UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended September 30, 2014

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______

 

Commission File Number: 0-24012

 

DEEP WELL OIL & GAS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   98-0501168
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
 
Suite 700, 10150 – 100 Street, Edmonton, Alberta, Canada   T5J 0P6
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (780) 409-8144

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange on which registered
None   None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.001 par value per share
(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐   No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐   No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 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. 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 (§232.405 of this chapter) 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 pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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.

 

Large accelerated filer   Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company ☒ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes    No ☒

 

The aggregate market value of the registrant’s common stock held by non-affiliates computed by reference to the price at which the common equity was sold on or about March 31, 2014 was approximately $17.9 million.

 

As of January 5, 2015, the Issuer had outstanding approximately 229,374,605 shares of common stock, $0.001 par value per share.

 

 

 

 
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TABLE OF CONTENTS

 

    Page Number
     
GLOSSARY AND ABBREVIATIONS 3
     
CURRENCY EXCHANGE RATES 6
   
PART I
     
ITEM 1. BUSINESS 6
     
ITEM 1A. RISK FACTORS 11
     
ITEM 1B. UNRESOLVED STAFF COMMENTS 14
     
ITEM 2. PROPERTIES 14
     
ITEM 3. LEGAL PROCEEDINGS 19
     
ITEM 4. MINE SAFETY DISCLOSURES 19
     
PART II
     
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER  MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 20
     
ITEM 6. SELECTED FINANCIAL DATA 22
     
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 23
     
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29
     
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 30
     
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 54
     
ITEM 9A. CONTROLS AND PROCEDURES 54
     
ITEM 9B. OTHER INFORMATION 55
     
PART III
     
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 55
     
ITEM 11. EXECUTIVE COMPENSATION 60
     
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 64
     
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 66
     
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 67
     
PART IV
     
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 68

  

 
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GLOSSARY AND ABBREVIATIONS

 

The following are defined terms and abbreviations used herein:

 

API Gravity – a specific gravity scale developed by the American Petroleum Institute for measuring the density or specific gravity (heaviness) of petroleum liquids, expressed in degrees. The higher the number, the lighter the oil.

 

Alberta Energy Regulator (“AER” formerly “ERCB”) – The AER is responsible for the development of Alberta’s oil (including oil sands) and gas resources. The AER succeeded the ERCB and will take on regulatory functions from the Ministry of Environment and Sustainable Resource Development that relate to public lands, water, and the environment. The AER will provide full-lifecycle regulatory oversight of energy resource development in Alberta from application and construction to abandonment and reclamation, and everything in between.

 

Barrel – the common unit for measuring petroleum, including heavy oil. One barrel contains approximately 159 L.

 

Battery – equipment to process or store crude oil from one or more wells.

 

Bbl or Bbls – means barrel or barrels.

 

Bitumen – a heavy, viscous form of crude oil that generally has an API gravity of less than 10 degrees.

 

Cdn$ or Cdn dollar – means Canadian dollars.

 

Celsius – a temperature scale that registers the freezing point of water as 0 degrees and the boiling point as 100 degrees under normal atmospheric pressure. Room temperature is between 20 degrees and 25 degrees Celsius. Temperatures specified herein are quoted in degrees Celsius unless indicated otherwise.

 

Cold Flow – a production technique where the oil is simply pumped out of the sands not using a Thermal Recovery Technique.

 

Conventional Crude Oil – crude oil that flows naturally or that can be pumped without being heated or diluted.

 

Core – a cylindrical rock sample taken from a formation for geological analysis.

 

Crude Oil – oil that has not undergone any refining. Crude oil is a mixture of hydrocarbons with small quantities of other chemicals such as sulphur, nitrogen and oxygen. Crude oil varies radically in its properties, namely specific gravity and viscosity.

 

Cyclic Steam Stimulation (“CSS”) or Horizontal Cyclic Steam Stimulation (“HCSS”) – a thermal in situ recovery method, which consists of a three-stage process involving high-pressure steam injected into the formation for several weeks through vertical or horizontal wells. The heat softens the oil while the water vapor helps to dilute and separate the oil from the sand grains. The pressure also creates channels through which the oil can flow more easily to the well. When a portion of the reservoir is thoroughly saturated, the steam is turned off and the reservoir maybe left to “soak” a short period of time. This is followed by the production phase, when the oil flows, or is pumped, up the same wells to the surface. When production rates decline, another cycle of steam injection begins. This process is sometimes called “huff-and-puff” recovery and can be done utilizing vertical or horizontal wells.

 

Darcy (Darcies) – a measure of rock permeability (the degree to which natural gas or crude oil can move through the rocks).

