Quarterly report pursuant to Section 13 or 15(d)

Nature of Business and Going Concern

v3.20.2
Nature of Business and Going Concern
6 Months Ended
Jun. 30, 2020
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 the beginning of 2019 the Company has had the following related activities:

 

 

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On May 1, 2019, the Company’s 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 the Company’s subsidiary, 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.

 

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On February 3, 2020, Elysium Energy, LLC (“Elysium”), a wholly-owned subsidiary of Viking’s majority-owned subsidiary, Elysium Energy Holdings, LLC (“Elysium Holdings”), acquired interests in certain oil and gas properties located in Texas and Louisiana.The assets purchased included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells) and Louisiana (approximately 55 wells), along with associated equipment. On February 4, 2020, Elysium hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021 and 50% of the estimated production for the period between January 2022 to July 2022. Theses hedges have a floor of $45 and a ceiling ranging from $52.70 to $56 for oil, and a floor of $2 and a ceiling of $2.425 for natural gas

      

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. The Company generated net income of $2,576,209 for the six months ended June 30, 2020 as compared to a net loss of $10,639,135 for the six months ended June 30, 2019. As of June 30, 2020, the Company has a working capital deficiency in excess of $62,000,000. The largest components of current liabilities creating this deficiency are (a) notes payable with a face value aggregating approximately $6.5 million as of June 30, 2020, due in August and December of 2020, (b) a revolving credit facility with a balance of $7,090,000 as of June 30, 2020, due in May of 2021, (c) a note payable of approximately $15.5 million as of June 30, 2020, due in June of 2021, (d) a term loan agreement of approximately $31.7 million as of June 30, 2020, and (e) other debtor obligations requiring principal payments of approximately $2 million in 2020.

   

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

 

 

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The acquisition of Petrodome Energy LLC in 2017 and the 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 Ichor Energy Acquisition at the end of 2018 is believed to provide cash flow sufficient to not only satisfy the Company’s debt service associated with this acquisition, but to also fund a work over program to increase this purchased production beyond its current average daily production of 2,000 BOE and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the associated term loan, and distributions to Viking of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates if applicable. On a quarterly basis after appropriate distributions to the Company, any cash in excess of $2,000,000 plus unfunded approved development projects is swept by the term loan lender as an additional principal payment on the debt.

   

 

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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, 2020 is approximately $7,090,000 with a maturity date of May 10, 2021. Additional funds could be made available from this facility for projects reviewed and approved by the lender.

 

 

 

 

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The Elysium Energy Acquisition on February 3, 2020 is believed to provide cash flow sufficient to not only satisfy the Company’s debt service associated with this acquisition, but to also fund a development program to increase this purchased production beyond its current average daily production of 2,700 BOE and provide a quicker principal reduction, resulting in an increased equity position relative to these assets. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the associated term loan, certain oil and gas development projects approved by the lender, and a cost allocation for general and administrative expenses of $150,000 per month. Additionally, to the extent that Elysium has excess cash flow (as specified in the term loan agreement), the Company is required to make mandatory prepayments of the term loan, without penalty or premium, equal to seventy-five percent (75%) of such Excess Cash Flow.

 

 

 

 

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With respect to the approximately $11.1 million at June 30, 2020 in face value of convertible notes due in August of 2020 and as discussed in Note 9, various holders have subsequently (i) exchanged approximately $2.2 million of such notes to for new convertible notes, that were then converted into shares of the Company’s stock, (ii) exchanged approximately $2.4 million of such notes into new convertible notes with a maturity of February 2022, and (iii) extended the due dates of approximately $6.3 million of such notes to December 31, 2020.

 

Additionally, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had, and are expected to continue to have a negative impact on the Company’s financial position and results of operations. Negative impacts include but are not limited to: the Company’s ability to sell our oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty to make required hedge payments, disruption of production as a result of worker illness or mandated production shutdowns, impairment of our oil and gas properties, the Company’s ability to maintain compliance with or renegotiate loan covenants and/or refinance existing indebtedness, and access to new capital and financing.

  

These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to maintain compliance with or renegotiate its loan covenants, 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.