The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements
Notes to Consolidated Financial Statements
(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.” On March 17, 2017, the Company changed its name to Viking Energy Group, Inc.
The Company's business plan is to engage 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. 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. On March 8, 2016, the Company incorporated a wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, in Alberta, Canada, to hold its Canadian oil and gas interests. 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. On August 30, 2016, the Company incorporated an additional wholly owned subsidiary, Mid-Con Petroleum, LLC, in the State of Kansas to hold its current acquisitions in the central United States. On October 4, 2016, the Company, through Mid-Con, 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.
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 $5,288,209 and $1,878,146 for the years ended December 31, 2016 and 2015, respectively. The Company has accumulated a stockholders’ deficit of $2,866,174 as of December 31, 2016. The Company has a working capital deficit of $3,563,480. These conditions raise substantial doubt about 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 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 consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for consolidated financial information and with the instructions to Form 10-K as promulgated by the Securities and Exchange Commission (the "SEC"). Accordingly, these consolidated financial statements include all of the disclosures required by generally accepted accounting principles for complete consolidated financial statements.
b) Basis of Consolidation
The financial statements presented herein reflect the consolidated financial results of the Company and its wholly owned subsidiaries, Viking Oil & Gas (Canada) ULC, a Canadian corporation formed on March 8, 2016, to provide a base of operations for properties in Canada, and Mid-Con Petroleum, LLC, formed on August 30, 2016, to provide a base of operations for properties in the Central United States. All significant intercompany transactions and balances have been eliminated upon consolidation.
c) Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. The Company's actual results could vary materially from management's estimates and assumptions. Significant areas requiring the use of management estimates relate to the determination of expected tax rates for future income tax recoveries, stock-based compensation, embedded derivative liabilities, asset retirement obligations and impairment of long-lived assets.
The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks.
Actual results could differ from the estimates and assumptions utilized.
d) Financial Instruments
Accounting Standards Codification, “ASC” Topic 820-10, “Fair Value Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measurement. The carrying amounts reported in the consolidated balance sheets for other receivable – related party, long-term investment, accrued expenses and other current liabilities, accounts payable, derivative liabilities, amount due to directors, and convertible notes 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.
|
Assets and liabilities measured at fair value as of December 31, 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
|
|
$
|
106,930
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
156,978
|
|
|
|
$
|
106,930
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
156,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,075,833
|
|
|
$
|
265,448
|
|
Commodity Derivative
|
|
|
-
|
|
|
|
61,061
|
|
|
|
-
|
|
|
|
(61,061
|
)
|
|
|
$
|
-
|
|
|
$
|
61,061
|
|
|
$
|
1,075,833
|
|
|
$
|
204,387
|
|
Assets and liabilities measured at fair value as of December 31, 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
|
|
$
|
87,156
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,028
|
|
|
|
$
|
87,156
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
19,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
810,647
|
|
|
$
|
266,378
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
810,647
|
|
|
$
|
266,378
|
|
The Company’s long term investment consisted of 3,437,500 common shares of Tanager Energy, Inc., as of December 31, 2015, which is traded on the TSX Venture Exchange (Toronto Stock Exchange). During 2016, the Company disposed of 2,000,000 of these shares in exchange for services, leaving the Company’s investment to consist of 1,437,500 common shares as of December 31, 2016. The change in the fair value of this investment recognized as an unrealized gain in other comprehensive income on the statement of operations and comprehensive loss was $156,978 for the year ended December 31, 2016 and $19,028 for the year ended December 31, 2015.
The Company had commodity financial derivatives in place at December 31, 2016. The Company does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting. Changes in fair value of derivative instruments subsequent to the initial measurement are recorded as change in fair value on derivative liability, in other income (expense). The estimated fair value amounts of the Company’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in the Company classifying such derivatives as Level 2. Although the Company’s commodity derivative instruments are valued using public indices, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange. The change in the fair value of the commodity derivative for the year ended December 31, 2016 consisted of the initial recognition of this liability as a loss in the statement of operations and comprehensive loss in the amount of $61,061.