 

Density – the heaviness of crude oil, indicating the proportion of large, carbon-rich molecules, generally measured in kilograms per cubic metre (“kg/m3”) or degrees on the American Petroleum Institute (“API”) scale.

 

Development Well – a well drilled within an area of a natural gas or oil reservoir to the depth of a stratigraphic horizon to which proven reserves have been assigned.

 

Diluents – light petroleum liquids used to dilute bitumen and heavy oil so they can flow through pipelines.

 

Drill Stem Test (“DST”) – a method of formation testing. The basic drill stem test tool consists of a packer or packers, valves or ports that may be opened and closed from the surface, and two or more pressure-recording devices. The tool is lowered on the drill string to the zone to be tested. The packer or packers are set to isolate and test the zone from the drilling fluid column.

 

Drill String the column, or string, of drill pipe with attached tool joints that transmits fluid and rotational power from the drilling rig on the surface to the drill collars and the bit. Often, the term is loosely applied to include both drill pipe and drill collars.

 

Enhanced Oil Recovery – any method that increases oil production by using techniques or materials that are not part of normal pressure maintenance or water flooding operations. For example, natural gas can be injected into a reservoir to “enhance” or increase oil production.

 

Exploratory Well – a well drilled to find and produce natural gas or oil in an unproven area, to find a new reservoir in a field previously found to be productive of natural gas or oil in another reservoir, or to extend a known reservoir.

 

Farmout – an arrangement whereby the owner of a lease assigns some ownership portion (or all) of the lease(s) to another company (the “Farmee”) in return for the Farmee paying for the drilling on at least some portion of the lease(s) under the Farmout. 

 
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Gross Acre/Hectare – a gross acre is an acre in which any portion of a working interest is owned. 1 acre = 0.404685 hectares. 1 hectare = 2.471054 acres.

 

Heavy Oil – oil having an API gravity less than 22.3 degrees.

 

Horizontal Well – the drilling of a well that deviates from the vertical and travels horizontally through a producing layer of a reservoir.

 

In-situ – in the oil sands context (in-situ means “in place” in Latin), in-situ methods such as SAGD or CSS through horizontal or vertical wells maybe required to produce the oil if the oil sands deposits are too deep to mine from the surface.

 

Lease – a legal document giving an operator the right to drill for or produce oil or gas; also, the land on which a lease has been obtained.

 

License of Occupation (“LOC”) – a surface crown agreement issued by the Alberta Department of Sustainable Resources Development granting the mineral producer the right to occupy public lands for an approved purpose, usually issued primarily for access roads or to construct access roads, but may also be issued for other purposes.

 

Light Crude Oil – liquid petroleum which has a low density and flows freely at room temperature. Also called conventional oil, it has an API gravity of at least 22 degrees and a viscosity less than 100 centipoise.

 

Mbbl or Mbbls – means one thousand barrels or thousands of barrels.

 

MMbbl or MMbbls – means one million barrels or millions of barrels.

 

Mmcf – means million cubic feet.

 

Mineral Surface Lease (“MSL”) – a surface crown agreement issued by the Alberta Department of Sustainable Resources Development granting the mineral producer the right to construct a well site on publicly owned land.

 

Net Acre/Hectare – a net acre is the result that is obtained when the fractional ownership working interest of a lease is multiplied by gross acres of that lease.

 

Oil Sands – naturally occurring mixtures of bitumen, water, sand and clay that are found mainly in three areas of Alberta - Athabasca, Peace River and Cold Lake. A typical sample of oil sand might contain about 12% bitumen by weight.

 

Pay Zone (Net Oil Pay) – the producing part of a formation.

 

Permeability – the capacity of a reservoir rock to transmit fluids; or how easily fluids can pass through a rock. The unit of measurement is the darcy or millidarcy.

 

Porosity – the capacity of a reservoir to store fluids, the volume of the pore space within a reservoir, measured as a percentage.

 

Possible Reserves * – additional unproved reserves that analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves, but have at least a ten percent probability of being recovered.

 

Primary Recovery – the production of oil and gas from reservoirs using the natural energy available in the reservoirs and pumping techniques.

 

Proved Developed Reserves * – are those reserves that can be expected to be recovered.

 

Probable Reserves * – additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.

 

Proved Reserves * – estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

 

Proved Undeveloped Reserves * – are those reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

 

Saturation – the relative amount of water, oil, and gas in the pores of a rock, usually as a percentage of volume.

 

SEC – means United States Securities and Exchange Commission.

 

Section – in reference to a parcel of land, meaning an area of land comprising approximately 640 acres.

