Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using the declining balance method over the estimated useful life of the asset. Only half of the depreciation rate is taken in the year of acquisition. The following is a summary of the depreciation rates used in computing depreciation expense:
Software
|
- 100%
|
Computer equipment
|
- 55%
|
Portable work camp
|
- 30%
|
Vehicles
|
- 30%
|
Road Mats
|
- 30%
|
Wellhead
|
- 25%
|
Office furniture and equipment
|
- 20%
|
Oilfield Equipment
|
- 20%
|
Tanks
|
- 10%
|
Expenditures for major repairs and renewals that extend the useful life of the asset are capitalized. Minor repair expenditures are charged to expense as incurred. Leasehold improvements are amortized over the greater of five years or the remaining life of the lease agreement.
Long-Lived Assets
The Company reviews for the impairment of long-lived assets annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment is measured as the amount by which the assets’ carrying value exceeds its fair value. No impairments to our long-lived assets were identified or recorded in the six months ended March 31, 2013 or in the fiscal years ended September 30, 2012 and 2011.
Asset Retirement Obligations
The Company accounts for asset retirement obligations by recording the estimated future cost of the Company’s plugging and abandonment obligations. The asset retirement obligation is recorded when there is a legal obligation associated with the retirement of a tangible long-lived asset and the fair value of the liability can reasonably be estimated. Upon initial recognition of an asset retirement obligation, the Company increases the carrying amount of the long-lived asset by the same amount as the liability. Over time, the liabilities are accreted for the change in their present value through charges to oil and gas production and well operations costs. The initial capitalized costs are depleted over the useful lives of the related assets through charges to depreciation, depletion, and amortization. If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded to both the asset retirement obligation and the asset retirement cost.
Revisions in estimated liabilities can result from revisions of estimated inflation rates, escalating retirement costs, and changes in the estimated timing of settling asset retirement obligations. As at March 31, 2013 and September 30, 2012, asset retirement obligations amount to $419,112 and $425,700, respectively. The Company has posted bonds, where required, with the Government of Alberta based on the amount the government estimates the cost of abandonment and reclamation to be.
Foreign Currency Translation
The functional currency of the Canadian subsidiaries is the United States dollar. However, the Canadian subsidiaries transact in Canadian dollars. Consequently, monetary assets and liabilities are remeasured into United States dollars at the exchange rate on the balance sheet date and non-monetary items are remeasured at the rate of exchange in effect when the assets are acquired or obligations incurred. Revenues and expenses are remeasured at the average exchange rate prevailing during the period. Foreign currency transaction gains and losses are included in results of operations.
Accounting Method
The Company recognizes income and expenses based on the accrual method of accounting.
Dividend Policy
The Company has not yet adopted a policy regarding payment of dividends.
Financial, Concentration and Credit Risk
The Company does not have any concentration or related financial credit risk as most of the Company’s funds are maintained in a financial institution which has its deposits fully guaranteed by the Government of Alberta and the accounts receivable are considered to be fully collectable.
Income Taxes
The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.
Due to the uncertainty regarding the Company’s profitability, a valuation allowance has been recorded against the future tax benefits of its losses and no net benefit has been recorded in the consolidated financial statements.
Revenue Recognition
The Company is in the business of exploring for, developing, producing, and selling crude oil and natural gas. Crude oil revenue is recognized when the product is taken from the storage tanks on the lease and delivered to the purchaser. Natural gas revenues are recognized when the product is delivered into a third party pipeline downstream of the lease. Occasionally the Company may sell specific leases, and the gain or loss associated with these transactions will be shown separately from the profit or loss from the operations or sales of oil and gas products.
Advertising and Market Development
The Company expenses advertising and market development costs as incurred.
Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common shares and common equivalent shares outstanding as if shares had been issued on the exercise of the common share rights, unless the exercise becomes antidilutive and then the basic and diluted per share amounts are the same.
