects. The gross PUD reserves (November 1, 2015) of the subject leases are:

 

 

 

Gross PUD Reserves

 

 

Working Interest PUD Reserves

 

 

Viking PUD Reserves

 

Lease Name

 

Cumulative Production to Date

 

 

Remaining Reserve

 

 

Ultimate Production

 

 

Net Revenue Interest % (Working Interest)

 

 

NRI Remaining Reserve

 

 

Viking % of Working Interest

 

 

Viking Reserve Balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HAHN

 

 

-

 

 

 

25,000

 

 

 

25,000

 

 

86.500%

 

 

21,625

 

 

32.299%

 

 

6,985

 

JOHNSTON

 

 

-

 

 

 

30,000

 

 

 

30,000

 

 

83.000%

 

 

24,900

 

 

84.041%

 

 

20,926

 

WILSON, EAST

 

 

-

 

 

 

30,000

 

 

 

30,000

 

 

83.000%

 

 

24,900

 

 

15.000%

 

 

3,735

 

WILSON, WEST

 

 

-

 

 

 

47,000

 

 

 

47,000

 

 

83.000%

 

 

39,010

 

 

55.003%

 

 

21,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

132,000

 

 

 

132,000

 

 

 

 

 

 

110,435

 

 

 

 

 

 

53,103

 

 

 
32
 

 

The following table summarizes PUD projected revenues, expenses and discounted cash flows for the HAHN lease as of November 1, 2015:

 

Projected Revenues and Discounted Cash Flows - Hahn Lease

 

Proved Undeveloped Reserves - (PUD)

 

Year

 

Number of Wells

 

 

Volume (mbbl)

 

 

Price ($/bbl)

 

 

Revenue (m$)

 

 

Sev + Adv Taxes (m$)

 

 

Net Operating Expenses (m$)

 

 

Capital Outlay (m$)

 

 

Annual Cash Flow (m$)

 

 

Cumulative Discounted Cash Flow at 10% (m$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

5

 

 

 

-

 

 

 

39.68

 

 

 

-

 

 

 

-

 

 

 

0.000

 

 

 

22.609

 

 

 

(22.609)

 

 

(22.573)

2016

 

5

 

 

 

0.509

 

 

 

44.55

 

 

 

22.663

 

 

 

0.227

 

 

 

4.360

 

 

 

22.609

 

 

 

(4.533)

 

 

(27.278)

2017

 

5

 

 

 

0.511

 

 

 

48.43

 

 

 

24.746

 

 

 

0.247

 

 

 

4.360

 

 

 

-

 

 

 

20.139

 

 

 

(10.159)

2018

 

5

 

 

 

0.479

 

 

 

51.03

 

 

 

24.427

 

 

 

0.244

 

 

 

4.360

 

 

 

-

 

 

 

19.822

 

 

 

5.214

 

2019

 

5

 

 

 

0.445

 

 

 

52.87

 

 

 

23.514

 

 

 

0.235

 

 

 

4.360

 

 

 

-

 

 

 

18.919

 

 

 

18.553

 

2020

 

5

 

 

 

0.413

 

 

 

54.08

 

 

 

22.341

 

 

 

0.224

 

 

 

4.360

 

 

 

-

 

 

 

17.757

 

 

 

29.935

 

2021

 

5

 

 

 

0.384

 

 

 

56.25

 

 

 

21.584

 

 

 

0.216

 

 

 

4.360

 

 

 

-

 

 

 

17.008

 

 

 

39.845

 

2022

 

5

 

 

 

0.357

 

 

 

58.00

 

 

 

20.682

 

 

 

0.207

 

 

 

4.360

 

 

 

-

 

 

 

16.115

 

 

 

48.381

 

2023

 

5

 

 

 

0.331

 

 

 

58.00

 

 

 

19.183

 

 

 

0.192

 

 

 

4.360

 

 

 

-

 

 

 

14.631

 

 

 

55.427

 

2024

 

5

 

 

 

0.307

 

 

 

58.00

 

 

 

17.834

 

 

 

0.178

 

 

 

4.360

 

 

 

-

 

 

 

13.296

 

 

 