 

Service Well – a well drilled or completed for the purpose of supporting production in an existing field. Specific purposes of service wells include gas injection, water injection, steam injection, air injection, salt-water disposal, water supply for injection, observation, or injection for in-situ combustion. 

 
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Solution Gas – natural gas that is found “in solution” within crude oil in underground reservoirs. When the oil comes to the surface, the gas expands and comes out of the solution.

 

Specific Gravity – the ratio of the heaviness of a substance compared to that of the same volume of water.

 

Steam-Assisted Gravity Drainage (“SAGD”) – pairs of horizontal wells (an upper well and a lower well) are drilled into an oil sands formation and steam is injected continuously into the upper well. As the steam heats the oil sands formation, the bitumen softens and drains into the lower well, from which it is brought to the surface.

 

Steam to Oil Ratio (“SOR”) – measures the number of barrels of steam (measured in “Cold Water Equivalent Barrels”) needed for every barrel of oil produced. 

 

Thermal Recoverya type of improved recovery in which heat is introduced into a reservoir to lower the viscosity of heavy oils and to facilitate their flow into producing wells. The pay zone may be heated by injecting steam (steam drive) or by injecting air and burning a portion of the oil in place (in situ combustion).

 

Upgrading – the process that converts bitumen and heavy oil into a product with a density and viscosity similar to conventional light crude oil.

 

US$ or US dollar - means United States dollars.

 

Viscosity – a measure of a fluid’s resistance to flow. To simplify, the oil’s viscosity represents the measure for which the oil wants to stay put when pushed by moving mechanical components. It varies greatly with temperature. The more viscous the oil the greater the resistance and the less easy it is for it to flow. Centipoise is the common unit for expressing absolute viscosity. Viscosity matters to producers because the oil’s viscosity at reservoir temperature determines how easily oil flows to the well for extraction.

 

* This definition is an abbreviated version of the complete definition as defined by the SEC under Rule 4-10(a) of Regulation S-X.

 

 
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CURRENCY EXCHANGE RATES

 

Our functional currency is the US dollar. Therefore, our accounts are reported in United States dollars. However, our Canadian subsidiaries maintain their accounts and records in Canadian dollars. As a result the Canadian dollar amounts are converted according to our stated foreign currency translation accounting policy, except where otherwise indicated, all dollar amounts herein are stated in US dollars.

 

The following table sets forth the rates of exchange for the Canadian dollar, expressed in US dollars, in effect at the end of the following periods and the average rates of exchange during such periods, based on the noon rates of exchange for such periods as reported by the Bank of Canada.

 

Year ending September 30  2014   2013   2012 
             
Rate at year end  $0.8922   $0.9723   $1.0166 
Average rate for year  $0.9233   $0.9847   $0.9927 

 

Unless the context indicates another meaning, the terms “Company,” “Deep Well,” “we,” “us” and “our” refer to Deep Well Oil & Gas, Inc. and its subsidiaries through which it conducts business. For definitions of some terms used throughout this report, see “Glossary and Abbreviations”.

 

PART I

 

ITEM 1. BUSINESS

 

We are an emerging independent junior oil and gas exploration and development company headquartered in Edmonton, Alberta, Canada. Our immediate corporate focus is to develop the existing oil sands land base that we presently own in the Peace River oil sands area in North Central Alberta. Our principal office is located at Suite 700, 10150 – 100 Street NW, Edmonton, Alberta T5J 0P6, our telephone number is (780) 409-8144 and our fax number is (780) 409-8146. Deep Well Oil & Gas, Inc. is a Nevada corporation and our common stock trades on the OTCQB marketplace under the symbol DWOG. We maintain a web site at www.deepwelloil.com. The contents of our website are not part of this annual report on Form 10-K for the fiscal year ended September 30, 2014 (this “Annual Report”).

 

Formation of Organization

 

Deep Well Oil & Gas, Inc. was originally incorporated on July 18, 1988 under the laws of the state of Nevada as Worldwide Stock Transfer, Inc. and in connection with a plan of reorganization, effective on September 10, 2003, the Company was reorganized and changed its name to Deep Well Oil & Gas, Inc.

 

Deep Well Oil & Gas, Inc. has two wholly owned subsidiaries through which it conducts its operations: (1) Northern Alberta Oil Ltd. (“Northern”) acquired on June 7, 2005, and incorporated under the Business Corporations Act (Alberta), Canada on September 18, 2003; and (2) Deep Well Oil & Gas (Alberta) Ltd. (“Deep Well Alberta”), incorporated under the Business Corporations Act (Alberta), Canada on September 15, 2005.