Financial Instruments
Financial instruments include cash and cash equivalents, accounts receivable, accounts receivable - related party, long term investments, investment in equity securities, accounts payable and accounts payable - related parties. The fair value of these financial instruments approximates their carrying value because of the short-term maturity of these items unless otherwise noted. The fair value of the investment in equity securities cannot be determined as the market value is not readily obtainable. The equity securities are reported using the cost method.
Environmental Requirements
At the report date, environmental requirements related to the oil and gas properties acquired are unknown and therefore an estimate of any future cost cannot be made.
Share-Based Compensation
The Company accounts for stock options granted to directors, officers, employees and non-employees using the fair value method of accounting. The fair value of stock options for directors, officers and employees are calculated at the date of grant and is expensed over the vesting period of the options on a straight-line basis. For non-employees, the fair value of the options is measured on the earlier of the date at which the counterparty performance is complete or the date at which the performance commitment is reached. The Company uses the Black-Scholes model to calculate the fair value of stock options issued, which requires certain assumptions to be made at the time the options are awarded, including the expected life of the option, the expected number of granted options that will vest and the expected future volatility of the stock. The Company reflects estimates of award forfeitures at the time of grant and revises in subsequent periods, if necessary, when forfeiture rates are expected to change.
Recently Adopted Accounting Standards
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position or statements.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used in preparing these consolidated financial statements.
Significant estimates by management include valuations of oil and gas properties, valuation of accounts receivable, useful lives of long-lived assets, asset retirement obligations, valuation of share-based compensation, and the realizability of future income taxes.
3.
|
Oil and Gas Properties
|
The Company has acquired interests in certain oil sands properties located in North Central Alberta, Canada. The terms include certain commitments related to oil sands properties that require the payments of rents as long as the leases are non-producing. As of March 31, 2013, Northern’s net payments due in Canadian dollars under this commitment are as follows:
2013
|
|
$
|
22,579
|
|
2014
|
|
$
|
45,158
|
|
2015
|
|
$
|
45,158
|
|
2016
|
|
$
|
45,158
|
|
2017
|
|
$
|
45,158
|
|
Subsequent
|
|
$
|
88,883
|
|
The government of Alberta owns this land and the Company has acquired the rights to perform oil and gas activities on these lands. If the Company meets the conditions of the 15-year leases the Company will then be permitted to drill on and produce oil from the land into perpetuity. These conditions give the Company until the expiration of the leases to meet the following requirements on its primary oil sands leases:
a)
|
drill 68 wells throughout the 68 sections; or
|
b)
|
drill 44 wells within the 68 sections and having acquired and processed 2 miles of seismic on each other undrilled section.
|
The Company plans to meet the second of these conditions. As at March 31, 2013 and September 30, 2012, the Company has an interest in ten wells, which can be counted towards these requirements.
The Company has identified two other wells drilled on these leases, which may be included in the satisfaction of this requirement. The Company has also acquired and processed 25 miles of seismic on the leases, which can be counted towards these requirements.
The Company follows the successful efforts method of accounting for costs of oil and gas properties. Under this method, only those exploration and development costs that relate directly to specific oil and gas reserves are capitalized; costs that do not relate directly to specific reserves are charged to expense. Producing, non-producing and unproven properties are assessed annually, or more frequently as economic events indicate, for potential impairment.
This consists of comparing the carrying value of the asset with the asset’s expected future undiscounted cash flows without interest costs. Estimates of expected future cash flows represent management’s best estimate based on reasonable and supportable assumptions. Proven oil and gas properties are reviewed for impairment on a field-by-field basis. No impairment losses were recognized for the period ended March 31, 2013 (September 30, 2012 - $nil).
Capitalized costs of proven oil and gas properties are depleted using the unit-of-production method when the property is placed in production.
Substantially all of the Company’s oil and gas activities are conducted jointly with others. The accounts reflect only the Company’s proportionate interest in such activities.
4.
|
Capitalization of Costs Incurred in Oil and Gas Activities
|
The Company accounts for the cost of exploratory wells and continues to capitalize exploratory well costs after the completion of drilling as long as sufficient progress is being made in assessing the oil sands reserves to justify its completion as a producing well.