The Company uses the Black-Scholes model to value its derivative liabilities. This model takes into account inputs such as contract terms, including maturity and market parameters, including assumptions associated with interest rates, volatility and credit worthiness. The embedded derivative liabilities of the Company were $1,075,833 and $810,647 as of December 31, 2016 and 2015 respectively. The change in the fair value of the derivative liabilities for the year ended December 31, 2016 consisted of an increase of $1,216,302 associated with warrants and the conversion features of new convertible debt, a reduction of $685,668 associated with the satisfaction of certain convertible debt and a gain recognized in the statement of operations and comprehensive loss in the amount of $265,448.
e) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. At December 31, 2016 and 2015, the Company does not have any cash deposits in excess of FDIC insured limits.
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 equity based compensation
Prepaid equity-based expenses represent amounts paid in advance through the issuance of restricted shares of stock, for future contractual benefits to be received. These expenses paid in advance are recorded as prepaid equity-based compensation as a component of “Stockholders’ Deficit” and then amortized to the statements of operations and comprehensive loss over the life of the contract using the straight-line method. At December 31, 2016 and 2015, the balances of the prepaid equity-based compensation were comprised of the following:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
In November, 2015, a 1 year consulting agreement with an unrelated party for services related to the petroleum industry in the amount of $165,000.
|
|
$
|
-
|
|
|
$
|
145,562
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
35,068
|
|
|
|
-
|
|
|
|
$
|
35,068
|
|
|
$
|
145,562
|
|
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. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. 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 operations before income taxes and the adjusted carrying amount of the unproved properties is amortized on the unit-of-production method.
Depreciation, depletion and amortization expense utilizing the unit-of-production method for the Company’s oil and gas properties for the years ended December 31, 2016 and 2015 were as follows:
Oil and Gas Properties by Geographical Cost Center
|
|
|
Years ended,
|
|
|
|
December 31,
|
|
Cost Center
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
15,272
|
|
|
$
|
34,881
|
|
United States
|
|
|
83,300
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98,572
|
|
|
$
|
34,881
|
|
i) Limitation on Capitalized Costs
Under the full-cost method of accounting, we are required, at the end of each reporting date, 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. 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; 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.
The Company recognized an impairment loss on oil and gas properties for the years ended December 31, 2016 and 2015 of $1,710,393 and $210,932, respectively.
j) Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation 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.
k) 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 December 31, 2016 and 2015 there were approximately 6,582,259 and 6,059,537 common stock equivalents respectively, that were anti-dilutive and were not included in the calculation.
l) 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.
m) Comprehensive Loss
FASB ASC 220 “Comprehensive Income,” establishes standards for the reporting and presentation of comprehensive income and its components in the consolidated financial statements. For the year ended December 31, 2016 and 2015, comprehensive income was $156,978 and $19,028 respectively, and consisted primarily of unrealized gains on available for sale securities.
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 2007 through 2016. In addition, the Company is subject to state and local income tax examinations for the tax years 2007 through 2016.
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. In accordance with guidance 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 of the grant. 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 pricing 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 year ended December 31, 2016:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Warrants Outstanding – December 31, 2015
|
|
|
-
|
|
|
|
-.
|
|
|
|
-
|
|
|
|
-
|
|
Granted
|
|
|
5,720,834
|
|
|
|
0.19
|
|
|
|
5.0 years
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/expired/cancelled
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Warrants Outstanding – December 31, 2016
|
|
|
5,720,834
|
|
|
$
|
0.19
|
|
|
|
4.34 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Exercisable – December 31, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding Exercisable – December 31, 2016
|
|
|
5,720,834
|
|
|
$
|
0.19
|
|
|
|
4.34 years
|
|
|
$
|
-
|
|
The Company used the Black-Scholes model to value these warrants at $416,315 included as a debt discount and a corresponding component of derivative liabilities, and $330,889 as stock based compensation.
p) Long-term Investment
Management determines the appropriate classification of investment securities at the time of purchase. Securities are classified as 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.