61.248

 

2025

 

5

 

 

 

0.286

 

 

 

58.00

 

 

 

16.560

 

 

 

0.166

 

 

 

4.360

 

 

 

-

 

 

 

12.034

 

 

 

66.037

 

2026

 

5

 

 

 

0.265

 

 

 

58.00

 

 

 

15.399

 

 

 

0.154

 

 

 

4.360

 

 

 

-

 

 

 

10.884

 

 

 

69.975

 

2027

 

5

 

 

 

0.246

 

 

 

58.00

 

 

 

14.294

 

 

 

0.143

 

 

 

4.360

 

 

 

-

 

 

 

9.790

 

 

 

73.196

 

2028

 

5

 

 

 

0.229

 

 

 

58.00

 

 

 

13.282

 

 

 

0.133

 

 

 

4.360

 

 

 

-

 

 

 

8.789

 

 

 

75.824

 

2029

 

5

 

 

 

0.213

 

 

 

58.00

 

 

 

12.327

 

 

 

0.123

 

 

 

4.360

 

 

 

-

 

 

 

7.843

 

 

 

77.956

 

2030

 

5

 

 

 

0.197

 

 

 

58.00

 

 

 

11.446

 

 

 

0.114

 

 

 

4.360

 

 

 

-

 

 

 

6.971

 

 

 

79.678

 

2031

 

5

 

 

 

0.183

 

 

 

58.00

 

 

 

10.641

 

 

 

0.106

 

 

 

4.360

 

 

 

-

 

 

 

6.174

 

 

 

81.065

 

2032

 

5

 

 

 

0.171

 

 

 

58.00

 

 

 

9.891

 

 

 

0.099

 

 

 

4.360

 

 

 

-

 

 

 

5.432

 

 

 

82.175

 

2033

 

5

 

 

 

0.158

 

 

 

58.00

 

 

 

9.179

 

 

 

0.092

 

 

 

4.360

 

 

 

-

 

 

 

4.727

 

 

 

83.052

 

2034

 

5

 

 

 

0.147

 

 

 

58.00

 

 

 

8.524

 

 

 

0.085

 

 

 

4.360

 

 

 

-

 

 

 

4.078

 

 

 

83.741

 

Sub-Total

 

 

 

 

 

5.830

 

 

 

54.63

 

 

 

318.516

 

 

 

3.185

 

 

 

82.847

 

 

 

45.218

 

 

 

187.266

 

 

 

83.741

 

Remaining

 

 

 

 

 

0.872

 

 

 

58.00

 

 

 

50.580

 

 

 

0.506

 

 

 

79.672

 

 

 

-

 

 

 

(29.597)

 

 

85.546

 

Total

 

 

 

 

 

6.702

 

 

 

55.07

 

 

 

369.096

 

 

 

3.691

 

 

 

162.519

 

 

 

45.218

 

 

 

157.669

 

 

 

85.546

 

 

 
33
 

 

The following table summarizes PUD projected revenues, expenses and discounted cash flows for the JOHNSTON lease as of November 1, 2015:

 

Projected Revenues and Discounted Cash Flows - Johnston Lease

 

Proved, Undeveloped Reserves - (PUD)

 

Year

 

Number of Wells

 

 

Volume

(mbbl)

 

 

Price

($/bbl)

 

 

Revenue

(m$)

 

 

Sev + Adv Taxes (m$)

 

 

Net Operating Expenses (m$)

 

 

Capital Outlay (m$)

 

 

Annual Cash Flow (m$)

 

 

Cumulative Discounted Cash Flow at 10% (m$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

5

 

 

 

-

 

 

 

39.68

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

2016

 

5

 

 

 

0.459

 

 

 

44.55

 

 

 

20.442

 

 

 

0.204

 

 

 

9.455

 

 

 

117.657

 

 

 

(106.873)

 

 

(103.037)

2017

 

5

 

 

 

1.931

 

 

 

48.43

 

 

 

93.531

 

 

 

0.935

 

 

 

11.346

 

 

 

-

 

 

 

81.250

 

 

 

(33.721)

2018

 

5

 

 

 

1.954

 

 

 

51.03

 