For the period ended March 31, 2013, the Company’s management determined that sufficient progress has been made in assessing its oil sands reserves for continued capitalization of exploratory well costs. In relation to this sufficient progress assessment of its oil sands project the Company considered among other criteria; long lead times in getting regulatory approval for oil sands thermal recovery projects, road bans, winter access only properties and governmental and environmental regulations which can and often delay development of oil sands projects. Because of these and other factors, the Company’s oil sands project can take significantly longer to complete than regular conventional drilling programs for lighter oil. To date the Company’s geological, engineering and economic studies continue to lead them to believe that there is continuing progress toward bringing the project to commercial production. Therefore, the Company has continued to capitalize its costs associated with its oil sands project.
For the Company’s exploratory wells, drilling costs are capitalized on the balance sheet under “Oil and Gas Properties” line item, pending a determination of whether potentially economic oil sands reserves have been discovered by the drilling effort to justify completion of the find as a producing well. The Company periodically assesses the exploration and drilling capitalized costs for impairment and once a determination is made that a well is of no potential economic value, the costs related to that well are expensed as dry hole and reported in exploration expense. No impairments to our long-lived assets were identified or recorded in the six months ended March 31, 2013 or in the fiscal years ended September 30, 2012 and 2011.
The following table illustrates capitalized costs relating to oil and gas – producing activities for two periods ended March 31, 2013 and September 30, 2012:
|
|
March 31,
2013
|
|
|
September 30,
2012
|
|
|
|
|
|
|
|
|
Unproved Oil and Gas Properties
|
|
$
|
15,934,918
|
|
|
$
|
13,222,551
|
|
Proved Oil and Gas Properties
|
|
|
–
|
|
|
|
–
|
|
Accumulated Depreciation
|
|
|
(36,893
|
)
|
|
|
(32,033
|
)
|
|
|
|
|
|
|
|
|
|
Net Capitalized Cost
|
|
$
|
15,898,025
|
|
|
$
|
13,190,518
|
|
5.
|
Exploration Activities
|
The following table presents information regarding the Company’s costs incurred in the oil and gas property acquisition, exploration and development activities for the six months ended March 31, 2013 and the fiscal year ended September 30, 2012:
|
|
March 31,
2013
|
|
|
September 30,
2012
|
|
|
|
|
|
|
|
|
Acquisition of Properties:
|
|
|
|
|
|
|
Proved
|
|
$
|
–
|
|
|
$
|
–
|
|
Unproved
|
|
|
2,712,367
|
|
|
|
57,005
|
|
Exploration costs
|
|
|
8,053
|
|
|
|
119,353
|
|
Development costs
|
|
|
–
|
|
|
|
–
|
|
6.
|
Investment in Equity Securities
|
On February 25, 2005, the Company acquired an interest in Signet Energy Inc. (“Signet” formerly Surge Global Energy, Inc.) as a result of a Farmout Agreement. Signet amalgamated with Andora Energy Corporation (“Andora) in 2007.
As of November 19, 2008, the Company converted its Signet shares into 2,241,558 shares of Andora, which represents an equity interest in Andora of approximately 2.24% as of September 30, 2012, which is Andora’s fiscal year end. These shares are carried at a nominal value using the cost method and their value is included under oil and gas properties on the Company’s balance sheet.
7.