 

Business Development

 

Effective December 3, 2012, we entered into and closed upon a Purchase and Sale agreement with our former joint venture partner, 1132559 Alberta Ltd. (“113”), pursuant to which we acquired 113’s 10% working interest in most of the Sawn Lake oil sands properties where we already owned working interests.

 

On July 30, 2013, we entered into a Steam Assisted Gravity Drainage Demonstration Project Joint Operating Agreement (the “SAGD Project Agreement”) to jointly participate in an AER-approved SAGD project (the “SAGD Project”) on one section of land where we have a 25% (since the execution of the Farmout Agreement as defined below) working interest. The SAGD Project is located on section 30-91-12W5 of our Peace River oil sands properties located in North Central Alberta, Canada (also known as our Sawn Lake oil sands properties). On August 15, 2013, and in accordance with the SAGD Project Agreement, we served notice (the “Notice of Election”) to the operator of the SAGD Project of our election to participate in the SAGD Project. Upon signing the Notice of Election we were required to pay in full the cash calls for our initial share of the costs of the SAGD Project and we have since paid all the cash calls in full as per the Farmout Agreement.

 

 
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On July 31, 2013, we entered into a farmout agreement (the “Farmout Agreement”) with an additional joint venture partner (the “Farmee”) to fund our share of the SAGD Project. In accordance with the Farmout Agreement the Farmee has agreed to provide up to $40,000,000 in funding for our portion of the costs for the SAGD Project in return for a net 25% working interest in 12 sections where we had a working interest of 50% before the execution of the Farmout Agreement. Also in accordance with the Farmout Agreement, the Farmee will also provide funding to cover monthly operating expenses of our Company, of which the first such monthly payment began in August of 2013 and shall not exceed $30,000 per month. In addition and as recently amended on November 17, 2014, the Farmee has the option, prior to December 31, 2015, by committing an additional $110,000,000 of financing to the development of our Company’s Sawn Lake oil sands properties, to obtain an additional working interest of 45% to 50% in the remaining 56 sections of land where we have working interests ranging from 90% to 100%.

 

On October 9, 2013, and in connection to the SAGD Project Agreement we entered into a Water Rights Conveyance Agreement whereby we acquired a 25% working interest in one water source well and one water disposal well.

 

In late August of 2014, the operator of the SAGD Project submitted an amended application to the AER to obtain approval to amend the SAGD Project to further drill, complete and produce from an additional SAGD well pair in 2015.

 

Effective September 25, 2014, through Deep Well Alberta, we entered into a Purchase and Sale agreement with Classic Energy Inc. (“Classic”), pursuant to which we acquired Classic’s 20% working interest in five sections in one Sawn Lake oil sands lease where we already own working interests. In connection with this acquisition, as of September 25, 2014, we have increased our net acres in our Sawn Lake oil sands properties from 33,463 to 34,096 net acres.

 

See “Present Activities - Peace River Oil Sands, Alberta Canada (Sawn Lake Properties)” under Item 2 “Properties” of this Annual Report for further information on the SAGD Project.

 

Principal Product

 

At this time, our primary interest and immediate focus is the exploration for and production of oil in the Peace River oil sands area located in North Central Alberta, Canada. We are engaged in the identification, acquisition, exploration and development of oil and gas prospects. Our main objective is to develop these oil sands lease holdings. Exploration and development for commercially viable production of any oil and gas company includes a high degree of risk which careful evaluation, experience and factual knowledge may not eliminate.

 

Sawn Lake Project – Peace River Oil Sands, Alberta, Canada

 

Currently, we have a 90% working interest in 51 sections on six oil sands leases where we are the operator, a 100% working interest in five sections on one oil sands lease where we are the operator, and a 25% working interest, since execution of the Farmout Agreement, in an additional 12 sections on two oil sands leases in the Peace River oil sands area of Alberta, Canada. These nine oil sands leases are all contiguous and cover 43,015 gross acres (17,408 gross hectares) with our Company having 34,096 net acres (13,798 net hectares). The focus of our Company’s operations is to exploit the heavy oil reservoir to establish proven reserves and to determine the best technology under which oil can be produced from our Sawn Lake project in order to generate positive cash flow.

 

Our Company’s participation in the SAGD Project, as described above under “Business Development”, is well underway. The operator has successfully drilled and completed our fist SAGD well pair along with constructing the steam plant facility. Steam injection began in May of 2014, and on September 16, 2014, the first SAGD well pair started producing oil in the form of bitumen. As of early November 2014, stable production of oil had been demonstrated. A production facility performance evaluation period extending to the spring of 2015 has been launched to assess the production levels and the steam oil ratios.