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 and comprehensive loss. 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 December 31, 2016, and 2015, the Company had no trading and held-to-maturity securities.
The Company’s long term investment consisted of 1,437,500 and 3,437,500 common shares of Tanager Energy, Inc., as of December 31, 2016 and 2015 respectively, which is traded on the TSX Venture Exchange (Toronto Stock Exchange), and is considered as “available-for-sale” securities. The change in the fair value of this investment recognized as an unrealized gain in other comprehensive income on the statement of operations and comprehensive loss was $156,978 and $19,028 for the years ended December 31, 2016 and 2015 respectively.
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 was no impairment of long-lived assets excluding oil and gas properties during the years ended December 31, 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. The 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 “CS” herein) is the primary economic environment. The reporting currency of these consolidated financial statements is the U.S. Dollar.
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 into 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 years ended December 31, 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 its convertible notes 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
The Company reviews 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
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties.
The following table describes the changes in the Company’s asset retirement obligations for the years ended December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Asset retirement obligation – beginning
|
|
$
|
416,246
|
|
|
$
|
-
|
|
Oil and gas purchases
|
|
|
393,808
|
|
|
|
406,214
|
|
Accretion expense
|
|
|
22,963
|
|
|
|
10,032
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation - ending
|
|
$
|
833,017
|
|
|
$
|
416,246
|
|
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 subsequent events from December 31, 2016 through the date of filing this Form 10-K to assess the need for potential recognition or disclosure in this report. Based upon this evaluation, management determined that all subsequent events that require recognition in the financial statements have been included. (See Note 8)
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 December 31, 2016, the balance owed by Tanager to the Company is $153,877. The Company has determined to reserve 50% of the balance and has reduced the amount shown as other receivable – related party to $76,939 on the balance sheet.
During the year ended December 31, 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. Any accruals and advances do not bear interest, are unsecured and have no specific terms of repayment. As of December 31, 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 year ended December 31, 2016, the Company’s CEO and Director, James Doris incurred expenses on behalf of, and made advances to the Company in the amount of $221,290 in order to provide the Company with funds to carry on its operations, and the Company made repayments of $68,848. These advances do not bear interest, are unsecured and have no specific terms of repayment. As of December 31, 2016, the amount due for expenses paid on behalf of the Company is $370,937. The Company has not imputed interest as the amount is deemed immaterial. Additionally, Mr. Doris made several loans to the Company totaling $665,536, all accruing interest at 12%, and payable on demand. As of December 31, 2016, the total amount due to Mr. Doris for advances and expenses paid on behalf of the Company and loans is $1,036,473. Accrued interest of $73,800 is included in other current liabilities at December 31, 2016.
Note 4.