 

 

99.710

 

 

 

0.997

 

 

 

11.346

 

 

 

-

 

 

 

87.368

 

 

 

34.039

 

2019

 

5

 

 

 

1.811

 

 

 

52.87

 

 

 

95.752

 

 

 

0.957

 

 

 

11.346

 

 

 

-

 

 

 

83.449

 

 

 

92.876

 

2020

 

5

 

 

 

1.676

 

 

 

54.08

 

 

 

90.626

 

 

 

0.906

 

 

 

11.346

 

 

 

-

 

 

 

78.375

 

 

 

143.112

 

2021

 

5

 

 

 

1.550

 

 

 

56.25

 

 

 

87.172

 

 

 

0.872

 

 

 

11.346

 

 

 

-

 

 

 

74.954

 

 

 

186.787

 

2022

 

5

 

 

 

1.433

 

 

 

58.00

 

 

 

83.108

 

 

 

0.831

 

 

 

11.346

 

 

 

-

 

 

 

70.931

 

 

 

224.361

 

2023

 

5

 

 

 

1.326

 

 

 

58.00

 

 

 

76.918

 

 

 

0.769

 

 

 

11.346

 

 

 

-

 

 

 

64.803

 

 

 

255.568

 

2024

 

5

 

 

 

1.226

 

 

 

58.00

 

 

 

71.117

 

 

 

0.711

 

 

 

11.346

 

 

 

-

 

 

 

59.061

 

 

 

281.424

 

2025

 

5

 

 

 

1.135

 

 

 

58.00

 

 

 

65.804

 

 

 

0.658

 

 

 

11.346

 

 

 

-

 

 

 

53.801

 

 

 

302.836

 

2026

 

5

 

 

 

1.049

 

 

 

58.00

 

 

 

60.832

 

 

 

0.608

 

 

 

11.346

 

 

 

-

 

 

 

48.878

 

 

 

320.521

 

2027

 

5

 

 

 

0.971

 

 

 

58.00

 

 

 

56.299

 

 

 

0.563

 

 

 

11.346

 

 

 

-

 

 

 

44.390

 

 

 

335.121

 

2028

 

5

 

 

 

0.898

 

 

 

58.00

 

 

 

52.058

 

 

 

0.520

 

 

 

11.346

 

 

 

-

 

 

 

40.193

 

 

 

347.139

 

2029

 

5

 

 

 

0.830

 

 

 

58.00

 

 

 

48.159

 

 

 

0.482

 

 

 

11.346

 

 

 

-

 

 

 

36.332

 

 

 

357.015

 

2030

 

5

 

 

 

0.769

 

 

 

58.00

 

 

 

44.601

 

 

 

0.446

 

 

 

11.346

 

 

 

-

 

 

 

32.809

 

 

 

365.123

 

2031

 

5

 

 

 

0.710

 

 

 

58.00

 

 

 

41.188

 

 

 

0.412

 

 

 

11.346

 

 

 

-

 

 

 

29.431

 

 

 

371.734

 

2032

 

5

 

 

 

0.658

 

 

 

58.00

 

 

 

38.166

 

 

 

0.382

 

 

 

11.346

 

 

 

-

 

 

 

26.439

 

 

 

377.134

 

2033

 

5

 

 

 

0.541

 

 

 

58.00

 

 

 

31.391

 

 

 

0.314

 

 

 

10.060

 

 

 

-

 

 

 

21.017

 

 

 

381.057

 

2034

 

5

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Sub-Total

 

 

 

 

 

20.926

 

 

 

55.28

 

 

 

1,156.875

 

 

 

11.567

 

 

 

201.043

 

 

 

117.657

 

 

 

826.608

 

 

 

381.057

 

Remaining

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

381.057

 

Total

 

 

 

 

 

20.926

 

 

 

55.28

 

 

 

1,156.875

 

 

 

11.567

 

 

 

201.043

 

 

 

117.657

 

 

 

826.608

 

 

 

381.057

 

 

 
34
 

 

The following table summarizes PUD projected revenues, expenses and discounted cash flows for the WILSON, EAST lease as of November 1, 2015:

 