 

Previously, we successfully completed a drilling program and drilled six vertical wells. In addition, we have a working interest in three horizontal wells, and an interest in an additional two wells that we acquired from an unrelated third party. Since then we have been evaluating the options for production available to us to determine the preferable course of action. In August of 2013, we received approval from the AER for our horizontal cyclic steam stimulation thermal recovery project application (“HCSS Project”). It is anticipated that we will develop a thermal demonstration project on our properties followed by a commercial expansion project on one half section of land located on section 10-92-13W5 of our Sawn Lake oil sands properties where we currently have a 90% working interest. This application, submitted in early 2012, was an application to modify our previously approved in-situ demonstration project for a well to test thermal production on our Sawn Lake oil sands leases. This modification changed the vertical cyclical steam stimulation (“CSS”) well earlier approved, into a thermal recovery project to test two wells that use a horizontal application of CSS. We are currently waiting on the production facility performance results from the the SAGD Project in order to fine-tune our HCSS Project facility design before we initiate start-up operations on the ½ section of land where we plan to drill two horizontal wells to test the use of HCSS technology.

 

 
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Market and Distribution of Product

 

Currently, on lands where we have a 25% working interest, the operator of the SAGD Project markets and distributes all oil produced from the SAGD Project facility. This production is currently being trucked to market.

 

On lands where we are the operator, we intend to sell our oil and gas production under both short-term (less than one year) and long-term (one year or more) agreements at prices negotiated with third parties. Under both short-term and long-term contracts, typically either the entire contract (in the case of short-term contracts) or the price provisions of the contract (in the case of long-term contracts) are renegotiated in intervals ranging in frequency from daily to annual. At this time, we have no production on any of the lands where we are the operator and therefore we have no short-term or long-term contracts. We will adopt specific sales and marketing plans once production is achieved on lands where we are designated as the operator.

 

Market pricing for bitumen is seasonal, with lower prices in and around the calendar year-end being the norm due to lower demand for asphalt and other bitumen-derived products. By necessity, bitumen is regularly blended with diluent in order to facilitate its transportation through pipelines to North American markets. As such, the effective field price for bitumen is also directly impacted by the input cost of the diluent required, the demand and price of which is also seasonal in nature (higher in winter as colder temperatures necessitate more diluent for transportation). Consequently, bitumen pricing is usually weakest in and around December and not reflective of the annual average realized price or the economics of the “business” overall. We have been advised that, to price bitumen, marketers apply formulas that take as a reference point the prices published for crude oil of particular qualities such as “Western Canadian Select”, “Brent Crude Oil”, “Crude Bitumen 9 API Plant Gate”, “Edmonton light”, “Lloydminster blend”, or the more internationally known “West Texas Intermediate” (“WTI”).

 

The price of oil and natural gas sold is determined by negotiation between buyers and sellers. An order from the National Energy Board (“NEB”) is required for oil and gas exports from Canada. The NEB is a federal agency which was formed in 1959 by the Parliament of Canada to regulate oil, gas and electric utility industries. The NEB monitors the supply and demand of oil, as it does with natural gas, to ensure quantities exported do not exceed the surplus remaining after Canadian requirements have been met. Any oil export to be made pursuant to an export contract that exceeds a certain duration or quantity requires an exporter to obtain authorization from the NEB. Natural gas exported from Canada is also subject to similar regulation by the NEB. Exporters are free to negotiate prices and other terms with purchasers provided that the export contracts meet certain criteria prescribed by the NEB. The government of Alberta also regulates the volume of natural gas, which may be removed from the province for consumption elsewhere based on such factors as reserve availability, transportation arrangements and market considerations.

 

Competitive Business Conditions

 

We operate in a highly competitive environment, competing with major integrated and independent energy companies for desirable oil and natural gas properties as well as for the equipment, labour and materials required to develop and operate those properties. Many of our competitors have longer operating histories and substantially greater financial and other resources. Many of these companies not only explore for and produce crude oil and natural gas, but also carry on refining operations and market petroleum and other products on a worldwide basis. Our larger competitors, by reason of their size and relative financial strength, can more easily access capital markets than we can and may enjoy a competitive advantage, whereas we may incur higher costs or be unable to acquire and develop desirable properties at costs we consider reasonable because of this competition. Larger competitors may be able to absorb the burden of any changes in laws and regulation in the jurisdictions in which we do business and handle longer periods of reduced prices of gas and oil more easily. Our competitors may also be able to pay more for productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than we can. Our ability to acquire additional properties in the future will depend upon our ability to conduct efficient operations, evaluate and select suitable properties, implement advanced technologies and consummate transactions in a highly competitive environment.