|
Property and Equipment
|
|
|
March 31, 2013
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
31,084
|
|
|
$
|
29,908
|
|
|
$
|
1,176
|
|
Office furniture and equipment
|
|
|
33,199
|
|
|
|
23,802
|
|
|
|
9,397
|
|
Software
|
|
|
5,826
|
|
|
|
5,826
|
|
|
|
–
|
|
Leasehold improvements
|
|
|
4,936
|
|
|
|
4,268
|
|
|
|
668
|
|
Portable work camp
|
|
|
170,580
|
|
|
|
128,307
|
|
|
|
42,273
|
|
Vehicles
|
|
|
38,077
|
|
|
|
28,641
|
|
|
|
9,436
|
|
Oilfield equipment
|
|
|
249,045
|
|
|
|
94,608
|
|
|
|
154,437
|
|
Road mats
|
|
|
364,614
|
|
|
|
274,256
|
|
|
|
90,358
|
|
Wellhead
|
|
|
3,254
|
|
|
|
1,386
|
|
|
|
1,868
|
|
Tanks
|
|
|
96,085
|
|
|
|
32,869
|
|
|
|
63,215
|
|
|
|
$
|
996,700
|
|
|
$
|
623,871
|
|
|
$
|
372,828
|
|
|
|
September 30, 2012
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
31,084
|
|
|
$
|
29,312
|
|
|
$
|
1,772
|
|
Office furniture and equipment
|
|
|
33,199
|
|
|
|
21,152
|
|
|
|
12,046
|
|
Software
|
|
|
5,826
|
|
|
|
5,826
|
|
|
|
–
|
|
Leasehold improvements
|
|
|
4,936
|
|
|
|
3,934
|
|
|
|
1,002
|
|
Portable work camp
|
|
|
170,580
|
|
|
|
120,847
|
|
|
|
49,733
|
|
Vehicles
|
|
|
38,077
|
|
|
|
26,976
|
|
|
|
11,101
|
|
Oilfield equipment
|
|
|
154,713
|
|
|
|
82,689
|
|
|
|
72,024
|
|
Road mats
|
|
|
364,614
|
|
|
|
258,311
|
|
|
|
106,303
|
|
Wellhead
|
|
|
3,254
|
|
|
|
1,119
|
|
|
|
2,135
|
|
Tanks
|
|
|
96,085
|
|
|
|
29,541
|
|
|
|
66,544
|
|
|
|
$
|
902,368
|
|
|
$
|
579,707
|
|
|
$
|
322,660
|
|
There was $44,164 of depreciation expense for the period ended March 31, 2013 (September 30, 2012 - $104,033).
Long term investments consist of cash held in trust by the Energy Resources Conservation Board (“ERCB”) which bears interest at a rate of prime minus 0.375% and has no stated date of maturity. These investments are required by the ERCB to ensure there are sufficient future cash flows to meet the expected future asset retirement obligations, and are restricted for this purpose.
9.
|
Significant Transactions With Related Parties
|
Accounts payable – related parties was $439,746 as of March 31, 2013 (September 30, 2012 - $408,277) for fees payable to corporations owned by directors. This amount is unsecured, non-interest bearing, and has no fixed terms of repayment.
As of March 31, 2013, officers, directors, their families, and their controlled entities have acquired 63.92% of the Company’s outstanding common capital stock. This percentage does not include unexercised warrants or stock options.
The Company incurred expenses totaling $165,099 to two related parties for professional fees and consulting services during the period ended March 31, 2013 (September 30, 2012 - $327,459). These amounts are included in the balance of accounts payable – related parties as of March 31, 2013.
10.
|
Asset Retirement Obligations
|
The total future asset retirement obligation is estimated by management based on the Company’s net working interests in all wells and facilities, estimated costs to reclaim and abandon wells and facilities and the estimated timing of the costs to be incurred in future periods. At March 31, 2013, the Company estimates the undiscounted cash flows related to asset retirement obligation to total approximately $642,112 (September 30, 2012 - $664,403). The fair value of the liability at March 31, 2013 is estimated to be $419,112 (September 30, 2012 - $425,700) using a risk free rate of 3.74% and an inflation rate of 2%. The actual costs to settle the obligation are expected to occur in approximately 35 years.