Projected Revenues and Discounted Cash Flows - Wilson, East Lease

 

Proved, Undeveloped Reserves - (PUD)

 

 

Year

 

Number of Wells

 

 

Volume

(mbbl)

 

 

Price

($/bbl)

 

 

Revenue

(m$)

 

 

Sev + Adv Taxes (m$)

 

 

Net Operating Expenses (m$)

 

 

Capital Outlay (m$)

 

 

Annual Cash Flow (m$)

 

 

Cumulative Discounted Cash Flow at 10% (m$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

5

 

 

 

-

 

 

 

39.68

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25.200

 

 

 

(25.200)

 

 

(25.160)

2016

 

5

 

 

 

0.102

 

 

 

44.55

 

 

 

4.551

 

 

 

0.045

 

 

 

1.856

 

 

 

25.200

 

 

 

(22.551)

 

 

(46.903)

2017

 

5

 

 

 

0.354

 

 

 

48.43

 

 

 

17.151

 

 

 

0.171

 

 

 

2.025

 

 

 

-

 

 

 

14.955

 

 

 

(34.144)

2018

 

5

 

 

 

0.347

 

 

 

51.03

 

 

 

17.697

 

 

 

0.177

 

 

 

2.025

 

 

 

-

 

 

 

15.495

 

 

 

(22.127)

2019

 

5

 

 

 

0.321

 

 

 

52.87

 

 

 

16.979

 

 

 

0.170

 

 

 

2.025

 

 

 

-

 

 

 

14.784

 

 

 

(11.703)

2020

 

5

 

 

 

0.297

 

 

 

54.08

 

 

 

16.062

 

 

 

0.161

 

 

 

2.025

 

 

 

-

 

 

 

13.876

 

 

 

(2.809)

2021

 

5

 

 

 

0.275

 

 

 

56.25

 

 

 

15.458

 

 

 

0.155

 

 

 

2.025

 

 

 

-

 

 

 

13.278

 

 

 

4.928

 

2022

 

5

 

 

 

0.254

 

 

 

58.00

 

 

 

14.747

 

 

 

0.147

 

 

 

2.025

 

 

 

-

 

 

 

12.574

 

 

 

11.589

 

2023

 

5

 

 

 

0.235

 

 

 

58.00

 

 

 

13.633

 

 

 

0.136

 

 

 

2.025

 

 

 

-

 

 

 

11.472

 

 

 

17.114

 

2024

 

5

 

 

 

0.218

 

 

 

58.00

 

 

 

12.615

 

 

 

0.126

 

 

 

2.025

 

 

 

-

 

 

 

10.464

 

 

 

21.695

 

2025

 

5

 

 

 

0.201

 

 

 

58.00

 

 

 

11.667

 

 

 

0.117

 

 

 

2.025

 

 

 

-

 

 

 

9.525

 

 

 

25.485

 

2026

 

5

 

 

 

0.186

 

 

 

58.00

 

 

 

10.788

 

 

 

0.108

 

 

 

2.025

 

 

 

-

 

 

 

8.655

 

 

 

28.617

 

2027

 

5

 

 

 

0.172

 

 

 

58.00

 

 

 

9.988

 

 

 

0.100

 

 

 

2.025

 

 

 

-

 

 

 

7.863

 

 

 

31.203

 

2028

 

5

 

 

 

0.159

 

 

 

58.00

 

 

 

9.239

 

 

 

0.092

 

 

 

2.025

 

 

 

-

 

 

 

7.122

 

 

 

33.333

 

2029

 

5

 

 

 

0.147

 

 

 

58.00

 

 

 

8.535

 

 

 

0.085

 

 

 

2.025

 

 

 

-

 

 

 

6.424

 

 

 

35.079

 

2030

 

5

 

 

 

0.136

 

 

 

58.00

 

 

 

7.908

 

 

 

0.079

 

 

 

2.025

 

 

 

-

 

 

 

5.804

 

 

 

36.513

 

2031

 

5

 

 

 

0.126

 

 

 

58.00

 

 

 

7.308

 

 

 

0.073

 

 

 

2.025

 

 

 

-

 

 

 

5.210

 

 

 