Oil and Gas Properties
The following table summarizes the Company’s oil and gas activities by classification for the year ended December 31, 2016:
|
|
December 31,
2015
|
|
|
Adjustments
|
|
|
Impairments
|
|
|
December 31,
2016
|
|
Proved developed producing oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada cost center
|
|
$
|
33,082
|
|
|
$
|
1,651
|
|
|
$
|
-
|
|
|
$
|
34,733
|
|
United States cost center
|
|
|
-
|
|
|
|
2,838,943
|
|
|
|
(1,051,103
|
)
|
|
|
1,787,840
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(2,093
|
)
|
|
|
(55,107
|
)
|
|
|
-
|
|
|
|
(57,200
|
)
|
Proved developed producing oil and gas properties, net
|
|
$
|
30,989
|
|
|
$
|
2,785,487
|
|
|
$
|
(1,051,103
|
)
|
|
$
|
1,765,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped and non-producing oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada cost center
|
|
$
|
518,269
|
|
|
$
|
(1,652
|
)
|
|
$
|
(145,136
|
)
|
|
$
|
371,481
|
|
United States cost center
|
|
|
-
|
|
|
|
1,456,414
|
|
|
|
(539,230
|
)
|
|
|
917,184
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(32,788
|
)
|
|
|
(43,464
|
)
|
|
|
25,076
|
|
|
|
(51,176
|
)
|
Undeveloped and non-producing oil and gas properties, net
|
|
$
|
485,481
|
|
|
$
|
1,411,298
|
|
|
$
|
(659,290
|
)
|
|
$
|
1,237,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas Properties, Net
|
|
$
|
516,470
|
|
|
$
|
2,092,625
|
|
|
$
|
(1,710,393
|
)
|
|
$
|
3,002,862
|
|
The following table summarizes the Company’s oil and gas activities by classification for the year ended December 31, 2015:
|
|
December 31,
2014
|
|
|
Adjustments
|
|
|
Impairments
|
|
|
December 31,
2015
|
|
Proved developed producing oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada cost center
|
|
$
|
21,310
|
|
|
$
|
24,374
|
|
|
$
|
(12,602
|
)
|
|
$
|
33,082
|
|
United States cost center
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accumulated depreciation, depletion and amortization
|
|
|
-
|
|
|
|
(2,093
|
)
|
|
|
-
|
|
|
|
(2,093
|
)
|
Proved developed producing oil and gas properties, net
|
|
$
|
21,310
|
|
|
$
|
22,281
|
|
|
$
|
(12,602
|
)
|
|
$
|
30,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped and non-producing oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada cost center
|
|
$
|
333,858
|
|
|
$
|
381,841
|
|
|
$
|
(197,430
|
)
|
|
$
|
518,269
|
|
United States cost center
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accumulated depreciation, depletion and amortization
|
|
|
-
|
|
|
|
(32,788
|
)
|
|
|
-
|
|
|
|
(32,788
|
)
|
Undeveloped and non-producing oil and gas properties, net
|
|
$
|
333,858
|
|
|
$
|
349,053
|
|
|
$
|
(197,430
|
)
|
|
$
|
485,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas Properties, Net
|
|
$
|
355,168
|
|
|
$
|
371,334
|
|
|
$
|
(210,032
|
))
|
|
$
|
516,470
|
|
On February 23, 2016, with an effective date of February 1, 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.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.
As consideration for this transaction, the Company paid $1,350,000 plus 4,650,000 shares of common stock valued at $.085 per share, or $395,250.
The Company also purchased a 100% working interest (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 $.085 per share or $425,000.
To facilitate these acquisitions, the Company borrowed $1,625,000 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
– 1
st
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, 4,062,500 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.
On October 4, 2016, the Company, through Mid-Con Petroleum, LLC, 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.
As consideration for this transaction, the Company paid $920,857 plus 5,212,021 shares of common stock valued at $625,442.
To facilitate these acquisitions, the Company, through Mid-Con Petroleum, LLC, borrowed $1,800,000 from Crossfirst Bank under a revolving credit agreement, payable at $15,000 per month, and a maturity date of September 30, 2018.
Note 5.
Capital Stock and Additional Paid-in Capital
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”).
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”).
The Company is authorized to issue 100,000,000 shares of common stock, par value $0.001 per share.
On January 12, 2016, the Company issued 300,926 common shares for 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.
On 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 properties made at that time.
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.
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.
On August 18, 2016, the Company authorized the issuance of 156,250 common shares pursuant to an extension agreement on certain convertible notes that had become due.
During September 2016, the Company negotiated the payment of certain convertible notes, and committed to the issuance of 375,000 common shares at the current market value of $52,500 as additional interest.
On September 28, 2016, the Company issued 2,400,000 common shares, at the current market value of $288,000 as part of the consideration for the acquisition of the Oil and Gas Properties acquired on October 4, 2016.
On October 4, 2016, the Company authorized the issuance of 2,752,021 common shares as part of the consideration for the acquisition of the Oil and Gas properties made at that time.
