[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X]
No
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act
[ ] Yes [X]
No
Indicate by check mark whether the registrant (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files.
[ ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
The aggregate market value of the registrant’s stock held by
non-affiliates of the registrant as of June 30, 2013, computed by reference to
the price at which such stock was last sold on the OTC Bulletin Board ($.11) on
that date, was approximately $1,209,238. For purposes of this computation, all
officers, directors and 10% beneficial owners of the registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
officers, directors or 10% beneficial owners are, in fact, affiliates of the
registrant.
The registrant had 36,579,877 shares of common stock
outstanding as of March 31, 2014.
Certain statements in this Annual Report on Form 10-K
constitute “forward-looking statements” within the meaning of applicable U.S.
securities legislation. Additionally, forward-looking statements may be made
orally or in press releases, conferences, reports, on our website or otherwise,
in the future, by us or on our behalf. Such statements are generally
identifiable by the terminology used such as “plans,” “expects,” “estimates,”
“budgets,” “intends,” “anticipates,” “believes,” “projects,” “indicates,”
“targets,” “objective,” “could,” “should,” “may” or other similar words.
By their very nature, forward-looking statements require us to
make assumptions that may not materialize or that may not be accurate.
Forward-looking statements are subject to known and unknown risks and
uncertainties and other factors that may cause actual results, levels of
activity and achievements to differ materially from those expressed or implied
by such statements, including the factors discussed under Item 1A. Risk Factors
in this Annual Report on Form 10-K. Such factors include, but are not limited
to, the following: fluctuations in and volatility of the market prices for oil
and natural gas products; the ability to produce and transport oil and natural
gas; the results of exploration and development drilling and related activities;
global economic conditions, particularly in the countries in which we carry on
business, especially economic slowdowns; actions by governmental authorities
including increases in taxes, legislative and regulatory initiatives related to
fracture stimulation activities, changes in environmental and other regulations,
and renegotiations of contracts; political uncertainty, including actions by
insurgent groups or other conflicts; the negotiation and closing of material
contracts; future capital requirements and the availability of financing;
estimates and economic assumptions used in connection with our acquisitions;
risks associated with drilling, operating and decommissioning wells; actions of
third-party co-owners of interests in properties in which we also own an
interest; our ability to effectively integrate companies and properties that we
acquire; our limited operating history; our history of operating losses; our
lack of insurance coverage; and the other factors discussed in other documents
that we file with or furnish to the U.S. Securities and Exchange Commission (the
“SEC” or the “Commission”). The impact of any one factor on a particular
forward-looking statement is not determinable with certainty as such factors are
interdependent upon other factors and our course of action would depend upon our
assessment of the future, considering all information then available. In that
regard, any statements as to: future oil or natural gas production levels;
capital expenditures; the allocation of capital expenditures to exploration and
development activities; sources of funding for our capital expenditure programs;
drilling of new wells; demand for oil and natural gas products; expenditures and
allowances relating to environmental matters; dates by which certain areas will
be developed or will come on-stream; expected finding and development costs;
future production rates; ultimate recoverability of reserves, including the
ability to convert probable and possible reserves to proved reserves; dates by
which transactions are expected to close; future cash flows, uses of cash flows,
collectability of receivables and availability of trade credit; expected
operating costs; changes in any of the foregoing and other statements using
forward-looking terminology are forward-looking statements, and there can be no
assurance that the expectations conveyed by such forward-looking statements
will, in fact, be realized.
Although we believe that the expectations conveyed by the
forward-looking statements are reasonable based on information available to us
on the date such forward-looking statements were made, no assurances can be
given as to future results, levels of activity, achievements or financial
condition.
Readers should not place undue reliance on any forward-looking
statement and should recognize that the statements are predictions of future
results, which may not occur as anticipated. Actual results could differ
materially from those anticipated in the forward-looking statements and from
historical results, due to the risks and uncertainties described above, as well
as others not now anticipated. The foregoing statements are not exclusive and
further information concerning us, including factors that potentially could
materially affect our financial results, may emerge from time to time. We do not
intend to update forward-looking statements to reflect actual results or changes
in factors or assumptions affecting such forward-looking statements.
Statements contained in this Annual Report as to the contents
of any contract, agreement or other document referred to include those terms of
such documents that we believe are material. Whenever a reference is made in
this annual report to any contract or other document of ours, you should refer
to the exhibits that are a part of the annual report for a copy of the contract
or document.
You may read and copy all or any portion of the Annual Report
or any other information that we file at the SEC’s public reference room at 100
F Street, NE, Washington, DC 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
room. Our SEC filings, including the annual report, are also available to you on
the SEC’s website at
www.sec.gov
.
PART I
Name and Organization
We were incorporated under the laws of the State of Nevada on
August 27, 2004 under the name ST Online Corp. and in 2007, changed our name to
Park Place Energy Corp. During the year, we disposed of our 100% interest in two
subsidiary corporations, Park Place Energy International Inc., a private company
incorporated under the laws of the Province of British Columbia, Canada, and
Park Place Energy (Canada) Inc., a corporation incorporated under the laws of
British Columbia. As a result, we have only one subsidiary at this time, BG
Explorations EOOD, a company incorporated under the laws of Bulgaria, which is
wholly-owned by the Company.
General
Park Place Energy Corp. is an energy company engaged in
exploration for oil and natural gas, primarily in Bulgaria at present.
Throughout this Annual Report on Form 10-K, the terms "Park
Place" "we" "us," "the Company", "our" and "our company" refer to Park Place
Energy Corp. and its subsidiaries.
Today, the operations of our company and its subsidiaries
concentrate on natural gas exploration in the Dobrich region of northeast
Bulgaria. Our goal is to become a producer of natural gas in Bulgaria.
We recently moved our head offices to Texas from Calgary,
Alberta, Canada, and established a registered office in Bulgaria and satellite
offices in British Columbia, Canada.
Previously, we had oil and gas properties in the Canadian
provinces of Saskatchewan, Alberta and British Columbia. Our primary oil and gas
exploration permit is located in the Dobrudja Basin, northeast Bulgaria, which
was awarded to the Company in October 2010. The award of the exploration permit
did not become effective until mid-2013, due to a dispute regarding the tender
process that was resolved in our favor. The term of the initial period of the
exploration permit is five years. This five-year period will commence once the
Bulgarian regulatory authorities approve the Park Place work programs for the
permit area. The initial term of the exploration permit may be extended up to an
additional 5 years at our election so long as we satisfy our minimum work
commitments. Upon declaration of a commercial discovery, a portion of the
exploration permit may be converted into an exploitation concession, which may
have a duration of up to 35 years at our election so long as we satisfy our
minimum work commitments.
2
Our Website
Our website can be found at www.parkplaceenergy.com. Our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and amendments to those reports filed with or furnished to the U.S.
Securities and Exchange Commission ("SEC"), pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 ("Exchange Act"), can be accessed free of
charge by linking directly from our website under the "Investor Relations - SEC
Filings" caption to the SEC's Edgar Database.
Bulgaria License
In 2010, we revamped our business strategy to focus on
obtaining gas properties in Europe. We were attracted to the high price of
natural gas and shortage of supply on the European continent. We also saw the
possibility of prolonged depressed natural gas prices in North America.
In October of 2010, we were awarded an exploration permit for
the “Vranino 1-11 Block” located in Dobrudja Basin, Bulgaria, by the Bulgarian
Counsel of Ministers. The award was based on the Company’s commitment to perform
certain minimum work commitments as follows:
-
Testing of an existing well;
-
Acquiring 2-D and 3-D seismic; and
-
Drilling 5 additional test wells to approximately 2,000 meters (or the
equivalent of 10,000 meters of new wellbore).
The costs of the exploration plan will vary depending on a
variety of factors, including, inter alia, the market price and availability of
services in the area, taxes, and transportation costs relating to delivering
equipment to the area. We are considering the drilling of horizontal wells as a
completion technique.
We are engaged in identifying the availability of drilling and
other oilfield services in the vicinity of the permit area. We have located
several suitable service providers for drilling and other services which we
intend to engage at the appropriate time. Local companies in Bulgaria will be
used to provide services to the extent feasible. However, the Bulgarian energy
sector is relatively undeveloped; accordingly, the availability of local
services specialized to meet our requirements may be limited. Park Place has
determined that such expertise, services or equipment may be available in
Romania, Turkey or other countries in the vicinity.
On April 1, 2014, we signed a formal license agreement,
entitled an Agreement for Crude Oil and Natural Gas Prospecting and Exploration
in Block 1-11 Vranino, situated in Dobrich District with the Ministry of Economy
and Energy of Bulgaria.
2013 Events
During the year, we resolved the permit dispute that had
previously prevented our exploration activities from commencing. In July 2013,
the legal challenge to the award of the permit was resolved in our favor.
During the year, we primarily engaged in the purchase and
collection of data regarding the Bulgarian license block. We commissioned and
purchased a geological project from a supplier, who had performed extensive work
on the Dobrudja Basin. We additionally commenced efforts to accumulate
historical studies, data, reports and the like in regards to the geological
characteristics of the permit area. We have accumulated a solid body of data
that will assist us in making the exploration project successful.