37.684

 

2032

 

5

 

 

 

0.117

 

 

 

58.00

 

 

 

6.760

 

 

 

0.068

 

 

 

2.025

 

 

 

-

 

 

 

4.667

 

 

 

38.637

 

2033

 

5

 

 

 

0.087

 

 

 

58.00

 

 

 

5.063

 

 

 

0.051

 

 

 

1.627

 

 

 

-

 

 

 

3.386

 

 

 

39.271

 

2034

 

5

 

 

 

-

 

 

 

58.00

 

 

 

-

 

 

 

-

 

 

 

0.000

 

 

 

-

 

 

 

-

 

 

 

-

 

Sub-Total

 

 

 

 

 

3.735

 

 

 

55.20

 

 

 

206.148

 

 

 

2.062

 

 

 

35.883

 

 

 

50.400

 

 

 

117.804

 

 

 

39.271

 

Remaining

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

39.271

 

Total

 

 

 

 

 

3.735

 

 

 

55.20

 

 

 

206.148

 

 

 

2.062

 

 

 

35.883

 

 

 

50.400

 

 

 

117.804

 

 

 

39.271

 

 

 
35
 

 

The following table summarizes PUD projected revenues, expenses and discounted cash flows for the WILSON, WEST lease as of November 1, 2015:

 

Projected Revenues and Discounted Cash Flows - Wilson, West Lease

 

Proved, Undeveloped Reserves - (PUD)

 

Year

 

Number of Wells

 

 

Volume

(mbbl)

 

 

Price

($/bbl)

 

 

Revenue

(m$)

 

 

Sev + Adv Taxes (m$)

 

 

Net Operating Expenses (m$)

 

 

Capital Outlay (m$)

 

 

Annual    Cash Flow (m$)

 

 

Cumulative Discounted Cash Flow at 10% (m$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

14

 

 

 

-

 

 

 

39.68

 

 

 

-

 

 

 

-

 

 

 

0.000

 

 

 

-

 

 

 

-

 

 

 

-

 

2016

 

14

 

 

 

0.661

 

 

 

44.55

 

 

 

29.429

 

 

 

0.294

 

 

 

17.326

 

 

 

213.412

 

 

 

(201.603)

 

 

(199.054)

2017

 

14

 

 

 

2.218

 

 

 

48.43

 

 

 

107.431

 

 

 

1.074

 

 

 

20.791

 

 

 

-

 

 

 

85.566

 

 

 

(126.056)

2018

 

14

 

 

 

2.183

 

 

 

51.03

 

 

 

111.402

 

 

 

1.114

 

 

 

20.791

 

 

 

-

 

 

 

89.497

 

 

 

(56.645)

2019

 

14

 

 

 

1.957

 

 

 

52.87

 

 

 

103.467

 

 

 

1.035

 

 

 

20.791

 

 

 

-

 

 

 

81.641

 

 

 

0.917

 

2020

 

14

 

 

 

1.752

 

 

 

54.08

 

 

 

94.770

 

 

 

0.948

 

 

 

20.791

 

 

 

-

 

 

 

73.031

 

 

 

47.727

 

2021

 

14

 

 

 

1.569

 

 

 

56.25

 

 

 

88.239

 

 

 

0.882

 

 

 

20.791

 

 

 

-

 

 

 

66.565

 

 

 

86.514

 

2022

 

14

 

 

 

1.404

 

 

 

58.00

 

 

 

81.413

 

 

 

0.814

 

 

 

20.791

 

 

 

-

 

 

 

59.808

 

 

 

118.196

 

2023

 

14

 

 

 

1.257

 

 

 

58.00

 

 

 

72.927

 

 

 

0.729

 

 

 

20.791

 

 

 

-

 

 

 

51.407

 

 

 

142.952

 

2024

 

14

 

 

 

1.125

 

 

 

58.00

 

 

 

65.239

 

 

 

0.652

 

 

 

20.791

 

 

 

-

 

 

 

43.796

 

 

 

162.125

 

2025

 

14

 

 

 

1.007

 

 

 

58.00

 

 

 

58.412

 

 

 

0.584

 

 

 

20.791

 

 