On October 4, 2016, the Company issued 60,000 common shares as part of the consideration for the acquisition of the Oil and Gas properties made at that time.
On October 21, 2016, the Company issued 1,400,000 common shares valued at $252,000 pursuant to an extension agreement on certain convertible notes that had become due.
On October 21, 2016, the Company sold 187,500 common shares, pursuant to a securities purchase agreement, at $0.15 per share.
During November 2016, the Company authorized the issuance of 508,335 common shares as additional discount on debt previously issued, and an amendment extending the due date of the debt.
On December 30, 2016, the Company sold 66,667 common shares pursuant to a securities purchase agreement, at $0.15 per share.
As of December 31, 2016, the Company, pursuant to a securities purchase agreement, sold 1,337,500 shares of its common stock at $0.15 per share.
As of December 31, 2016, the Company authorized the issuance of 315,000 common shares for services.
Note 6. Long Term Debt
Long term debt consisted of the following at December 31, 2016 and 2015:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
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 March 31, 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. Balance net of unamortized discount of $4,772 as of December 31, 2015. As of December 31, 2016, the full amount of the note has been converted to common shares.
|
|
$
|
-
|
|
|
$
|
2,006
|
|
|
|
|
|
|
|
|
|
|
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. Balance net of unamortized discount of $52,500 at December 31, 2015. At December 31, 2016, the note is paid in full.
|
|
|
-
|
|
|
|
10,500
|
|
|
|
|
|
|
|
|
|
|
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. Balance net of unamortized discount of $27,500 at December 31, 2015. At December 31, 2016, the note is paid in full.
|
|
|
-
|
|
|
|
2,500
|
|
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. Balance net of unamortized discount of $43,750 at December 31, 2015. At December 31, 2016, the note is paid in full.
|
|
|
-
|
|
|
|
6,250
|
|
|
|
|
|
|
|
|
|
|
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. Balance net of unamortized discount of $25,208 at December 31, 2015. At December 31, 2016, the note is paid in full.
|
|
|
-
|
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
On February 19, 2016, the Company issued a total of $1,625,000 15% convertible notes with a term expiring August 18, 2016 (the “Maturity Date”). The principal amounts of each note and interest is payable on the maturity date. Placement fees of $145,000 were subtracted from proceeds. The notes are 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.
|
|
|
125,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On 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”) (See Note 8), 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 shown is net of unamortized discount of $8,824 at December 31, 2016.
|
|
|
366,176
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On July 27, 2016, the Company issued a promissory note in the amount of $20,000, bearing interest at 12%, with an initial maturity date of August 27, 2016, and a provision for an extension of six additional terms of 30 days.
|
|
|
20,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, the Company issued a total of $630,000 of 10% Secured promissory notes with a term expiring April 3, 2017 (the “Maturity Date”), and an original issue discount of thirty-seven and one half percent (37.5%). The discount was modified to fifty percent (50%) retroactively with an extension of the maturity to June 2017. Interest is payable on the outstanding principal of these notes at 10% per annum on the Maturity Date. The balance shown is net of unamortized discount of $208,064 at December 31, 2016.
|
|
|
421,936
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On October 4, 2016, the Company issued a non-interest bearing note, payable on demand in the amount of $203,000.
|
|
|
203,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 4, 2016, the Company closed on a revolver loan with Crossfirst Bank in the amount of $1,800,000, payable at $15,000 per month, interest at 10%, with all unpaid principal and accrued interest payable on September 30, 2018. The total facility limit is $3,000,000. The balance shown is net of unamortized discount of $24,167 at December 31, 2016.
|
|
|
1,745,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,881,945
|
|
|
|
23,548
|
|
Less current portion
|
|
|
(1,302,476
|
)
|
|
|
(6,778
|
)
|
|
|
$
|
1,579,469
|
|
|
$
|
16,770
|
|
Note 7.
Commitments and contingencies
From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.
Note 8.