3
We have engaged key consultants in Bulgaria who will assist us
to carry out our exploration program. We established a registered office in
Bulgaria in the office of one of our key consultants to keep costs down and
facilitate our project.
We hired experienced key management personnel, including a new
President and CEO and a new Vice President of Exploration, each whom have
experience working in the regional area and filled out our corporate staff with
the appointment of a corporate secretary and a treasurer.
We held an Annual Shareholders Meeting in October of 2013, in
which three new directors were elected, bringing the total number of directors
to four. We also adopted new bylaws and a new stock based incentive plan to
enable us to attract and retain quality personnel.
We have kept abreast of general economic, political, and
regulatory issues that impact our project in Bulgaria. During the year, our
focus was in obtaining and securing existing data on the permit area. While we
will continue to refine our plans, using the large amount of existing data we
have collected and analyzed, we have developed preliminary plans for exploration
of coal gas deposits on the Vranino 1-11 Block.
Patents and Trademarks
We do not own, either legally or beneficially, any patent or
trademark.
Research and Development Expenditures
We have not incurred any research or development expenditures
since our incorporation.
Government Regulation
Our current or future operations, including exploration and
development activities on our properties, require permits from various
governmental authorities, and such operations are and will be governed by laws
and regulations of the jurisdiction in which we are conducting business, which
at the present time is Bulgaria. These laws and regulations concern exploration,
development, production, exports, taxes, labor laws and standards, occupational
health, waste disposal, toxic substances, land use, environmental protection and
other matters. Compliance with these requirements may prove to be difficult and
expensive. Due to our international operations, we are subject to the following
issues and uncertainties that can affect our operations adversely:
-
the risk of expropriation, nationalization, war, revolution, political
instability, border disputes, renegotiation or modification of existing
contracts, and import, export and transportation regulations and tariffs;
-
laws of foreign governments affecting our ability to fracture stimulate
oil or natural gas wells, such as the legislation enacted in Bulgaria in
January 2012, discussed in greater detail below;
-
the risk of not being able to procure residency and work permits for our
expatriate personnel;
-
taxation policies, including royalty and tax increases and retroactive tax
claims;
-
exchange controls, currency fluctuations and other uncertainties arising
out of foreign government sovereignty over international operations;
-
laws and policies of the United States affecting foreign trade, taxation
and investment;
-
the possibility of being subjected to the exclusive jurisdiction of
foreign courts in connection with legal disputes and the possible inability to subject
foreign persons to the jurisdiction of courts in the United States; and
4
-
the possibility of restrictions on repatriation of earnings or capital
from foreign countries.
Permits and Licenses
. In
order to carry out exploration and development of oil and natural gas interests
or to place these into commercial production, we may require certain licenses
and permits from various governmental authorities. There can be no guarantee
that we will be able to obtain all necessary licenses and permits that may be
required. In addition, such licenses and permits are subject to change and there
can be no assurances that any application to renew any existing licenses or
permits will be approved.
Repatriation of Earnings
.
Currently, there are no restrictions on the repatriation of earnings or capital
to foreign entities from Bulgaria. However, there can be no assurance that any
such restrictions on repatriation of earnings or capital from the aforementioned
countries or any other country where we may invest will not be imposed in the
future.
Environmental
. The oil and
natural gas industry is subject to extensive environmental regulations in
Bulgaria. Environmental regulations establish standards respecting health,
safety and environmental matters and place restrictions and prohibitions on
emissions of various substances produced concurrently with oil and natural gas.
The regulatory requirements cover the handling and disposal of drilling and
production waste products and waste created by water and air pollution control
procedures. These regulations may have an impact on the selection of drilling
locations and facilities, potentially resulting in increased capital
expenditures. In addition, environmental legislation may require those wells and
production facilities to be abandoned and sites reclaimed to the satisfaction of
local authorities. Such regulation has increased the cost of planning,
designing, drilling, operating and, in some instances, abandoning wells. We are
committed to complying with environmental and operation legislation wherever we
operate.
There has been a recent surge in
interest among the media, government regulators and private citizens concerning
the possible negative environmental and geological effects of fracture
stimulation. Some have alleged that fracture stimulation results in the
contamination of aquifers and may even contribute to seismic activity. In
January 2012, the government of Bulgaria enacted legislation that banned the
fracture stimulation of oil and natural gas wells in the Republic of Bulgaria
and imposed large monetary penalties on companies that violate that ban. Such
legislation or regulations could impact our ability to drill and complete wells,
and could increase the cost of planning, designing, drilling, completing and
operating wells. We are committed to complying with legislation and regulations
involving fracture stimulation wherever we operate.
Such laws and regulations not
only expose us to liability for our own negligence, but may also expose us to
liability for the conduct of others or for our actions that were in compliance
with all applicable laws at the time those actions were taken. We may incur
significant costs as a result of environmental accidents, such as oil spills,
natural gas leaks, ruptures, or discharges of hazardous materials into the
environment, including clean-up costs and fines or penalties. Additionally, we
may incur significant costs in order to comply with environmental laws and
regulations and may be forced to pay fines or penalties if we do not comply.
Competition
We operate in Bulgaria, where currently one company, Gazprom,
supplies Bulgaria with virtually all gas being marketed and consumed in Bulgaria
through a pipeline that runs through Ukraine from Russia. On a regional level,
we compete with other oil and gas exploration companies and independent
producers for license blocks and capital, which are actively seeking oil and gas
properties throughout the world.
The principal area of competition is encountered in the
financial ability of our Company to acquire acreage positions and drill wells to
explore for oil and gas, then, if warranted, install production equipment.
Competition for the acquisition of oil and gas license areas is high in
Europe.
5
Therefore, we may or may not be successful in acquiring
additional blocks in the face of this competition. Presently, we are not seeking
additional license blocks.
From a general standpoint, we operate in the highly competitive
areas of oil and natural gas exploration, development, production and
acquisition with a substantial number of other companies, including U.S.-based
and international companies doing business in each of the countries in which we
operate. We face intense competition from independent, technology-driven
companies as well as from both major and other independent oil and natural gas
companies in each of the following areas:
-
seeking oil and natural gas exploration licenses and production licenses
and leases;
-
acquiring desirable producing properties or new leases for future
exploration;
-
marketing oil and natural gas production;
-
integrating new technologies; and
-
contracting for drilling services and equipment and securing the expertise
necessary to develop and operate properties.
Many of our competitors have substantially greater financial,
managerial, technological and other resources than we do. To the extent
competitors are able to pay more for properties than we are paying, we will be
at a competitive disadvantage. Further, many of our competitors enjoy
technological advantages over us and may be able to implement new technologies
more rapidly than we can. Our ability to explore for and produce oil and natural
gas prospects and to acquire additional properties in the future will depend
upon our ability to successfully conduct operations, implement advanced
technologies, evaluate and select suitable properties and consummate
transactions in this highly competitive environment.
Employees and Directors
As of December 31, 2013, the Company has one employee, which is
the Company’s chief financial officer; all of the other executive officers of
Company work on a consulting basis. As of December 31, 2013, our business is
generally conducted through our officers and directors and also through
consultants of the company. The following is a description of our officers’ and
directors’ professional experience in Oil and Gas:
Scott C. Larsen - President and Chief Executive Officer,
Director
Scott C. Larsen, is an experienced oil and gas executive who,
from 2004 until June 2010, served as the president and chief executive officer
of TransAtlantic Petroleum Corp., which has significant oil and gas exploration
activities in Europe, including Bulgaria. Mr. Larsen has had extensive
experience in the acquisition and assimilation of oil and gas assets and
companies and early stage development of oil and gas exploration companies.
After completing his law degree at Rutgers University in 1979, Mr. Larsen served
as General Counsel, Chief of Staff and Partner of several oil and gas companies.
Then, in 1994, Mr. Larsen joined the management team at TransAtlantic, which,
over the years, had operations in Nigeria, Benin, Egypt and other North African
countries. Once he became President of TransAtlantic, Mr. Larsen was responsible
for a number of critical strategic actions for that company: he opened four
overseas offices and established acreage positions in Morocco, Romania, Turkey
and the UK North Sea; he sold the offshore Nigeria producing property interest
and eventually sold all U.S. properties; and was instrumental in attracting
significant investment into TransAtlantic. Mr. Larsen served as Vice President
of Business Development of TransAtlantic from 2010 until his retirement in 2012.
Subsequently, Mr. Larsen has served as a consultant to several oil and gas
companies, including the Company. Mr. Larsen became involved with the Company
initially as a consultant in 2013 to help resolve the legal dispute over the
award of the Bulgarian exploration permit. On October 29, 2013, he was elected a director of the Company and on November 1, 2013 he
was appointed its President and Chief Executive Officer.
6
Dr. David S. Campbell - Vice President of Exploration
Dr. David Campbell has over thirty years’ experience in the
petroleum E&P business and has worked in a wide variety of petroleum basins,
including the North Sea, Continental Europe, North Africa and the Middle East.