Changes to the asset retirement obligation were as follows:
|
|
March 31,
2013
|
|
|
September 30,
2012
|
|
Balance, beginning of period
|
|
$
|
425,700
|
|
|
$
|
387,368
|
|
Liabilities incurred
|
|
|
–
|
|
|
|
–
|
|
Effect of foreign exchange
|
|
|
(14,424
|
)
|
|
|
22,038
|
|
Disposal
|
|
|
–
|
|
|
|
–
|
|
Accretion expense
|
|
|
7,836
|
|
|
|
16,294
|
|
Balance, end of period
|
|
$
|
419,112
|
|
|
$
|
425,700
|
|
On November 9, 2010, the Company completed two private placements for an aggregate of 29,285,713 units at a price of $0.07 per unit for an aggregate of $2,050,000 (including the deposit received prior to September 30, 2010 of $48,555). Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.105 per common share for a period of three years from the date of closing, provided that if the closing price of the common shares of the Company on the principal market on which the shares trade is equal to or exceeds $1.00 for 30 consecutive trading days, the warrant term shall automatically accelerate to the date which is 30 calendar days following the date that written notice has been given to the warrant holders. The warrants expire on November 9, 2013.
On March 23, 2011, the Board of Directors (the “Board”) approved the issuance of 500,000 restricted common shares valued at $70,000 to be issued to a new director as an incentive to join the Board. Also, on March 23, 2011, the Board approved issuance of 180,000 restricted common shares valued at $25,200 to be issued on April 1, 2011 to a contractor as compensation for services provided to the Company during the period from April 1, 2010 to March 31, 2011. These transactions have been recorded in the Balance Sheets under Shareholders’ Equity at the fair value of the common shares issued.
On August 14, 2011, 12,638,297 warrants previously granted on August 14, 2008 expired unexercised.
On October 31, 2011, 14,500,000 warrants previously granted on October 31, 2008 expired unexercised.
On June 22, 2012, 1,000,000 warrants previously granted on June 22, 2007 expired unexercised.
On July 11, 2012, 38,800 warrants previously granted on July 11, 2007 expired unexercised.
Effective on November 23, 2012, the Company completed a private placement for an aggregate of 42,857,142 units at a price of $0.07 per unit for an aggregate of $3,000,000 (including a deposit received prior to September 30, 2012 of $300,000). Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.105 per common share for a period of three years from the date of closing, provided that if the closing price of the common shares of the Company on the principal market on which the shares trade is equal to or exceeds $1.00 for 30 consecutive trading days, the warrant term shall automatically accelerate to the date which is 30 calendar days following the date that written notice has been given to the warrant holders. The warrants expire on November 23, 2015. The value of the common shares and the warrants totaled $1,985,249 and $1,014,751, respectively.
The following table summarizes the Company’s warrants outstanding as of March 31, 2013:
|
|
Shares Underlying
Warrants Outstanding
|
|
|
Shares Underlying
Warrants Exercisable
|
|
Range of Exercise Price
|
|
Shares Underlying Warrants Outstanding
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price
|
|
|
Shares Underlying Warrants Exercisable
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.105 at March 31, 2013
|
|
|
72,142,855
|
|
|
|
1.82
|
|
|
|
0.105
|
|
|
|
72,142,855
|
|
|
|
0.105
|
|
|
|
|
72,142,855
|
|
|
|
1.82
|
|
|
|
0.105
|
|
|
|
72,142,855
|
|
|
|
0.105
|
|
The following is a summary of warrant activity for the period ended March 31, 2013:
|
|
Number of Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2012
|
|
|
29,285,713
|
|
|
$
|
0.105
|
|
|
$
|
–
|
|
Warrants granted November 23, 2012
|
|
|
42,857,142
|
|
|
|
0.105
|
|
|
|
–
|
|
Balance, March 31, 2013
|
|
|
72,142,855
|
|
|
$
|
0.105
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Warrants, March 31, 2013
|
|
|
72,142,855
|
|
|
$
|
0.105
|
|
|
$
|
–
|
|
There were 72,142,855 warrants outstanding as of March 31, 2013, (September 30, 2012 – 29,285,713), which have a historical fair market value of $1,778,284 (September 30, 2012 - $763,533).