Subsequent Events
The Company has evaluated subsequent events from December 31, 2016 through the date of filing this Form 10-K, and determined there are no other items to disclose other than those disclosed below:
On January 9, 2017, the Company entered into a six-month Consulting agreement to assist the Company in developing and implementing appropriate plans and materials for presenting the Company and its business plans, strategy and personnel to the financial community. The terms of the agreement require the issuance of 3,000,000 common shares, an initial payment of $100,000 upon execution, (which was advanced through amounts due to directors), and $40,000 each month thereafter for the balance of the contract term.
On January 25, 2017, the Company issued a secured promissory note in the amount of $100,000 with a 50% original issue discount, that included a securities purchase agreement for 333,333 common shares.
On February 15, 2017, the Company issued 240,000 common shares pursuant to a one-year contract for Investor Relations and promotion.
On February 16, 2017, the Company issued a secured promissory note in the amount of $200,000 with a 50% original issue discount, that included a securities purchase agreement for 666,666 common shares.
On March 9, 2017, the Company issued 62,500 common shares for services.
During March 2017, the Company raised $355,833 through the issuance of new debt.
During March 2017, the Company satisfied the full amount of $375,000 pertaining to the Secured Subordinated promissory notes that were issued on April 29, 2016 as follows:
·
|
The Company paid $52,500 of principal to three creditors along with interest accrued through the date of payment.
|
|
|
·
|
Through amounts due to directors, an additional $90,000 of principal was paid to one creditor along with interest accrued through the date of payment.
|
|
|
·
|
The Company issued new six-month secured promissory notes in satisfaction of the remaining $232,500 of principal outstanding, and paid the accrued interest through the date of issuance of the new notes.
|
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES – (unaudited)
The following supplemental unaudited information regarding Viking’s oil and gas activities is presented pursuant to the disclosure requirements of ASC 932. Viking’s oil and gas activities are located in the United States and Canada.
Results of Operations
|
|
United States
|
|
|
Canada
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Results of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
254,537
|
|
|
$
|
-
|
|
|
$
|
122,292
|
|
|
$
|
95,924
|
|
Lease operating costs
|
|
|
(161,147
|
)
|
|
|
-
|
|
|
|
(87,147
|
)
|
|
|
(49,965
|
)
|
Depletion, accretion and impairment
|
|
|
(1,678,064
|
)
|
|
|
-
|
|
|
|
(153,864
|
)
|
|
|
(254,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
(1,584,674
|
)
|
|
$
|
-
|
|
|
$
|
(118,719
|
)
|
|
$
|
(208,986
|
)
|
Oil and Gas Production and Sales by geographic area for the years ended December 31, 2016 and 2015:
Reserve Quantity Information
The supplemental unaudited presentation of proved reserve quantities and related standardized measure of discounted future net cash flows provides estimates only and does not purport to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, significant changes to these estimates can be expected as future information becomes available.
Proved reserves are those estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.
Estimated Quantities of Proved Reserves
|
|
United States
|
|
|
Canada
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved Developed, Producing
|
|
|
289,100
|
|
|
|
-
|
|
|
|
12,800
|
|
|
|
386,900
|
|
Proved Developed, Non Producing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Proved Developed
|
|
|
289,100
|
|
|
|
-
|
|
|
|
12,800
|
|
|
|
386,900
|
|
Proved Undeveloped
|
|
|
148,312
|
|
|
|
-
|
|
|
|
136,900
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proved
|
|
|
437,412
|
|
|
|
-
|
|
|
|
149,700
|
|
|
|
386,900
|
|
|
|
United States
|
|
|
Canada
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
-
|
|
|
|
-
|
|
|
|
386,900
|
|
|
|
390,200
|
|
Extensions and discoveries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Revisions of previous estimates
|
|
|
-
|
|
|
|
-
|
|
|
|
(224,927
|
)
|
|
|
|
|
Purchase of minerals in place
|
|
|
443,812
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Production
|
|
|
(6,400
|
)
|
|
|
-
|
|
|
|
(12,273
|
)
|
|
|
(3,300
|
)
|
End of year
|
|
|
437,412
|
|
|
|
-
|
|
|
|
149,700
|
|
|
|
386,900
|
|
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.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves were prepared in accordance with provisions of ASC 932 -
Extractive Activities - Oil and Gas
. Future cash inflows at December 31, 2016 and 2015 were computed by applying the unweighted, arithmetic average of the closing price on the first day of each month for the 12-month period prior to December 31, 2016 and 2015 to estimated future production. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at year-end, based on year-end costs and assuming continuation of existing economic conditions.