He received a Bachelor of Science degree in geology from St. Andrews University
and a Ph.D. degree in geology from Glasgow University. After graduation in 1979,
he joined Esso Expro UK as a seismic interpreter and later spent the majority of
his professional career with ARCO, both in the UK and overseas. He was North Sea
Chief Geophysicist for ARCO British Limited, Geophysical Research Manager for
ARCO Exploration and Production Technology Company, and Middle East Exploration
Manager for ARCO International Oil and Gas Company. Mr. Campbell was awarded
ARCO’s International Exploration Award in 1993 and 1994 for his contribution to
discoveries in the North Sea and Middle East. Following his retirement from ARCO
in 2000, Mr. Campbell was an officer or director in a number of energy-related
companies, including Balli Resources Limited, and TransAtlantic North Sea Ltd.
Mr. Campbell has been Managing Director of VND Energy 2008 Limited for the last
five years. He currently also serves as a Director of Anglian Resources plc.
Taisiia Popova - Chief Financial Officer
Ms. Popova has over 10 years’ experience in financial
management and has held executive positions as chief accountant and financial
director in several companies. Between 2006 and 2008 she was Financial Director
of Farbmaster Group of Companies, an industrial manufacturer; between 2008 and
2012 she was Financial Director of Diawest (Computer World), a large retail
consumer electronics chain in the Ukraine. In 2013 she joined Park Place as CFO
and interim CEO, and in October 2013 she resigned her position as CEO and
continued as CFO of Park Place. She received her Master of Business from the
University of New Brunswick, Canada in 2009. She attended State Academy of
Statistics, Accounting and Auditing – Kiev, where she received a Bachelors in
Accounting and Auditing (honors). She is a CAP (Certified Accounting
Practitioner).
William J. (Bill) McFie – Consulting Engineer
With over 40 years of oilfield experience as a petroleum
engineer, Mr. McFie has amassed a wealth of experience, both onshore and
offshore, to the planning and engineering aspects of exploration. With a degree
in B.Sc. degree in chemical engineering from Strathclyde University, Scotland,
Mr. McFie began as a petroleum engineer with Amoco, spent a large portion of his
career with Sun International, where he served as international operations
manager with postings in Aberdeen, Gabon, London and Argentina. Mr. McFie
subsequently served as country manager in Pakistan (for Premier), Namibia (for
Ranger Oil) and Yemen (for Nimir Petroleum Services). Mr. McFie then established
a U.S. based affiliate for a UK petroleum consulting firm, which endeavor
included a 2 year engagement (2007-2009) planning operations in Romania and
Morocco (for TransAtlantic Petroleum). From 2009 through 2012, Mr. McFie worked
first as a consultant and then as the Vice President – Production Operations for
Red Willow Production Company, responsible for its coal bed methane production
in the San Juan Basin and conventional production in New Mexico and Texas. Since
2013, Mr. McFie has worked as a consultant to oil and gas companies, including
Park Place.
Francis M. Munchinski – Corporate Secretary
Mr. Munchinski is an attorney who has been involved in the oil
and gas business for more than 30 years. He spent 20 years in private practice,
primarily with the law firm of Jenkens & Gilchrist (1986-1998, 2001-2007)
and then with Cox Smith (2007-2009), where he specialized in oil and gas law. He
served as general counsel for Alliance Resources Plc from 1998 to 2001. In
February 2009, he became senior counsel with Denbury Resources Inc. From
November 2012 until joining Park Place as its Corporate Secretary in November
2013, Mr. Munchinski has worked as an attorney in private practice. Mr.
Munchinski received his law degree from the University of Tulsa in 1985.
7
Tatiana Kovaleva - Treasurer
Ms. Kovaleva has seven years of public company accounting
experience, including: U.S. SEC reporting companies, TSX and CNQ in a variety of
industries. She has over 10 years’ experience in both public and private company
audit and over 20 years’ experience in general accounting experience including
the oil and gas sector. Ms. Kovaleva is currently President of KT Business
solutions Inc., a company located in Vancouver, Canada, that she founded in
2008. Ms. Kovaleva holds a Masters Degree in Economics from Lvov Cooperative
Institute of the General Union.
Dr. Art Halleran - Director
Dr. Halleran has been a director since October 4, 2011. Dr.
Halleran has a Ph.D. in Geology from the University of Calgary, and has 33 years
of international petroleum exploration experience. His international experience
includes countries such as Canada, Colombia, Egypt, India, Guinea, Sierra Leone,
Sudan, Suriname, Chile, Brazil, Pakistan, Peru, Tunisia, Trinidad Tobago,
Argentina, Ecuador and Guyana. Dr. Halleran's experience includes work with
Petro-Canada, Chevron, Rally Energy, Canacol Energy, United Hunter Oil and Gas
Corp. and United Hydrocarbon International Corp. In 2007, Dr. Halleran founded
Canacol Energy Ltd., a company with petroleum and natural gas exploration and
development activities in Colombia, Brazil and Guyana, where he served as vice
president of exploration. Previously Dr. Halleran was a consulting geologist for
Rally Energy Corp. (Egypt), which discovered prolific reservoirs in Egypt. Dr.
Halleran currently serves as Vice President of Exploration & Development for
United Hydrocarbon International Corp., a company with oil interests in Chad,
Africa. Dr. Halleran was appointed as a director of the Company to provide
technical expertise and oversight to the Dobroudja Basin gas project in
Bulgaria. We consider his education and technical experience in the energy
sector to be valuable to our Company.
Ijaz Khan - Director
Ijaz Khan holds a law degree from Seattle University School of
Law. He currently serves as Vice President, Special Projects for United
Hydrocarbon International Corp, a position he has held since 2012. During 2011,
he served as corporate counsel for United Hydrocarbon International Corp. In
2010, he was the General Counsel for the Kuwait Gulf Oil Company, a subsidiary
of Kuwait’s State Oil Company, Kuwait Petroleum Company. There Mr. Khan was in
charge of the team advising on the merger of all the upstream subsidiaries of
the Kuwait Petroleum Company and was responsible for negotiating the terms of a
master agreement with Saudi Arabia Chevron regarding the shared concession in
the Divided Zone between Kuwait and Saudi Arabia. Prior to 2010, he practiced
corporate law with the Law Firm of Mussehl and Khan. Mr. Khan brings extensive
international experience in the oil and gas industry to the Board.
David M. Thompson – Director
Mr. Thompson has thirty (30) years of financial experience in
the oil and gas industry. He successfully founded an oil trading company in
Bermuda with offices in the U.S. and Europe (Geneva, Moscow and Amsterdam). He
was responsible for the company’s production operations in Turkmenistan and
successfully raised over $100 million in equity. Mr. Thompson also negotiated
the farm-out of a number of company assets. Mr. Thompson is Managing Director of
AMS Limited, a Bermuda based Management Company, a position he has held since
1990. In the past he served as President, CEO and Director of PetroChad
(Mangara) Limited (2011-2012), Founder, President and CEO of Sea Dragon Energy
Inc. (TSX:V) (2005-2010), Chief Financial Officer of Aurado Energy, Chief
Financial Officer of Forum Energy Corporation (OTC), and Financial Director of
Forum Energy Plc (AIM) and Senior Vice President at Larmag Group of Companies.
Mr. Thompson is a Certified Management Accountant (1998). He currently also
serves as a Director of United Hydrocarbon International Corp.
8
Risks Related to Our Business and the Oil and Gas
Industry
We have a history of losses and may not achieve
consistent profitability in the future.
We have incurred losses in prior years. We will need to
generate and sustain increased revenue levels in future periods in order to
become consistently profitable, and even if we do, we may not be able to
maintain or increase our level of profitability. We may incur losses in the
future for a number of reasons, including risks described herein, unforeseen
expenses, difficulties, complications and delays, and other unknown risks.
Our exploration, development and production activities
may not be profitable or achieve our expected returns.
The future performance of our business will depend upon our
ability to develop oil and natural gas reserves from our Bulgarian license that
are economically recoverable. Success will depend upon our ability to develop
prospects from our Bulgarian license from which oil and natural gas reserves are
ultimately discovered in commercial quantities. Without successful exploration
activities, we will not be able to develop oil and natural gas reserves or
generate revenues. There are no assurances that oil and natural gas reserves
will be discovered in sufficient quantities from our Bulgarian license to enable
us to recover our exploration and development costs or sustain our business.
The successful development of oil and natural gas properties
requires an assessment of recoverable reserves, future oil and natural gas
prices and operating costs, potential environmental and other liabilities, and
other factors. Such assessments are inherently uncertain. In addition, no
assurance can be given that our exploration and development activities will
result in the discovery of reserves. Operations may be curtailed, delayed or
canceled as a result of lack of adequate capital and other factors, such as lack
of availability of rigs and other equipment, title problems, weather, compliance
with governmental regulations or price controls, mechanical difficulties, or
unusual or unexpected formations, pressures and/or work interruptions. In
addition, the costs of exploration and development may materially exceed our
internal estimates.
We may be unable to acquire or develop additional
reserves, which would reduce our cash flow and income.
In general,
production from oil and natural gas properties declines over time as reserves
are depleted, with the rate of decline depending on reservoir characteristics.
If we are not successful in our exploration and development activities or in
acquiring properties containing reserves, our reserves will generally decline as
reserves are produced. Our oil and natural gas production will be highly
dependent upon our ability to economically find, develop or acquire reserves in
commercial quantities.