 

-

 

 

 

37.037

 

 

 

176.865

 

2026

 

14

 

 

 

0.901

 

 

 

58.00

 

 

 

52.287

 

 

 

0.523

 

 

 

20.791

 

 

 

-

 

 

 

30.973

 

 

 

188.071

 

2027

 

14

 

 

 

0.807

 

 

 

58.00

 

 

 

46.800

 

 

 

0.468

 

 

 

20.791

 

 

 

-

 

 

 

25.541

 

 

 

196.472

 

2028

 

14

 

 

 

0.723

 

 

 

58.00

 

 

 

41.919

 

 

 

0.419

 

 

 

20.791

 

 

 

-

 

 

 

20.709

 

 

 

202.664

 

2029

 

14

 

 

 

0.647

 

 

 

58.00

 

 

 

37.516

 

 

 

0.375

 

 

 

20.791

 

 

 

-

 

 

 

16.350

 

 

 

207.108

 

2030

 

14

 

 

 

0.579

 

 

 

58.00

 

 

 

33.561

 

 

 

0.336

 

 

 

14.851

 

 

 

-

 

 

 

18.374

 

 

 

211.649

 

2031

 

14

 

 

 

0.518

 

 

 

58.00

 

 

 

30.051

 

 

 

0.300

 

 

 

14.851

 

 

 

-

 

 

 

14.900

 

 

 

214.996

 

2032

 

14

 

 

 

0.464

 

 

 

58.00

 

 

 

26.893

 

 

 

0.269

 

 

 

14.851

 

 

 

-

 

 

 

11.773

 

 

 

217.401

 

2033

 

14

 

 

 

0.415

 

 

 

58.00

 

 

 

24.086

 

 

 

0.241

 

 

 

14.851

 

 

 

-

 

 

 

8.994

 

 

 

219.071

 

2034

 

14

 

 

 

0.372

 

 

 

58.00

 

 

 

21.566

 

 

 

0.216

 

 

 

14.851

 

 

 

-

 

 

 

6.499

 

 

 

220.168

 

Sub-Total

 

 

 

 

 

20.558

 

 

 

54.84

 

 

 

1,127.408

 

 

 

11.273

 

 

 

361.865

 

 

 

213.412

 

 

 

540.857

 

 

 

220.168

 

Remaining

 

 

 

 

 

0.898

 

 

 

58.00

 

 

 

52.064

 

 

 

0.520

 

 

 

44.55

 

 

 

-

 

 

 

6.991

 

 

 

221.196

 

Total

 

 

 

 

 

21.456

 

 

 

54.97

 

 

 

1,179.471

 

 

 

11.794

 

 

 

406.417

 

 

 

213.412

 

 

 

547.848

 

 

 

221.198

 

 

 
36
 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis in conjunction with the financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In preparing the management's discussion and analysis, the registrant presumes that you have read or have access to the discussion and analysis for the preceding fiscal year.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 or the Reform Act. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including, but not limited to, any projections of earning, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: our ability to raise capital and the terms thereof; ability to gain an adequate player base to generate the expected revenue; competition with established gaming websites; adverse changes in government regulations or polices; and other factors referenced in this Form 10-Q.

 

The use in this Form 10-Q of such words as "believes", "plans", "anticipates", "expects", "intends", and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements present the Company's estimates and assumptions only as of the date of this Report. Except for the Company's ongoing obligation to disclose material information as required by the federal securities laws, the Company does not intend, and undertakes no obligation, to update any forward-looking statements.

 

Although the Company believes that the expectations reflected in any of the forward-looking statements are reasonable, actual results could differ materially from those projected or assumed or any of the Company's forward-looking statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.

 

PLAN OF OPERATIONS

 

Overview

 

Prior to the first quarter of 2016, the Company's business plan consisted of two strategies: (a) identifying target companies that were undergoing or anticipating periods of rapid growth to provide advisory and consulting services, and (b) identifying investments in oil and gas properties for future exploration and development. In November of 2014, the Company entered into its first contract relative to oil and gas activities involving jointly controlled assets and related liabilities by purchasing an undivided 50% interest in the Joffre project located in Alberta, Canada, as explained in note 4.