On November 28, 2005, the Board of Deep Well adopted the Deep Well Oil & Gas, Inc. Stock Option Plan (the “Plan’). The Plan was approved by the majority of shareholders at the February 24, 2010 general meeting of shareholders. The Plan, is administered by the Board, permits options to acquire shares of the Company’s common stock (the “Common Shares”) to be granted to directors, senior officers and employees of the Company and its subsidiaries, as well as certain consultants and other persons providing services to the Company or its subsidiaries.
The maximum number of shares, which may be reserved for issuance under the Plan, may not exceed 10% of the Company’s issued and outstanding Common Shares, subject to adjustment as contemplated by the Plan. The aggregate number of Common Shares with respect to which options may be vested to any one person (together with their associates) in any one year, together with all other incentive plans of the Company, may not exceed 500,000 Common Shares per year, and in total may not exceed 2% of the total number of Common Shares outstanding.
On November 28, 2010, all of the stock options previously granted to Dr. Horst A. Schmid, Portwest Investments Ltd., Mr. Curtis James Sparrow, Concorde Consulting, Trebax Projects Ltd., Mr. Cyrus Spaulding, Mr. Donald E.H. Jones and Mr. Moses Ling, expired unexercised. In total 2,727,500 options granted to directors and former directors and their controlled companies expired.
On March 23, 2011, the Board approved to decrease the exercise price of the stock options to purchase 36,000 shares of common stock of Deep Well previously granted to an employee of the Company on September 20, 2007. The exercise price of the stock option is reduced from $0.47 per Common Share to $0.14 per Common Share, effective immediately. All other terms and conditions of the option agreement will remain unchanged. The options expired on September 20, 2012.
On March 23, 2011, the Company granted its directors, Dr. Horst A. Schmid, Mr. Said Arrata, Mr. Satya Das, Mr. David Roff, Mr. Curtis Sparrow and Mr. Malik Youyou, options to purchase 450,000 shares each of common stock at an exercise price of $0.14 per Common Share, 150,000 vesting immediately and the remaining vesting one-third on March 23, 2012, and one-third on March 23, 2013, with a five-year life.
On October 25, 2011, 375,000 stock options previously granted on October 25, 2006 to Mr. David Roff expired unexercised.
On September 20, 2012, 240,000 and 36,000 stock options previously granted on September 20, 2007 to R.N. Dell Energy Ltd. and a certain employee of the Company, respectively, expired unexercised.
For the period ended March 31, 2013, the Company recorded share based compensation expense related to stock options in the amount of $25,952 (September 30, 2012 – $108,664) on the 2,700,000 stock options issued March 23, 2011. No options were exercised during the period ended March 31, 2013, therefore, the intrinsic value of the options exercised during the period ended March 31, 2013 is $nil. As of March 31, 2013, there was no remaining unrecognized compensation cost related to the non-vested portion of these unit option awards. Compensation expense is based upon straight-line depreciation of the grant-date fair value over the vesting period of the underlying unit option.
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Shares Underlying
Options Outstanding
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Shares Underlying
Options Exercisable
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Range of Exercise Prices
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Shares Underlying Options Outstanding
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Weighted Average Remaining Contractual Life
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Weighted Average Exercise Price
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Shares Underlying Options Exercisable
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Weighted Average Exercise Price
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$0.14 at March 31, 2013
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2,700,000
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2.98
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$
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0.14
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2,700,000
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$
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0.14
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2,700,000
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2.98
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$
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0.14
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2,700,000
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$
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0.14
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The aggregate intrinsic value of exercisable options as of March 31, 2013, was $nil (September 30, 2012 - $nil).