Our future oil and natural gas reserves, production, and cash
flows, if any, are highly dependent upon us successfully exploiting known gas
resources and proving reserves. A future increase in our reserves will depend
not only on our ability to flow economic rates of gas and potentially develop
the reserves we may have from time to time, but also on our ability to select
and acquire suitable producing properties or prospects and technologies for
exploitation. There are no absolute guarantees that our future efforts will
result in the economic development of natural gas.
To the extent cash flow from operations is reduced, either by a
decrease in prevailing prices for oil and natural gas or an increase in finding
and development costs, and external sources of capital become limited or
unavailable, our ability to make the necessary capital investment to maintain or
expand our asset base of oil and natural gas reserves would be impaired. Even
with sufficient available capital, our future exploration and development
activities may not result in additional reserves, and we might not be able to
drill productive wells at acceptable costs.
The development of prospective resources is uncertain. In
addition, there are no assurances that our resources will be converted to proved
reserves.
At December 31, 2013, all of our Bulgarian oil and gas
resources are classified as prospective resources. There is significant
uncertainty attached to prospective resource estimates. The discovery,
determination and exploitation of such resources require significant capital
expenditures and successful drilling and exploration programs. We may not be
able to raise the additional capital that we need to develop these resources.
There is no certainty that we will be able to convert prospective resources into
proved reserves or that these resources will be economically viable or
technically feasible to produce.
9
The establishment of proved reserves is subjective and
subject to numerous uncertainties.
In general, estimates of recoverable natural resources are
based upon a number of factors and assumptions made as of the date on which the
resource estimates were determined, such as geological and engineering estimates
which have inherent uncertainties and the assumed effects of regulation by
governmental agencies and estimates of future commodity prices and operating
costs, all of which may vary considerably from actual results. All such
estimates are, to some degree, uncertain and classifications of resources are
only attempts to define the degree of uncertainty involved. For these reasons,
estimates of the recoverable natural resources, the classification of such
resources based on risk of recovery, prepared by different engineers or by the
same engineers at different times, may vary substantially.
We could lose permits or licenses on certain of our
properties unless the permits or licenses are extended or we commence production
and convert the permits or licenses to production leases or concessions.
Initially, our Bulgarian properties will be held in the form of a license
agreement, and future properties may be held in the form of permits, leases
and/or license agreements that contain expiration dates and specific
requirements and stipulations. If our permits or licenses expire, we will lose
our right to explore and develop the related properties. If we fail to meet
specific requirements of the permits, leases and/or license agreements, we may
be in breach and may lose our rights or be liable for damages. Our drilling
plans for these areas are subject to change based upon various factors,
including factors that are beyond our control. Such factors include drilling
results, oil and natural gas prices, the availability and cost of capital,
drilling and production costs, availability of drilling services and equipment,
gathering system and pipeline transportation constraints, and regulatory
approvals.
Currently, all of our operations will be conducted in
Bulgaria, and we are subject to political, economic and other risks and
uncertainties in this country.
Currently, all of our international operations will be
performed in the emerging market of Bulgaria, which may expose us to greater
risks than those associated with more developed markets. Due to our foreign
operations, we are subject to the following issues and uncertainties that can
adversely affect our operations:
-
the risk of, and disruptions due to, expropriation, nationalization, war,
revolution, election outcomes, economic instability, political instability, or
border disputes;
-
the uncertainty of local contractual terms, renegotiation or modification
of existing contracts and enforcement of contractual terms in disputes before
local courts;
-
the risk of import, export and transportation regulations and tariffs,
including boycotts and embargoes;
-
the risk of not being able to procure residency and work permits for our
expatriate personnel;
-
the requirements or regulations imposed by local governments upon local
suppliers or subcontractors, or being imposed in an unexpected and rapid
manner;
-
taxation and revenue policies, including royalty and tax increases,
retroactive tax claims and the imposition of unexpected taxes or other
payments on revenues;
-
exchange controls, currency fluctuations and other uncertainties arising
out of foreign government sovereignty over foreign operations;
10
-
laws and policies of the United States and of the other countries in which
we operate affecting foreign trade, taxation and investment, including
anti-bribery and anti-corruption laws;
-
the possibility of being subjected to the exclusive jurisdiction of
foreign courts in connection with legal disputes and the possible inability to
subject foreign persons to the jurisdiction of courts in the United States;
and
-
the possibility of restrictions on repatriation of earnings or capital
from foreign countries.
There can be no assurance that changes in conditions or
regulations in the future will not affect our profitability or ability to
operate in such markets.
Regulations adopted in Bulgaria relating to fracture
simulation activities could result in increased costs and additional operating
restrictions or delays.
Fracture stimulation is a commonly used process for the
completion of oil and natural gas wells and involves the pressurized injection
of water, sand and chemicals into rock formations to stimulate production.
Recently, there has been increased public concern regarding the potential
environmental impact of fracture stimulation activities. The increased attention
regarding this process could lead to additional levels of regulation in
Bulgaria, or in other countries in which we may operate in the future, that
could cause operational restrictions or delays, or could increase our costs of
compliance and doing business. To the extent that our operations will rely on
fracture stimulation, the regulations adopted in Bulgaria restricting fracture
stimulation could impose operational delays, increased operations costs and
additional related burdens on our exploration and production activities and
could suspend or make it more difficult to perform fracture stimulation, cause a
material decrease in the drilling of new wells and related completion activities
and increase our costs of compliance and doing business, which could materially
impact our business and profitability.
We are subject to foreign currency risks.
Oil and gas operations in Bulgaria will generate revenues in
Euros, while expenses will be incurred in U.S. dollars or Euros. Gas production
in Bulgaria will generate Euros. As a result, any fluctuations against the U.S.
Dollar may result in a change in profits, if any, that our projects would
generate if they commence production. Accordingly, our future financial results
are subject to risk based on changes to foreign currency rates.
If we lose the services of our management and key
consultants, then our plan of operations may be delayed.
Our success depends to a significant extent upon the continued
service of our executive management, directors and consultants. Losing the
services of one or more key individuals could have a material adverse effect on
the Company’s prospective business until replacements are found.
Drilling for and producing oil and natural gas are
high-risk activities with many uncertainties that could adversely affect our
business, financial condition or results of operations.
Our future success depends on the success of our exploration,
development and production activities in our prospects. These activities will be
subject to numerous risks beyond our control, including the risk that we will be
unable to economically produce our reserves or be able to find commercially
productive oil or natural gas reservoirs. Our decisions to purchase, explore,
develop or otherwise exploit prospects or properties will depend in part on the
evaluation of data obtained through geophysical and geological analyses,
production data and engineering studies, the results of which are often
inconclusive or subject to varying interpretations. The cost of drilling,
completing and operating wells is often uncertain before drilling commences.
Overruns in budgeted expenditures are common risks that can make a particular
project unprofitable. Further, many factors may curtail, delay or prevent
drilling operations, including:
11
-
unexpected drilling conditions;
-
pressure or irregularities in geological formations;
-
equipment failures or accidents;
-
pipeline and processing interruptions or unavailability;
-
title problems;
-
adverse weather conditions;
-
lack of market demand for oil and natural gas;
-
delays imposed by, or resulting from, compliance with environmental laws
and other regulatory requirements;
-
declines in oil and natural gas prices; and
-
shortages or delays in the availability of drilling rigs, equipment and
qualified personnel.
Our future drilling activities might not be successful, and
drilling success rates overall or within a particular area could decline. We
could incur losses by drilling unproductive wells. Shut-in wells, curtailed
production and other production interruptions may materially adversely affect
our business, financial condition and results of operations.
Shortages of drilling rigs, equipment, oilfield services
and qualified personnel could delay our exploration and development activities
and increase the prices we pay to obtain such drilling rigs, equipment, oilfield
services and personnel.
Our industry is cyclical and, from time to time, there may be a
shortage of drilling rigs, equipment, oilfield services and qualified personnel
in Bulgaria and other countries in which we may operate in the future. Shortages
of drilling and workover rigs, pipe and other equipment may occur as demand for
drilling rigs and equipment increases, along with increases in the number of
wells being drilled. These factors can also cause significant increases in costs
for equipment, oilfield services and qualified personnel. Higher oil and natural
gas prices generally stimulate demand and result in increased prices for
drilling and workover rigs, crews and associated supplies, equipment and
services. It is beyond our control and ability to predict whether these
conditions will exist in the future and, if so, what their timing and duration
will be. These types of shortages or price increases could significantly
increase our net loss, decrease our cash provided by operating activities, or
restrict our ability to conduct the exploration and development activities we
currently have planned and budgeted or which we may plan in the future. In
addition, the availability of drilling rigs can vary significantly from region
to region at any particular time. An undersupply of rigs in any of the regions
where we operate may result in drilling delays and higher drilling costs for the
rigs that are available in that region.
A substantial or extended decline in oil and natural gas
prices may adversely affect our ability to meet our future capital expenditure
obligations and financial commitments.
Revenues, operating results and future rate of growth are
substantially dependent upon the prevailing prices of, and demand for, oil and
natural gas. Lower oil and natural gas prices may also reduce the amount of oil
and natural gas that we will be able to produce economically. Historically, oil
and natural gas prices and markets have been volatile, and they are likely to
continue to be volatile in the future.