 

Commencing with the first quarter of 2016, the Company has determined that its singular business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties. Consistent with its refocused efforts, on February 23, 2016, the Company closed on the acquisition of working interests in four leases with access to the mineral rights (oil and gas) concerning approximately 281 acres of property in Miami and Franklin Counties in eastern Kansas.

 

 
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Going Concern Qualification

 

The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances; however there is no assurance of additional funding being available.

 

RESULTS OF CONTINUING OPERATIONS

 

The following discussion of the financial condition and results of operation of the Company for the three and six months ended June 30, 2016 and 2015, should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company's Form 10-K for the year ended December 31, 2015.

 

Liquidity and Capital Resources

 

As of June 30, 2016 and December 31, 2015, the Company had $18,404 and $30,585 in cash holdings, respectively.

 

Three months ended June 30, 2016, compared to the three months ended June 30, 2015

 

Revenue

 

The Company had gross revenues of $85,864 for the three months ended June 30, 2016, representing its share of revenue from its 50% undivided interest in the Joffre Property as well as the new revenues from the investment in the oil properties in Kansas, as compared to $32,023 for the three months ended June 30, 2015, which only represented revenue from the Joffre Property. This revenue from the Joffre Property comes from the first two oil wells in the project which began producing during April of 2015, and the revenue from the Kansas property comes from four leases.

 

Expenses

 

The Company's operating expenses increased by $342,300 to $552,055 for the three-month period ended June 30, 2016, from $209,755 in the corresponding period in 2015. The increase was mainly due to a large increase in professional fees and the depreciation, depletion and amortization costs associated with ownership of oil and gas properties, as compared to the three months ended June 30, 2015.

 

Other Income and Expense

 

The Company's interest expense increased by $486,790 to $528,573 for the three months ended June 30, 2016, as compared to $41,783 for the three months ended June 30, 2015. This large increase in interest cost is reflective of the increase in debt associated with the Company's growth strategy relative to oil and gas property acquisitions. This expense item is expected to go down as the Company anticipates replacing debt with unfavorable terms. The Company also had a gain on the settlement of debt associated with professional services in the amount of $75,000 during the three months ended June 30, 2016, and a gain on derivatives of $400,867 as compared to a derivative loss of $5,542 for the three months ended June 30, 2015.

 

 
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Net Loss

 

The Company incurred a net comprehensive loss of $359,575 during the three-month period ended June 30, 2016, compared with a net loss of $292,047 for the three-month period ended June 30, 2015. The increase in net loss was mainly due to the items referred to in the analysis of operating expenses and other income.

 

Six months ended June 30, 2016, compared to the six months ended June 30, 2015

 

Revenue

 

The Company had gross revenues of $126,586 for the six months ended June 30, 2016, representing its share of revenue from its 50% undivided interest in the Joffre Property as well as the new revenues from the investment in the oil properties in Kansas, as compared to $32,023 for the six months ended June 30, 2015. This revenue from the Joffre Property comes from the first two oil wells in the project which began producing during April of 2015, which only represented revenue from the Joffre Property. This revenue from the Joffre Property comes from the first two oil wells in the project which began producing during April of 2015.

 

Expenses

 

The Company's operating expenses increased by $589,718 to $949,203 for the six month period ended June 30, 2016, from $359,485 in the corresponding period in 2015. The increase was mainly due to a large increase in professional fees and the depreciation, depletion and amortization costs associated with ownership of oil and gas properties, as compared to the six months ended June 30, 2015.

 

Other Income and Expense

 

The Company's interest expense increased by $648,845 to $709,830 for the six months ended June 30, 2016, as compared to $60,985 for the six months ended June 30, 2015. This large increase in interest cost is reflective of the increase in debt associated with the Company's growth strategy relative to oil and gas property acquisitions. This expense item is expected to go down as the Company anticipates replacing debt with unfavorable terms. The Company also had a gain on the settlement of debt associated with professional services in the amount of $75,000 during the six months ended June 30, 2016, and a loss on derivatives of $126,436 as compared to a derivative loss of $5,542 for the six months ended June 30, 2015.