The following is a summary of stock option activity as at March 31, 2013:
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Number of Underlying Shares
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Weighted Average Exercise Price
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Weighted Average Fair Market Value
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Balance, September 30, 2012
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2,700,000
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$
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0.14
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$
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0.12
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Balance, March 31, 2013
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2,700,000
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$
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0.14
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$
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0.12
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Exercisable, March 31, 2013
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2,700,000
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$
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0.14
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$
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0.12
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The following table summarizes the activity of the Company’s non-vested stock options as of September 30, 2012 and March 31, 2013:
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Non-Vested Options
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Number of Underlying Shares
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Weighted Average Exercise Price
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Non-vested at September 30, 2012
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900,000
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$
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0.14
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Vested at March 23, 2013
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900,000
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$
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0.14
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Non-vested at March 31, 2013
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-
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Measurement Uncertainty
The Black-Scholes option pricing model (“Black-Scholes”) was developed for use in estimating the fair value of traded “European” options which are liquid and that have no vesting restrictions and are fully transferable. Stock options and the warrants attached to the units issued by the Company are non-transferable and vest over time, and are “American” options. Option pricing models require the input of subjective assumptions including expected share price volatility. The fair value estimate can vary materially as a result of changes in the assumptions. The following assumptions are used in the Black-Scholes option-pricing model:
Expected Term – Expected term of 5 years represents the period that the Company’s stock-based awards are expected to be outstanding.
Expected Volatility – Expected volatilities are based on historical volatility of the Company’s stock, adjusted where determined by management for unusual and non-representative stock price activity not expected to recur. The expected volatility used was 116%.
Expected Dividend – The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company currently pays no dividends and does not expect to pay dividends in the foreseeable future.
Risk-Free Interest rate – The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The risk-free rate used was 2.07%.
13.
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Changes in Non-Cash Working Capital
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Six Months
Ended
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Six Months
Ended
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March 31, 2013
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March 31, 2012
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Accounts receivable
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$
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145,516
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$
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10,108
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Prepaid expenses
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(7,645
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)
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(9,773
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)
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Accounts payable
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54,099
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120,361
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$
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191,970
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$
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120,696
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Compensation to Directors
Since the acquisition of Northern Alberta Oil Ltd., the Company and Northern have entered into the following contracts with the following companies for the services of their officers:
1)
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Portwest Investments Ltd., a company owned 100% by Dr. Horst A. Schmid, for providing services to the Company as Chief Executive Officer and President for Cdn $12,500 per month. As of March 31, 2013, the Company has accrued Cdn $327,958 owing to Portwest Investments Ltd., and has not paid out this accrued portion to Portwest Investments Ltd. since April 2010 for the services of Dr. Schmid as Chief Executive Officer and President of the Company.
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2)
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Concorde Consulting, a company owned 100% by Mr. Curtis J. Sparrow, for providing services as Chief Financial Officer to the Company for Cdn $15,000 per month. As of September 30, 2012 and March 31, 2013 the Company owes Concorde Consulting Cdn $138,725 and Cdn $116,150, respectively.
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Rental Agreement
On November 20, 2007 and December 1, 2008, the Company entered into two office lease agreements commencing December 1, 2007 and January 1, 2009 and expiring on November 30, 2012 and December 31, 2013, respectively. One of the Company’s office lease agreements has since expired and will not be renewed. The annual payments due are as follows:
2013
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$
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21,250
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2014
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$
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10,658
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IGM Resources Corp vs. Deep Well Oil & Gas, Inc., et al
On March 10, 2005, I.G.M. Resources Corp. (“the Plaintiff”) filed against Classic Energy Inc., 979708 Alberta Ltd., Deep Well Oil & Gas, Inc., Nearshore Petroleum Corporation, Mr. Steven P. Gawne, Rebekah Gawne, Gawne Family Trust, 1089144 Alberta Ltd., John F. Brown, Diane Lynn McClaflin, Cassandra Doreen Brown, Elissa Alexandra Brown, Brown Family Trust, Priority Exploration Ltd., Northern Alberta Oil Ltd. and Gordon Skulmoski (“the Defendant”) a Statement of Claim in the Court of Queen's Bench of Alberta Judicial District of Calgary. This suit is a part of a series of lawsuits or actions undertaken by the Plaintiff against some of the other above defendants.