12
A decrease in oil or natural gas prices will not only reduce
revenues and profits, but will also reduce the quantities of reserves that are
commercially recoverable and may result in charges to earnings for impairment of the value of these assets. If oil or natural gas prices decline
significantly for extended periods of time in the future, we might not be able
to generate sufficient cash flow from operations to meet our obligations and
make planned capital expenditures. Oil and natural gas prices are subject to
wide fluctuations in response to relatively minor changes in the supply of, and
demand for, oil and natural gas, market uncertainty and a variety of additional
factors that are beyond our control. Among the factors that could cause
fluctuations are:
-
market expectations regarding supply and demand for oil and natural gas;
-
levels of production and other activities of the Organization of Petroleum
Exporting Countries and other oil and natural gas producing nations;
-
market expectations about future prices;
-
the level of global oil and natural gas exploration, production activity
and inventories;
-
political conditions, including embargoes, in or affecting oil and natural
gas production activities; and
-
the price and availability of alternative fuels.
Lower oil and natural gas prices may not only decrease our
revenues on a per unit basis, but also may reduce the amount of oil and natural
gas that we will be able to produce economically. A substantial or extended
decline in oil or natural gas prices may have a material adverse effect on our
business, financial condition and results of operations.
We are subject to operating hazards.
The oil and natural gas exploration and production business
involves a variety of operating risks, including the risk of fire, explosion,
blowout, pipe failure, casing collapse, stuck tools, uncontrollable flows of oil
or natural gas, abnormally pressured formations and environmental hazards such
as oil spills, surface cratering, natural gas leaks, pipeline ruptures,
discharges of toxic gases, underground migration, surface spills, mishandling of
fracture stimulation fluids, including chemical additives, and natural
disasters. The occurrence of any of these events could result in substantial
losses to us due to injury and loss of life, loss of or damage to well bores
and/or drilling or production equipment, costs of overcoming downhole problems,
severe damage to and destruction of property, natural resources and equipment,
pollution and other environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. Gathering systems and
processing facilities are subject to many of the same hazards and any
significant problems related to those facilities could adversely affect our
ability to market our production.
Our oil and natural gas operations are subject to
extensive and complex laws and government regulation and compliance with
existing and future laws may increase our costs or impair our
operations.
Our oil and natural gas operations in Bulgaria will be subject
to numerous laws and regulations, including those related to the environment,
employment, immigration, labor, oil and natural gas exploration and development,
payments to local, foreign and provincial officials, taxes and the repatriation
of foreign earnings. If we fail to adhere to any applicable laws or regulations,
or if such laws or regulations restrict exploration or production, or negatively
affect the sale, of oil and natural gas, our business, prospects, results of
operations, financial condition or cash flows may be impaired. We may be subject
to governmental sanctions, such as fines or penalties, as well as potential
liability for personal injury, property or natural resource damage and might be
required to make significant capital expenditures to comply with federal, state
or international laws or regulations. In addition, existing laws or regulations,
as currently interpreted or reinterpreted in the future, or future laws or
regulations could adversely affect our business or operations, or substantially
increase our costs and associated liabilities.
13
In addition, exploration for, and exploitation, production and
sale of, oil and natural gas in Bulgaria and other countries in which we may
operate in the future are subject to extensive national and local laws and
regulations requiring various licenses, permits and approvals from various
governmental agencies. If these licenses or permits are not issued or
unfavorable restrictions or conditions are imposed on our exploration or
drilling activities, we might not be able to conduct our operations as planned.
Alternatively, failure to comply with these laws and regulations, including the
requirements of any licenses or permits, might result in the suspension or
termination of operations and subject us to penalties. Our costs to comply with
these numerous laws, regulations, licenses and permits are significant.
Specifically, our oil and natural gas operations in Bulgaria
will be subject to stringent laws and regulations relating to the release or
disposal of materials into the environment or otherwise relating to
environmental protection. Failure to comply with these laws and regulations may
result in the imposition of administrative, civil and/or criminal penalties,
incurring investigatory or remedial obligations and the imposition of injunctive
relief.
Changes in environmental laws and regulations occur frequently,
and any changes that result in more stringent or costly waste handling, storage,
transport, disposal or cleanup requirements could require us to make significant
expenditures to attain and maintain compliance and may otherwise have a material
adverse effect on our industry in general and on our own results of operations,
competitive position or financial condition. Although we intend to comply in all
material respects with applicable environmental laws and regulations, we cannot
assure you that we will be able to comply with existing or new regulations. In
addition, the risk of accidental spills, leakages or other circumstances could
expose us to extensive liability. We are unable to predict the effect of
additional environmental laws and regulations that may be adopted in the future,
including whether any such laws or regulations would materially adversely
increase our cost of doing business or affect operations in any area.
Under certain environmental laws that impose strict, joint and
several liability, we may be required to remediate our contaminated properties
regardless of whether such contamination resulted from the conduct of others or
from consequences of our own actions that were or were not in compliance with
all applicable laws at the time those actions were taken. In addition, claims
for damages to persons or property may result from environmental and other
impacts of our operations. Moreover, new or modified environmental, health or
safety laws, regulations or enforcement policies could be more stringent and
impose unforeseen liabilities or significantly increase compliance costs.
Therefore, the costs to comply with environmental, health or safety laws or
regulations or the liabilities incurred in connection with them could
significantly and adversely affect our business, financial condition or results
of operations.
In addition, many countries have agreed to regulate emissions
of “greenhouse gases.” Methane, a primary component of natural gas, and carbon
dioxide, a byproduct of burning of oil and natural gas, are greenhouse gases.
Regulation of greenhouse gases could adversely impact some of our operations and
demand for some of our services or products in the future.
Competition in the oil and natural gas industry is
intense, and many of our competitors have greater financial, technological and
other resources than we do, which may adversely affect our ability to
compete.
We will be operating in the highly competitive areas of oil and
natural gas exploration, development, production and acquisition with a
substantial number of other companies, including U.S.-based and foreign
companies. We face intense competition from independent, technology-driven
companies as well as from both major and other independent oil and natural gas
companies in each of the following areas:
-
seeking oil and natural gas exploration licenses and production licenses;
-
acquiring desirable producing properties or new leases for future
exploration;
-
marketing oil and natural gas production;
14
-
integrating new technologies; and
-
contracting for drilling services and equipment and securing the expertise
necessary to develop and operate properties.
Many of our competitors have substantially greater financial,
managerial, technological and other resources than we do. These companies are
able to pay more for exploratory prospects and productive oil and natural gas
properties than we can. To the extent competitors are able to pay more for
properties than we are paying, we will be at a competitive disadvantage.
Further, many of our competitors enjoy technological advantages over us and may
be able to implement new technologies more rapidly than we can. Our ability to
explore for and produce oil and natural gas prospects and to acquire additional
properties in the future will depend upon our ability to successfully conduct
operations, implement advanced technologies, evaluate and select suitable
properties and consummate transactions in this highly competitive environment.
We might not be able to obtain necessary permits,
approvals or agreements from one or more government agencies, surface owners, or
other third parties, which could hamper our exploration, development or
production activities.
There are numerous permits, approvals, and agreements with
third parties, which will be necessary in order to enable us to proceed with our
exploration, development or production activities and otherwise accomplish our
objectives. The government agencies in Bulgaria and other international
countries have discretion in interpreting various laws, regulations, and
policies governing operations under licenses such as the license we are
obtaining in Bulgaria. Further, we may be required to enter into agreements with
private surface owners to obtain access to, and agreements for, the location of
surface facilities. In addition, because many of the laws governing oil and
natural gas operations in Bulgaria and other international countries have been
enacted relatively recently, there is only a relatively short history of the
government agencies handling and interpreting those laws, including the various
regulations and policies relating to those laws. This short history does not
provide extensive precedents or the level of certainty that allows us to predict
whether such agencies will act favorably toward us. The governments have broad
discretion to interpret requirements for the issuance of drilling permits. Our
inability to meet any such requirements could have a material adverse effect on
our exploration, development or production activities.
Risks Related to Our Common Stock
The value of our common stock may be affected by matters
not related to our own operating performance.
The value of our common
stock may be affected by matters that are not related to our operating
performance and which are outside of our control. These matters include the
following:
-
general economic conditions in the United States, Bulgaria and globally;
-
industry conditions, including fluctuations in the price of oil and
natural gas;
-
governmental regulation of the oil and natural gas industry, including
environmental regulation and regulation of fracture stimulation activities;
-
fluctuation in foreign exchange or interest rates;
-
liabilities inherent in oil and natural gas operations;
-
geological, technical, drilling and processing problems;
-
unanticipated operating events which can reduce production or cause
production to be shut in or delayed;
15
-
failure to obtain industry partner and other third-party consents and
approvals, when required;
-
stock market volatility and market valuations;
-
competition for, among other things, capital, acquisition of reserves,
undeveloped land and skilled personnel;
-
the need to obtain required approvals from regulatory authorities;
-
worldwide supplies and prices of, and demand for, oil and natural gas;
-
political conditions and developments in each of the countries in which we
operate;
-
political conditions in oil and natural gas producing regions;
-
revenue and operating results failing to meet expectations in any
particular period;
-
investor perception of the oil and natural gas industry;
-
limited trading volume of our common shares;
-
announcements relating to our business or the business of our competitors;
-
the sale of assets;
-
our liquidity; and
-
our ability to raise additional funds.