 

Competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of Canada and other countries as well as other factors beyond our control, including international political stability, overall levels of supply and demand for oil and gas, and the markets for synthetic fuels and alternative energy sources.

 

Customers

 

We received our first oil sales revenue late in September of 2014. Currently the operator of the SAGD Project, markets and distributes all of the oil being produced from the SAGD Project. This production is currently being trucked to market.

 

 
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Royalty Agreements

 

Through the acquisition of Northern, we potentially became a party to the following:

 

On December 12, 2003, Nearshore Petroleum Corporation (“Nearshore”) entered into a purported royalty agreement with Mikwec Energy Canada, Ltd. (now known as Northern) that potentially encumbers six oil sands leases covering 23,405 gross acres (9,472 gross hectares) located within our Sawn Lake properties (the “Purported 6.5% Royalty”). Nearshore claimed a Purported 6.5% Royalty from Northern on the leased substances on the land interests which Northern holds in the above six oil sands leases. Nearshore was a private corporation incorporated in Alberta, Canada, and was owned and controlled by Mr. Steven P. Gawne and his wife, Mrs. Rebekah J. Gawne, who each owned 50% of Nearshore. Mr. Steven P. Gawne was the President, Chief Executive Officer and a director of Deep Well from February 6, 2004 to June 29, 2005. Nearshore has subsequently transferred part or all of this Purported 6.5% Royalty to other parties.

 

On March 18, 2014 and June 27, 2014, through Northern, we entered into and subsequently closed two Acquisition of Royalty Interest Agreements and General Indenture of Conveyance, Assignment and Transfer Agreements (collectively the “Agreements”), with one of our joint venture partners (our “JV Partner”) and one related party, Mr. Malik Youyou, whereby we acquired and cancelled 5.5% of the disputed Purported 6.5% Royalty claim on certain lands owned by us. Our counsel and the vendor’s counsel negotiated the terms and conditions of the Agreements. Pursuant to the terms and conditions of the Agreements, we paid the following consideration:

 

a)US$2,435,124 (Cdn$2,697,600) to our JV Partner for the purchase and transfer of an undivided 3% interest out of the Purported 6.5% Royalty. The consideration paid was the original cost (in Canadian dollars) that our JV Partner paid to acquire its 3% interest in the Purported 6.5% Royalty.

 

b)US$1,007,000 to Mr. Malik Youyou, who is a director and majority shareholder of our Company, for the purchase and transfer of an undivided 2.5% interest out of the Purported 6.5% Royalty. The consideration paid was for the reimbursement of the original cost (in US dollars) that Mr. Youyou paid to acquire this 2.5% interest in the Purported 6.5% Royalty from an arm’s length third party.

 

Although we continue to deny the validity of the Purported 6.5% Royalty, we determined that it was in the best interests of our shareholders to come to an arrangement to acquire and cancel most of the Purported 6.5% Royalty to prevent a potential encumbrance over our land or the possibility of future litigation resulting from these alleged royalty claims.

 

Government Approval and Crown Royalties

 

Exploration and Production. Our operations are subject to Canadian federal and provincial governmental regulations. Such regulations include: requiring approval and licenses for the drilling of wells, regulating the location of wells and the method and ability to produce the wells, surface usage and the restoration of land upon which wells have been drilled, the plugging and abandoning of wells and the transportation of production from our wells. Our operations are also subject to various conservation regulations, including the regulation of in-situ recovery processes, the size of spacing units, the number of wells which may be drilled in a unit, the unitization or pooling of oil and gas properties, the rate of production allowable from oil and gas wells and the ability to produce oil and gas.

 

The North American Free Trade Agreement. The North American Free Trade Agreement (“NAFTA”) grants Canada the freedom to determine whether exports to the United States or Mexico will be allowed. In making this determination, Canada must ensure that export restrictions do not (i) reduce the proportion of energy exported relative to the supply of the energy resource; (ii) impose an export price higher than the domestic price; or (iii) disrupt normal channels of supply. All parties to NAFTA are also prohibited from imposing minimum export or import price requirements.

 

Investment Canada Act. The Investment Canada Act of 1985, as amended, requires notification and/or review by the government of Canada in certain cases, including but not limited to, the acquisition of control of a Canadian Business by a non-Canadian. In certain circumstances, the acquisition of a working interest in a property that contains recoverable reserves will be treated as the acquisition of an interest in a “business” and may be subject to either notification or review, depending on the size of the interest being acquired and the asset size of the business.