Future income tax expenses are calculated by applying appropriate year-end tax rates to future pretax net cash flows relating to proved oil and natural gas reserves, less the tax basis of properties involved. Future income tax expenses give effect to permanent differences, tax credits and loss carry forwards relating to the proved oil and natural gas reserves. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not necessarily result in an estimate of the fair market value of the Company’s oil and natural gas properties.
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the year ended December 31, 2016 and 2015 are as follows:
|
|
United States
|
|
|
Canada
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future cash inflows
|
|
|
15,829,956
|
|
|
|
-
|
|
|
|
3,372,759
|
|
|
|
6,096,432
|
|
Future production costs
|
|
|
(8,229,227
|
)
|
|
|
-
|
|
|
|
(2,666,059
|
)
|
|
|
(5,019,577
|
)
|
Future development costs
|
|
|
(1,546,600
|
)
|
|
|
-
|
|
|
|
(778,569
|
)
|
|
|
(870,645
|
)
|
Future income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows
|
|
|
6,054,129
|
|
|
|
-
|
|
|
|
(71,869
|
)
|
|
|
206,210
|
|
10% annual discount for estimated timing of cash flows
|
|
|
(2,995,514
|
)
|
|
|
-
|
|
|
|
22,583
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of DFNCF
|
|
$
|
3,058,615
|
|
|
$
|
-
|
|
|
$
|
(49,286
|
)
|
|
$
|
206,210
|
|
Changes in Standardized Measure of Discounted Future Net Cash Flows
The changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the years ended December 31, 2016 and 2015 are as follows:
|
|
United States
|
|
|
Canada
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - beginning
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
133,735
|
|
|
$
|
175,671
|
|
Net changes in prices and production costs
|
|
|
-
|
|
|
|
-
|
|
|
|
354,677
|
|
|
|
-
|
|
Net changes in future development costs
|
|
|
-
|
|
|
|
-
|
|
|
|
57,919
|
|
|
|
-
|
|
Sales of oil and gas produced, net
|
|
|
(93,390
|
)
|
|
|
-
|
|
|
|
(35,146
|
)
|
|
|
(45,959
|
)
|
Extensions, discoveries and improved recovery
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchases of reserves
|
|
|
3,058,616
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Sales of reserves
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Revisions of previous quantity estimates
|
|
|
|
|
|
|
-
|
|
|
|
(604,061
|
)
|
|
|
-
|
|
Previously estimated development costs incurred
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net change in income taxes
|
|
|
|
|
|
|
-
|
|
|
|
(4,022
|
)
|
|
|
4,022
|
|
Accretion of discount
|
|
|
|
|
|
|
-
|
|
|
|
6,146
|
|
|
|
6,146
|
|
Other
|
|
|
93,389
|
|
|
|
-
|
|
|
|
41,466
|
|
|
|
(6,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - ending
|
|
$
|
3,058,615
|
|
|
$
|
-
|
|
|
$
|
(49,286
|
)
|
|
$
|
133,735
|
|
In accordance with SEC requirements, the pricing used in the Company’s standardized measure of future net revenues is based on the 12-month un-weighted arithmetic average of the first-day-of-the-month price for the period January through December for each period presented and adjusted by lease for transportation fees and regional price differentials. The use of SEC pricing rules may not be indicative of actual prices realized by the Company in the future.