In the past, companies that have experienced volatility in the
trading price of their common shares have been the subject of securities class
action litigation. We might become involved in securities class action
litigation in the future. Such litigation often results in substantial costs and
diversion of management’s attention and resources and could have a material
adverse effect on our business, financial condition and results of operation.
Investment in our common stock is speculative due to the
nature of our business.
An investment in our common stock is speculative due to the
nature of our involvement in the acquisition and exploration of oil and gas
properties.
Our shareholders may experience dilution as a result of
our issuance of additional common stock or the exercise of outstanding options
and warrants.
We may enter into commitments in the future that would require
the issuance of additional common stock. We may also grant additional share
purchase warrants and stock options. The exercise of share purchase warrants or
options and the subsequent resale of common stock in the public market could
adversely affect the prevailing market price and our ability to raise equity
capital in the future. Any share issuances from our treasury will result in
immediate dilution to existing shareholders.
We have never declared or paid cash dividends on our
common stock.
We do not anticipate paying cash dividends on our common stock
in the foreseeable future. Payment of future cash dividends, if any, will be at
the discretion of our board of directors and will depend on our financial
condition, results of operations, contractual restrictions, capital
requirements, business prospects and other factors that our board of directors considers relevant.
Accordingly, investors may only see a return on their investment if the value of
our securities appreciates.
16
Our stock price is volatile.
Our common stock is traded on the OTC Bulletin Board. There can
be no assurance that an active public market will continue for our common stock,
or that the market price for our common stock will not decline below its current
price. Such price may be influenced by many factors, including, but not limited
to, investor perception of us and our industry and general economic and market
conditions. The trading price of our common stock could be subject to wide
fluctuations in response to a variety of matters and market conditions.
Our common stock will be subject to the “Penny Stock”
Rules of the SEC.
Our securities will be subject to the “penny stock rules”
adopted pursuant to Section 15(g) of the Exchange Act. The penny stock rules
apply generally to companies whose common stock trades at less than $5.00 per
share, subject to certain limited exemptions. Such rules require, among other
things, that brokers who trade “penny stock” to persons other than “established
customers” complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading in
the security, including a risk disclosure document and quote information under
certain circumstances. Some brokers have decided not to trade “penny stock”
because of the requirements of the “penny stock rules” and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited. In the event that we remain subject to the “penny stock rules” for any
significant period, there may develop an adverse impact on the market, if any,
for our securities. Because our securities are subject to the “penny stock
rules”, investors will find it more difficult to dispose of our securities.
A decline in the price of our common stock could affect
our ability to raise further working capital and create additional dilution to
existing shareholders upon any financings.
A decline in the price of our common stock could result in a
reduction in the liquidity of our common stock and a reduction in our ability to
raise additional capital for our operations. Because our operations to date have
been principally financed through the sale of equity securities, a decline in
the price of our common stock could have an adverse effect upon our liquidity
and if we sell shares at a lower price, cause excessive dilution to existing
shareholders.
We may issue debt to acquire assets.
From time to time our Company may enter into transactions to
acquire assets or the shares of other companies. These transactions may be
financed partially or wholly with debt, which may increase our debt levels above
industry standards. Our articles and bylaws do not limit the amount of
indebtedness that our Company may incur. The level of our indebtedness from time
to time could impair our ability to obtain additional financing in the future on
a timely basis to take advantage of business opportunities that may arise.
We may issue additional equity securities without the
consent of stockholders. The issuance of any additional equity securities would
further dilute our stockholders.
Our board of directors has the authority, without further
action by the stockholders, to issue up to 250,000,000 shares of common stock
authorized under our charter documents, of which 36,579,877 shares were issued
and outstanding as of March 31, 2014. We may issue additional shares of common
stock or other equity securities, including securities convertible into shares
of common stock, in connection with capital raising activities. The issuance of
additional common stock would also have a dilutive impact on our stockholders’
ownership interest in our company.
17
|
ITEM 1B.
|
UNRESOLVED STAFF COMMENTS
|
We are a smaller reporting company as defined by Rule 12b-2 of
the Exchange Act and are not required to provide the information required under
this item.
Bulgarian Property -
Dobrudja Basin
On October 12, 2010, the Bulgarian Council of Ministers awarded
to the Company a permit for the exploration and prospecting of crude oil and
natural gas in Vranino 1-11 Block. The permit covers approximately 98,205 acres
in the Dobrudja Basin in northeast Bulgaria and was awarded after the completion
of the competitive bid process.
Between 2010 and mid-2013, activities regarding the property
were suspended pending the resolution of a claim by a competitive bidder in
regards to the validity of the permit award to Park Place. Ultimately, Park
Place obtained two court victories, and the competitive bidder abandoned any and
all claims it had disputing the validity of the permit award to the Company.
Since mid-2013, the Company has been negotiating terms of a
license exploration contract with the Bulgarian ministry, which entails a
comprehensive and detailed set of document addressing drilling operations,
environmental legislation and the like. On April 1, 2014, the Company entered
into a formal license agreement, entitled an Agreement for Crude Oil and Natural
Gas Prospecting and Exploration in Block 1-11 Vranino, situated in Dobrich
District with the Ministry of Economy and Energy of Bulgaria (the “License
Agreement”).
The License Agreement is expected to become effective mid-2014,
when the term of the five year license will commence. The License Agreement (or
applicable legislation) provides for possible extension periods for up to 5
additional years during the exploration phase and the conversion to an
exploitation concession, which can last up to 35 years. Such extensions and
conversion are at our election so long as we satisfy minimum work commitments.
The Company has a commitment to perform a yearly work program.
The Company’s yearly commitment is based on the bid made by the Company on which
the exploration permit was awarded; however there is flexibility to adjust the
yearly work program based on negotiations with the competent authorities in
Bulgaria. We are expected to drill 10,000 meters (approximately 32,800 feet) of
new wellbore (may be vertical, horizontal or diagonal) and conduct other
exploration at certain intervals during the permit term.
If we are successful in our exploration efforts, we will file
to establish a geological discovery. We are permitted to commence limited
production during the exploration permit. After additional exploration work on
the permit, we may convert the portion of our permit on which we have
established production to an exploitation concession.
Reserves Reported to Other Agencies
We have not filed estimates of total, in-place, resources or
proved oil and gas reserves with any other federal authority or agency in the
United States, Canada or Bulgaria at this time.
We have not prepared any
reserve or resource estimates under applicable regulations because we have not
signed the exploration permit for the Vranino 1-11 Block as of March 31, 2014.
The Bulgarian property is our only oil and gas prospect. We will file such
reports after receiving the exploration permit as and when required under
applicable regulations.
Productive Wells and Acreage
We presently have no production from any property currently or
during the year ended December 31, 2013. We disposed of the subsidiary that held
the Edam property during the year; the Edam property previously had production
until early 2012, but no production in 2013.
18
Undeveloped Acreage
The following table sets forth the amounts of our undeveloped
acreage as of December 31, 2013:
|
Area
|
Undeveloped
Acreage
(1)
|
|
|
Gross
|
Net
|
|
Bulgaria
|
98,205
|
98,205
|
|
Total:
|
98,205
|
98,205
|
|
(1)
|
Undeveloped acreage is considered to be those lease acres
on which wells have not been drilled or completed to a point that would
permit the production of commercial quantities of oil and gas regardless
of whether or not such acreage contains proved
reserves.
|
Drilling Activity
During 2013 and the prior year, no wells were drilled.
Present Activities
The Company is engaged in data gathering, evaluation and
analysis to evaluate the opportunity for the exploration of natural gas and
planning future operations on the permit area. The Company is conducting its
activities through several contracted service firms in Bulgaria operating in the
oil and gas sector. Additionally, the Company has retained experienced
consultants in the UK, and North America to provide analysis of the property
prospects and to assist in developing an exploration strategy.
The Company has evaluated and identified several existing wells
for re-entry and potential drilling locations for new wells.
The Company will seek to have an independent assessment of its
oil and gas resources by a competent reserve auditor commencing in 2014. In
addition, it will engage in evaluating the necessary laws, regulations, local
infrastructure, etc. to allow for on-ground drilling commencing in 2015.
|
ITEM 3.
|
LEGAL PROCEEDINGS
|
We were party to legal proceedings in Bulgaria relating to the
exploration permit involving Vranino 1-11 as described herein, which were
resolved on or about June 17, 2013, when the Fifth Division Supreme
Administrative Court in Bulgaria found in our favor.
We are not party to any other material legal proceedings and,
to our knowledge, no such proceedings are threatened or contemplated.
|
ITEM 4.
|
(REMOVED AND RESERVED)
|
19
PART II
|
ITEM 5.
|
MARKET FOR COMMON EQUITY, RELATED
SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
|
Market Information
Shares of our common stock have been quoted on the OTC Bulletin
Board since June 20, 2006 and presently trade under the symbol “PKPL”.
|
2013
|
High Bid
|
Low Bid
|
|
4
th
Quarter
|
$0.25
|
0.14
|
|
3
rd
Quarter
|
$0.14
|
0.08
|
|
2
nd
Quarter
|
$0.17
|
0.03
|
|
1
st
Quarter
|
$0.09
|
0.03
|
|
2012
|
|
|
|
4
th
Quarter
|
$0.17
|
$0.045
|
|
3
rd
Quarter
|
$0.105
|
$0.071
|
|
2
nd
Quarter
|
$0.19
|
$0.011
|
|
1
st
Quarter
|
$0.11
|
$0.061
|
Holders
The number of record holders of our common stock, $0.00001 par
value, as of March 26, 2014, was approximately 137.