 

Crown Royalties and Incentives. The governments of each province and the federal government of Canada have enacted legislation and regulations governing land tenure, royalties, production rates and taxes, environmental protection and other matters under their respective jurisdictions. The royalty regime is a significant factor in the profitability of oil and natural gas production. Royalties payable on production from lands other than Crown lands are determined by negotiations between the parties. Crown royalties are determined by provincial and federal government regulation and are generally calculated as a percentage of the value of the gross production with the royalty rate dependent in part upon prescribed reference prices, well productivity, geographical location, field discovery date and the type and quality of the petroleum product produced. From time to time, the governments of Canada and Alberta have established incentive programs such as royalty rate reductions, royalty holidays, tax credits and drilling royalty credits. These incentives are for the purpose of encouraging oil and natural gas exploration or enhanced recovery projects. These incentives generally increase cash flow.

 

Effective January 1, 2009, oil sands royalties in Alberta are calculated using a sliding scale for royalty rates ranging from 1% to 9% pre-payout and 25% to 40% post-payout depending on the world oil price. Project “payout” refers to the point in which we earn sufficient revenues to recover all of the allowed costs for the project plus a return allowance. The base royalty starts at 1% and increases for every dollar the world oil price, as reflected by the WTI, is priced above $55 per barrel, to a maximum of 9% when oil is priced at $120 per barrel or greater. The net royalty starts at 25% and increases for every dollar oil is priced above $55 per barrel to 40% when oil is priced at $120 or higher.

 

 
10

 

Research and Development

 

We had no material scientific research and development costs for the fiscal years ended September 30, 2014 and 2013.

 

Environmental Laws and Regulations

 

The oil and natural gas industry is subject to environmental laws and regulations pursuant to Canadian local, provincial and federal legislation. Environmental legislation provides for restrictions and prohibitions on releases or emissions of various substances produced or utilized in association with certain oil and gas industry operations. In addition, legislation requires that well and facility sites be monitored, abandoned and reclaimed to the satisfaction of provincial authorities. A breach of such legislation may result in the imposition of fines and penalties. Under these laws and regulations, we could be liable for personal injury, clean-up costs and other environmental and property damages as well as administrative, civil and criminal penalties. Accordingly, we could be liable or could be required to cease production on properties if environmental damage occurs. Although we maintain insurance coverage, the costs of complying with environmental laws and regulations in the future may harm our business. Furthermore, future changes in environmental laws and regulations could occur that result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, any of which could have a material adverse effect on our financial condition or results of operations. We maintain commercial property and general liability insurance coverage on the properties we operate. We also maintain operators extra expense insurance which provides coverage for well control incidents specifically relating to regaining control of a well, seepage, pollution, clean-up and containment. No coverage is maintained with respect to any fine or penalty required to be paid due to a violation of the regulations set out by the federal and provincial regulatory authorities. We are committed to meeting our responsibilities to protect the environment and anticipate making increased expenditures of both a capital and expense nature as a result of the increasingly stringent laws relating to the protection of the environment.

 

Alberta’s climate change regulation, effective July 1, 2007, requires Alberta facilities that emit more than 100,000 tons of greenhouse gases a year to reduce emissions intensity by 12%. Companies have four choices to meet their reductions: (i) they can make operating improvements to their operations that will result in greenhouse gas emission reductions; (ii) they can purchase Alberta based offset credits; (iii) they can contribute to the Climate Change and Emissions Management Fund; or (iv) they can purchase or use emission performance credits (“EPCs”). EPCs are generated by facilities that have gone beyond the 12% mandatory intensity reduction and can be banked for future use or sold to other facilities that need to meet the reduction target.

 

On June 18, 2009, the government of Canada passed an Environmental Enforcement Act (the “EEA”). The EEA was created to strengthen and amend nine existing statutes that relate to the environment and to enact provisions in respect of the enforcement of certain statutes that relate to the environment. The EEA amended various enforcement, offence, penalty and sentencing provisions to discourage offences under the EEA by setting minimum and maximum fines, in particular for serious offences. The EEA also provided enforcement officers new powers to investigate cases and grants courts new sentencing authorities that ensure penalties reflect the seriousness of the pollution and wildlife offences. The EEA also expands the authority to deal with environmental offenders by: (i) specifying aggravating factors such as causing damage to wildlife or wildlife habitat, or causing damage that is extensive, persistent or irreparable; (ii) providing fine ranges that are higher for corporate offenders than for individuals; (iii) doubling fine ranges for repeat offenders; (iv) authorizing the suspension and cancellation of licenses, permits or other authorizations upon conviction; (v) requiring corporate offenders to report convictions to shareholders; and (vi) mandating the reporting of corporate offences on a public registry.