The Plaintiff was and still is a minority shareholder of 979708 Alberta Ltd. ("979708"). 979708 was in the business of discovering, assembling and acquiring oil and gas prospects. In 2002 and 2003, 979708 acquired oil and gas prospects in the Sawn Lake area of Alberta. On or about the 14
th
of July, 2003, all or substantially all the assets of 979708 were sold to Classic Energy Inc. The Plaintiff claims the value of the assets sold was far in excess of the value paid for those assets. On April 23, 2004, Northern purchased Classic Energy Inc.'s assets, some of which are under dispute by the Plaintiff. On June 7, 2005, Deep Well acquired all of the common shares of Northern thereby giving Deep Well an indirect beneficial interest in the assets in which the Plaintiff is claiming an interest.
The Plaintiff seeks an order setting aside the transaction and returning the assets to 979708, compensation in the amount of $15,000,000 Cdn, a declaration of trust declaring that Northern and Deep Well hold all of the assets acquired from 979708 and any property acquired by use of such assets, or confidential information of 979708, in trust for the Plaintiff.
This lawsuit has been stayed pending the outcome of the other litigation by the Plaintiff against some of the above defendants other than Deep Well and Northern. The Company believes the claims are without merit and will vigorously defend against them. As at March 31, 2013, no contingent liability has been recorded, as the Company believes that a successful outcome for the Plaintiff is remote.
Hardie & Kelly vs. Brown et al
On June 2, 2006, Hardie and Kelly (“the Plaintiff”), Trustee of the Estate of John Forbes Brown, filed against John Forbes Brown, a bankrupt, Diane Lynn McClaflin, 1089144 Alberta Ltd., and Deep Well (“the Defendants”) an Amended Statement of Claim in the Court of Queen's Bench of Alberta Judicial District of Calgary. John Forbes Brown was a former officer and then sub-contractor of Deep Well before and during the time he was assigned into bankruptcy on July 12, 2004. The Plaintiff claims, in addition to other issues unrelated to Deep Well, that John Forbes Brown received 4,812,500 Deep Well shares as a result of his employment at Deep Well and that John Forbes Brown improperly assigned these shares to the numbered company as a ruse entered into on the eve of insolvency by John Forbes Brown in order to facilitate the hiding of assets from his creditors and the trustee of his bankruptcy. The Plaintiff further claims that on August 23, 2004, John Forbes Brown advised the Plaintiff that he in fact owned the above shares and did not disclose this ownership in his filed bankruptcy statement of affairs.
The Plaintiff further claims that John Forbes Brown would lodge the said shares with his lawyer until such time as these shares could be transferred to the Plaintiff. The Plaintiff further claims that, unbeknownst to them, John Forbes Brown surreptitiously removed the shares from his lawyer's office and delivered them to Deep Well so that Deep Well could cancel them. The Plaintiff claims that Deep Well conspired with John Forbes Brown to defraud the creditors of John Forbes Brown by taking receipt and cancelling the said shares. The Plaintiff claims that consideration paid by Deep Well for the said shares was invested in the home owned by John Forbes Brown and his wife. The Plaintiff seeks: (1) an accounting of the proceeds and benefits derived by the dealings of the shares; (2) the home owned by John Forbes Brown and his wife, to be held in trust on behalf of the Plaintiff and an accounting of proceeds related to this trust; (3) damages from the Defendants because of their actions; (4) a judgement for $15,612,645 Cdn; (5) an order to sell John Forbes Brown's home; and (6) interest and costs.
Deep Well plans to vigorously defend itself against the Plaintiff's claims. As at March 31, 2013, no contingent liability has been recorded, as the Company believes that a successful outcome for the Plaintiff is remote.
16
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Rental and Other Income
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The Company reversed part of the receivables and bad debts for our joint venture co-owners in the period at an amount of $267,962 (Cdn $265,651) of which $239,459 was related to a purchase agreement wherein the Company acquired an additional 10% working interest in most of the Sawn Lake oil sands properties where the Company already owns working interests, in exchange for $2,412,960 (Cdn $2,400,000), the discontinuance of two lawsuits, and forgiving the amounts owed and any defaults and penalties that the Company had imposed. This amount is included in Rental and Other Income.