Dividends
We have not, since the date of our incorporation, declared or
paid any dividends on our common shares. We anticipate that we will retain
future earnings and other cash resources for the operation and development of
our business for the foreseeable future. The payment of dividends in the future
will depend on our earnings, if any, and our financial condition and such other
factors as our board of directors considers appropriate.
Equity Compensation Plans
Long-Term Incentive Equity Plans
On November 21, 2011, the Company replaced its 2007 Stock
Option Plan and adopted its 2011 Stock Option Plan (the “2011 Plan”), which
allows for the issuance of options to purchase up to 2,000,000 shares of common
stock. A copy of the 2011 Plan was filed on November 25, 2011 on Form 8-K, to
which reference should be made for a more complete description of the 2013 Plan.
In connection with the adoption of the Company’s 2013 Long-Term Incentive Equity
Plan in October 2013, the Company retired the 2011 Plan, but outstanding grants
under the 2011 Plan remain subject to the terms of the 2011 Plan.
On October 29, 2013, the Company’s shareholders adopted the
Company’s 2013 Long-Term Incentive Equity Plan (the “2013 Plan”). A summary of
the principal features of the 2103 Plan, as well as a copy of the 2013 Plan
document itself, is available in the Company’s Schedule 14A filed on September
27, 2013, to which reference should be made for a more complete description of
the 2013 Plan. The 2013 Plan permits grants of stock options (including
incentive stock options and nonqualified stock options), stock appreciation
rights, restricted stock awards, and other stock-based awards. Under the 2013
Plan, any employee (including an employee who is also a director or an officer),
officer, contractor or outside director of the Company whose judgment,
initiative, and efforts contributed or may be expected to contribute to the
successful performance of the Company is eligible to participate in the 2013 Plan, except that only our
employees are eligible to receive incentive stock options. Subject to certain
adjustments, the maximum number of shares of common stock that may be delivered
under the 2013 Plan is ten percent (10%) of the Company’s authorized and
outstanding shares of common stock as determined on the applicable date of grant
of an award under the 2013 Plan.
20
The various types of long-term incentive awards that may be
provided under the 2013 Plan will enable the Company to respond to changes in
compensation practices, tax laws, accounting regulations and the size and
diversity of its businesses.
During the year, the Company issued 700,000 stock options under
the 2013 Plan and 800,000 under the 2011 Plan.
The following table provides a summary of the number of stock
options outstanding as at December 31, 2013 under both of our equity
compensation plans:
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
(a)
|
Weighted
average
exercise
price of
outstanding
options,
warrants and
rights
(b)
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
|
|
Equity compensation plans not approved by
security holders (2011 Plan)
|
1,100,000
|
$0.10
|
Nil
|
|
Equity compensation plans approved by
security holders (2013 Plan)
|
700,000
|
$0.23
|
Variable*
|
*Subject to 10% rolling maximum more fully described in the
2013 Plan. As of March 31, 2014, the 10% rolling maximum is 3,657,987 shares.
Recent Sales of Unregistered Securities
We have reported sales of securities without registration under
the Securities Act during our fiscal year ended December 31, 2013 on the
following reports, as filed with the Securities and Exchange Commission.
|
Report
|
Date of Filing with SEC
|
|
8-K
|
2013-07-13
|
|
8-K
|
2013-09-05
|
|
8-K
|
2013-11-07
|
|
10-Q
|
2013-11-18
|
|
10-Q
|
2013-08-14
|
Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
We did not purchase any of our shares of common stock or other
securities during the year ended December 31, 2013.
21
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
We are a smaller reporting company as defined by Rule 12b-2 of
the Exchange Act and are not required to provide the information required under
this item.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND RESULTS
OF OPERATIONS
|
The following discussion of our financial condition, changes in
financial condition and results of operations for the years ended December 31,
2013 and 2012 should be read in conjunction with our most recent audited
consolidated financial statements for the years ended December 31, 2013 and
2012, which are included in this Annual Report, and the related notes to the
financial statements, as well as “Item 1 - Business.” This discussion contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including, but not
limited to, those set forth under “Risk Factors” and elsewhere in this annual
report.
Furthermore, on December 31, 2013, the Company changed its
reporting currency from Canadian dollars to U.S. dollars. In preparing the
Company’s prior year comparative balances in U.S. dollars, the Company has
adjusted amounts previously reported in the financial statements in Canadian
dollars. The changes made to the consolidated balance sheet as at December 31,
2012 and the related consolidated statements of operations and cash flows for
the year then ended are shown in Note 13 to the Company’s financial statement
included with this annual report. Accordingly, the amounts shown herein for the
year ended December 31, 2012 are the adjusted amounts following the change of
reporting currency from Canadian dollars to U.S. dollars.
Our Plan of Operations
Our initial plan of operations for the next 12 months is
summarized as follows: increase our ground operations in Bulgaria, refine and
further develop our exploration work program plans, obtain additional financing
and/or farm-out arrangements for the Bulgarian property, and consider possible
additional new licenses in Europe. We also intend to obtain a resource report
audit evaluation from a reputable independent firm for our Bulgarian property.
Based on our current plan of operations as set forth above, we
estimate that we will require approximately $2.1 million to pursue our plan of
operations over the 12 months starting January 1, 2014. As at December 31, 2013,
we had cash of $32,782 and a working capital deficit of $68,364. Consequently,
we will require additional financing to pursue our plan of operations over the
next 12 months. Effective March 5, 2014, we completed a private placement
pursuant to which we received total cash proceeds of $903,286 in exchange for
the sale of an aggregate of 4,516,430 shares of common stock at a purchase price
of $0.20 per share.
We anticipate that additional funding will be in the form of
debt or equity financing from the sale of our common stock or otherwise.
22
Results of Operations – Years Ended December 31, 2013 and
2012
The table below sets out the Consolidated Statements of
Operations:
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
Oil and gas revenue
|
$
|
-
|
|
$
|
4,503
|
|
|
Direct costs
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
General and
administrative
|
|
696,860
|
|
|
266,527
|
|
|
Depreciation
|
|
1,010
|
|
|
1,742
|
|
|
Foreign exchange loss
(gain)
|
|
8,049
|
|
|
(6,476
|
)
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
Loss on disposal of
property and equipment
|
|
(990
|
)
|
|
-
|
|
|
Gain on disposal of subsidiary
|
|
19,775
|
|
|
-
|
|
|
Loss on settlement of
debt
|
|
(3,414
|
)
|
|
-
|
|
|
Net loss
|
$
|
(690,548
|
)
|
$
|
(260,752
|
)
|
Oil and Gas Revenue
Our oil and gas revenue, operating costs and depletion for the
year ended December 31, 2013 was $nil. In 2012 we earned $4,503 of revenue and
incurred $3,462 in direct operating costs.
General and Administrative
Our general and administrative expenses increased to $696,860
for the year ended December 31, 2013 from $266,527 for 2012. This increase is
attributable to the increased operations during the year in anticipation of
finalizing of, and commencing operations under, the Bulgarian license agreement,
including establishing an office in Texas, the addition of a new management team
and the hiring of consultants.
Net Loss
As a result of the above, our net loss for the year ended
December 31, 2013 was $690,548, compared to $260,752 for 2012..
23
Liquidity and Capital Resources
|
|
|
As at
|
|
|
As at
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
|
(Audited)
|
|
|
(Audited)
|
|
|
Cash
|
$
|
32,782
|
|
$
|
12,130
|
|
|
Working capital (deficit)
|
|
(68,364
|
)
|
|
(23,605
|
)
|
|
Total assets
|
|
1,337,914
|
|
|
389,791
|
|
|
Total liabilities
|
|
197,777
|
|
|
55,199
|
|
|
Shareholders’ equity
|
|
1,140,137
|
|
|
334,592
|
|
We anticipate that we will require approximately $2,100,000 to
pursue our plan of operations over the 12 months commencing January 1, 2014. As
at December 31, 2013, we had cash of $32,782 and a working capital deficit of
$68,364. Consequently, we will require additional financing to pursue our plan
of operations over the next 12 months.
Cash Used in Operating Activities
Net cash used in operating activities in the year ended
December 31, 2013 increased to $399,195 from $248,921 in 2012.
Cash Used In Investing Activities
Net cash used for investing activities in the year ended
December 31, 2013 was $833,039 compared to $178,830 for 2012.
Cash Provided By Financing Activities
We have funded our business to date primarily from sales of our
common stock through private placements. In the year ended December 31, 2013, we
received cash of $1,253,286 as a result of proceeds from the sale of our common
stock compared to $nil for 2012.
Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes
have been prepared in accordance with U.S. generally accepted accounting
principles applied on a consistent basis. The preparation of financial
statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates
that we use to prepare our consolidated financial statements. In general,
management’s estimates are based on historical experience, on information from
third party professionals, and on various other assumptions that are believed to
be reasonable under the facts and circumstances. Actual results could differ
from those estimates made by management.
