Quarterly report pursuant to Section 13 or 15(d)

Nature of Business and Going Concern

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Nature of Business and Going Concern
6 Months Ended
Jun. 30, 2019
Nature of Business and Going Concern  
Note 1 - Nature of Business and Going Concern

Viking Energy Group, Inc. (Viking or the Company) is engaged in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. Since 2014 the Company has had the following related activities:

 

 

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In November 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. Effective September 30, 2018, the Company negotiated a sale and settlement of this Canadian joint venture interest and a resolution of all intercompany balances associated with it, for proceeds to the Company of $232,545. An asset retirement obligation of $466,031 offset by the net asset retirement cost of $293,296 associated with this investment generated a gain from disposal of these assets of $405,280.

 

 

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In February 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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In October 2016, the Company, through its subsidiary Mid-Con Petroleum, LLC (Mid-Con Petroleum), completed an acquisition whereby the Company (i) increased its working interest in three existing oil and gas leases in Miami and Franklin Counties in Eastern Kansas, and (ii) acquired a working interest in four new oil and gas leases in the same region, comprising approximately 660 acres of property.

 

 

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On September 11, 2017, the Company through its subsidiary Mid-Con Drilling, LLC (Mid-Con Drilling), completed an acquisition of a 90% working interest in four new oil and gas leases in Anderson County in Eastern Kansas, comprising approximately 980 acres of property.

 

 

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On October 2, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective October 1, 2017, of a 100% working interest in six new oil and gas leases in Miami and Franklin Counties in Eastern Kansas.

 

 

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On October 4, 2017, the Company, through Mid-Con Drilling, closed on an acquisition of an 80% working interest in six new oil and gas leases in Riley, Geary and Wabaunsee Counties in Kansas.

 

 

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On December 22, 2017, the Company completed an acquisition of 100% of the membership interests of Petrodome Energy, LLC, a privately-owned company, with working interests in multiple oil and gas fields across Texas, Louisiana and Mississippi, comprising approximately 11,700 acres.

 

 

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On December 29, 2017, the Company through its subsidiary Mid-Con Development, LLC (Mid-Con Development), completed an acquisition of working interests in approximately 41 oil leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres.

 

 

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On January 12, 2018, the Company, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas.

 

 

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Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas.

 

 

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On December 28, 2018, the Company, through its subsidiary Ichor Energy, LLC (Ichor Energy) completed an acquisition (the Ichor Energy Acquisition) of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells and 31 salt water disposal wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet.

 

 

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On May 1, 2019, the Companys subsidiary, Mid-Con Development, LLC sold all of its interests in the oil and gas assets Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres.

 

 

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On May 10, 2019, Petrodome Louisiana Pipeline LLC (Petrodome LA), a subsidiary of Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.

 

These accompanying 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. Although the Company had a net income of $1,292,346 for the three months ended June 30, 2019, the Company had a net loss of $10,639,135 for the six months ended June 30, 2019. Furthermore, as of June 30, 2019, the Company has a working capital deficiency in excess of $45,000,000. The largest components of current liabilities creating this deficiency are (a) notes payable with a face value aggregating approximately $15,000,000 due in August of 2019 and (b) a promissory note payable to the seller of the certain oil and gas interests purchased on December 28, 2018 in the amount of $23,777,948 with all principal and accrued interest due on the earlier of (i) the date the Company or one of its affiliates completes an acquisition with one or more of the Sellers for a purchase price equal to or greater than $50,000,000 or (ii) January 31, 2020.

 

Management has evaluated these conditions and has developed a plan which, in part, address these obligations as follows:

 

 

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The terms of the $15 million notes due in August 2019 allow for 50% of the principal to be converted into shares of the Companys common stock at $0.20 per share, and contain a provision whereby the Company has the right to extend the Maturity Date for one additional year to August of 2020. Consideration for the one-year extension is payment of the accrued interest, an increase in the interest rate to 12% for the extension period and the issuance of a warrant to purchase an additional 115,000 common shares per $100,000 of outstanding principal of each note on a pro rata basis. The net effect allows the Company to pay $1,500,000 in accrued interest and delay the payment of $15,000,000 in principal for one year.

 

 

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The acquisition of oil and gas assets in Texas and Louisiana (the Ichor Energy Acquisition) at the end of 2018 is believed to provide cash flow sufficient to not only satisfy the Companys debt service associated with this acquisition, but to also fund a $12,000,000 development program to increase this purchased production beyond its current average daily production of 2,300 BOE and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. The acquisition of Petrodome in 2017 and the high level of oil and gas expertise retained by Petrodome at the end of 2017 provided an internal lease operating company to efficiently evaluate development opportunities.

 

 

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The Company has a revolving credit facility with CrossFirst Bank, which was approved for $30,000,000. The balance outstanding at June 30, 2019 is approximately $10,100,000. On May 10, 2019, the Company entered into an amendment to this revolving credit facility to extend the final maturity date from June 30, 2020 to May 10, 2021, which provides the Company with an additional year to meet the cash demands associated with maturity. Additional funds could be made available to the Company for projects reviewed and approved by the lender.

 

These conditions raise substantial doubt regarding the Companys ability to continue as a going concern. The Companys ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due. Management believes the Company will be able to continue to develop new opportunities, and will be able to obtain additional funds through debt and / or equity financings to facilitate its development strategy; 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.