We believe that our critical accounting policies and estimates
include the following:
24
Oil and gas properties
The Company follows the full cost method of accounting for oil
and natural gas operations, whereby all costs of exploring for and developing
oil and natural gas reserves are capitalized and accumulated in cost centers on
a country-by-country basis. Costs include land acquisition costs, geological and
geophysical charges, carrying charges on non-productive properties and costs of
drilling both productive and non-productive wells. General and administrative
costs are not capitalized other than to the extent of the Company’s working
interest in operated capital expenditure programs on which operator’s fees have
been charged equivalent to standard industry operating agreements.
The costs in each cost center, including the costs of well
equipment, are depleted and depreciated using the unit-of-production method
based on the estimated proved reserves before royalties. Natural gas reserves
and production are converted to equivalent barrels of crude oil based on
relative energy content. The costs of acquiring and evaluating significant
unproved properties are initially excluded from depletion calculations. These
unevaluated properties are assessed periodically to ascertain whether impairment
has occurred. When proved reserves are assigned or the property is considered to
be impaired, the cost of the property or the amount of the impairment is added
to costs subject to depletion.
The capitalized costs less accumulated depletion and
depreciation in each cost center are limited to an amount equal to the estimated
future net revenue from proved reserves (based on prices and costs at the
balance sheet date) plus the cost (net of impairments) of unproved properties.
The total capitalized costs less accumulated depletion and depreciation, site
restoration provision and future income taxes of all cost centers are further
limited to an amount equal to the future net revenue from proved reserves plus
the cost (net of impairments) of unproved properties of all cost centers less
estimated future site restoration costs, general and administrative expenses,
financing costs and income taxes.
Proceeds from the sale of oil and natural gas properties are
applied against capitalized costs, with no gain or loss recognized, unless such
a sale would significantly alter the rate of depletion and depreciation.
Stock-based compensation
The Company accounts for share-based compensation under the
provisions of ASC 718 “Compensation – Stock Compensation”. ASC 718 requires that
all stock-based compensation be recognized as an expense in the financial
statements and that such cost be measured at the fair value of the award.
Recent accounting pronouncements
The Company has implemented all new accounting pronouncements
that are in effect and that may impact its financial statements and does not
believe that there are any other new accounting pronouncements that have been
issued that might have a material impact on its financial position or results of
operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
We are a smaller reporting company as defined by Rule 12b-2 of
the Exchange Act and are not required to provide the information required under
this item.
25
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
|
Our audited consolidated financial statements as of December
31, 2013 and 2012 and for the years then ended are filed as part of this annual
report beginning on page F-1 below, and are incorporated by reference in this
Item 8.
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS AND FINANCIAL
DISCLOSURE
|
None.
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) as of September 30, 2013 (the “Evaluation Date”). In making this
assessment, management used the framework set forth in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. This evaluation was carried out under the supervision and
with the participation of our Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”). Based upon that evaluation, we concluded that our
disclosure controls and procedures were not effective based on material
weaknesses including the fact that our CFO and CEO positions were held by the
same individual person at that time. Subsequently, we appointed a new CEO and
segregated responsibilities, however, we have not performed an internal control
evaluation since the appointment.
Notwithstanding the deficiencies in our internal controls over
financial reporting, we believe that our consolidated financial statements
contained in our Form 10-K for the year ended December 31, 2013 fairly present
our financial condition, results of operations and cash flows in all material
respects.
Our plan is to re-evaluate our internal controls now that we
have appropriate segregation of duties and have implemented additional internal
controls.
Changes in Internal Control over Financial Reporting
There were changes in our internal control over financial
reporting that occurred during our last fiscal year that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting. During the year, we improved our internal controls
through the appointment of a CEO separate from the CFO position, the appointment
of a new treasurer and corporate secretary. We appointed 3 new board members,
one of which has financial expertise.
This annual report does not include an attestation report of
the company’s registered public accounting firm regarding internal control over
financial reporting. Our management’s report was not subject to attestation by
our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only the
management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial
reporting, other than those mentioned above, that occurred during the last
quarter of our fiscal year ended December 31, 2013, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
26
|
ITEM 9B.
|
OTHER INFORMATION
|
Not applicable.
(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)
Park Place Energy Corp., formerly ST
Online Corp. (the “Company”), was incorporated under the laws of the State of
Nevada on August 27, 2004. On July 30, 2007, the Company acquired Park Place
Energy (Canada) Inc. The acquisition was a capital transaction in substance and
therefore was accounted for as a recapitalization. Under recapitalization
accounting, Park Place Energy (Canada) Inc. was considered the acquirer for
accounting and financial reporting purposes, and acquired the assets and assumed
the liabilities of the Company. These consolidated financial statements include
the accounts of the Company since the effective date of the recapitalization and
the historical accounts of the business of Park Place Energy (Canada) Inc. since
inception. The Company is in the business of acquiring and exploring oil and gas
properties. On December 30, 2013, the Company disposed Park Place Energy
(Canada) Inc. Refer to Note 3. The Company has not produced significant revenue
from its principal business, and is an exploration stage company as defined by
ASC 915, “Development Stage Entities”.
These consolidated financial statements
have been prepared on a going concern basis, which implies the Company will
continue to realize its assets and discharge its liabilities in the normal
course of business. The Company has a history of negative cash flows from
operating activities and the continuation of the Company as a going concern is
dependent upon the continued financial support from its shareholders, the
ability of the Company to obtain necessary equity financing to continue
operations, and the attainment of profitable operations. As at December 31,
2013, the Company has a working capital deficit of $68,364 and an accumulated
deficit of $12,762,228 since inception. These factors raise substantial doubt
regarding the Company’s ability to continue as a going concern. These financial
statements do not include any adjustments to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The Company requires additional funds
over the next twelve months to fully implement its business plan. Management
will seek additional financing through the sale of equity and from borrowings
from private lenders to cover its operating expenditures when necessary. There
can be no certainty that these sources will provide the additional funds
required for the next twelve months.
Level 1 applies to assets or
liabilities for which there are quoted prices in active markets for identical
assets or liabilities.
Level 2 applies to assets or
liabilities for which there are inputs other than quoted prices that are
observable for the asset or liability such as quoted prices for similar assets
or liabilities in active markets; quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable
market data.
Level 3 applies to assets or
liabilities for which there are unobservable inputs to the valuation methodology
that are significant to the measurement of the fair value of the assets or
liabilities.
On December 30, 2013, the Company
completed the sale of its wholly owned subsidiary Park Place Energy (Canada)
Inc. to a non-related party for proceeds of $10 resulting in a gain on sale of
subsidiary of $19,775.
The Company holds a 98,205 acre oil and gas exploration claim in the Dobroudja Basin located in northeast Bulgaria (the “Block”). The Company intends to conduct exploration for natural gas and test production activities over a five year period in accordance with or exceeding its minimum work program obligation, which includes five wells, and additional testing and work. The Company intends to commence its work program efforts in 2014.
The Company has issued stock options
pursuant to two stock option plans, the 2013 Long-term Incentive Plan “the 2013
LTIP” and the 2011 Stock Option Plan (which was replaced by the 2013 LTIP).
Under the 2013 LTIP, the total number of authorized options which may be granted
is up to a total of 10% of the total number of shares of common stock issued and
outstanding of the company on a rolling basis. Under the 2013 LTIP, the exercise
price of each option shall not be less than the market price of the Company’s
stock as calculated immediately preceding the day of the grant. The vesting
schedule for each option shall be specified by the Board of Directors at the
time of grant. The maximum term of options granted is ten years or such lesser
time as determined by the Company at the time of grant.
The following table summarizes the
continuity of the Company’s stock options:
Additional information regarding stock
options as of December 31, 2013, is as follows:
The fair values for stock options
granted have been estimated using the Black-Scholes option pricing model
assuming no expected dividends and the following weighted average
assumptions:
The fair value of stock options vested
during the year ended December 31, 2013 was $212,103 (2012 – $nil) which was
recorded as stock-based compensation and charged to operations. The weighted
average fair value of stock options granted during the year ended December 31,
2013 was $0.15 (2012 – $nil) per option.
As at December 31, 2013, the following
share purchase warrants were outstanding:
The Company’s operations are in the
resource industry in Canada and Bulgaria. Geographical information is as
follows:
The Company has net operating losses
carried forward of $3,853,422 available to offset taxable income in future years
which expires beginning in fiscal 2027.
The Company is subject to United States
federal and state income taxes at a rate of 34%. The reconciliation of the
provision for income taxes at the United States federal statutory rate compared
to the Company’s income tax expense as reported is as follows:
The significant components of deferred
income tax assets and liabilities as at December 31, 2013 and 2012 are as
follows:
On December 31, 2013, the Company
changed its reporting currency from Canadian dollars to US dollars. In preparing
the Company’s prior year comparative balances in US dollars, the Company has
adjusted amounts previously reported in the financial statements in Canadian
dollars. The changes made to the consolidated balance sheet as at December 31,
2012 and the related consolidated statements of operations and cash flows for
the year then ended are shown below.