 

Employees

 

Our Company currently has two prime subcontractors and three full-time employees. For further information on our subcontractors see “Compensation Arrangements for Executive Officers” under Item 11 “Executive Compensation” of this Annual Report. We expect that, from time to time, we will hire more employees, independent consultants and contractors during the stages of implementing our plans.

 

 
11

 

ITEM 1A. RISK FACTORS

 

An investment in our common stock is speculative and involves a high degree of risk and uncertainty. You should carefully consider the risks described below, together with the other information contained in our reports filed with the SEC, including the consolidated financial statements and notes thereto of our Company before deciding to invest in our common stock. The risks described below are not the only ones facing our Company. Additional risks not presently known to us, or that we presently consider immaterial may also adversely affect our Company. If any of the following risks occur, our business, financial condition and results of operations and the value of our common stock could be materially and adversely affected.

 

Any Development Of Our Resources Will Be Subject To Crown Royalties. The royalty regime of Alberta is a significant factor in the profitability of oil and natural gas production in Alberta, Canada. Crown royalties are determined by government regulation and are generally calculated as a percentage of the value of the gross production with the royalty rate dependent in part upon prescribed reference prices, well productivity, geographical location, field discovery date and the type and quality of the petroleum product produced. Penalties and interest may be charged to us if we fail to remit royalties on our production to the Crown as prescribed in the regulation.

 

We Have A History Of Losses And May Not Achieve Or Sustain Profitability In The Future. Since our inception, we have suffered recurring losses from operations and have been dependent on new investment to sustain our operations. During the years ended September 30, 2014 and 2013 we reported net losses of $2,040,260 and $2,463,403 respectively. We may not achieve profitability in the foreseeable future, if at all. In addition, our operating expenses may be more than our future revenue growth. We expect our cost of revenue and operating expenses to continue to increase in the foreseeable future as we continue to expand on our thermal recovery operations at Sawn Lake, Alberta.

 

The Successful Implementation Of Our Business Plan Is Subject To Risks Inherent In The Oil Sands Business. Our oil sands operations are subject to the economic risks typically associated with exploration, development and production activities, including the necessity of significant expenditures to locate and acquire properties and to drill exploratory wells. In addition, the cost and timing of drilling, completing, operating and acquiring regulatory approval for thermal recovery operations on our wells is often uncertain. In conducting exploration and development activities, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause our exploration, development and production activities to be unsuccessful. This could result in a total loss of our investment in a particular property. If exploration efforts are unsuccessful in establishing economically proven reserves and exploration activities cease, the amounts accumulated as unproven costs will be charged against earnings as impairments. Our exploitation and development of oil sands reserves depends upon access to the areas where our operations are to be conducted. We conduct a portion of our operations in regions where we are only able to do so on a seasonal basis. Unless the surface is sufficiently frozen, we are unable to access our properties, drill or otherwise conduct our operations as planned. In addition, if the surface thaws earlier than expected, we must cease our operations for the season earlier than planned. Our operations are affected by road bans imposed from time to time during the break-up and thaw period in the spring. Road bans are also imposed due to spring-break up, heavy rain, mud, rock slides and periods of high water, which can restrict access to our well sites and potential production facility sites. Our inability to access our properties or to conduct our operations as planned would result in a shutdown or slowdown of our operations, which would adversely affect our business.

 

We Rely On Independent Experts And Technical Or Operational Service Providers Over Whom We May Have Limited Control. The success of our business is dependent upon the efforts of various third parties that we do not control. We rely upon various companies to assist us in identifying desirable oil prospects to acquire and to provide us with technical assistance and services. We also rely upon the services of geologists, geophysicists, chemists, engineers and other scientists to explore and analyze oil prospects to determine a method in which the oil prospects may be developed in a cost-effective manner. In addition, we rely upon the owners and operators of oil drilling equipment to drill and develop our prospects to production. Although we have developed relationships with a number of third-party service providers, we cannot assure that we will be able to continue to rely on such persons. If any of these relationships with third-party service providers are terminated or are unavailable on commercially acceptable terms, we may not be able to execute our business plan. Our limited control over the activities and business practices of these third parties, any inability on our part to maintain satisfactory commercial relationships with them or their failure to provide quality services could materially and adversely affect our business, results of operations and financial condition.

 

Our Interests Are Held In The Form Of Leases That We May Be Unable To Retain. Our Sawn Lake property is held under leases and working interests in leases. These leases to which we are a party are for a fixed term of 15 years, but contain a provision that allows us to extend the term of the lease so long as we meet the minimum level of evaluation as set out by the government of Alberta tenure guidelines. If we or the holder of a lease fails to meet the specific requirements of the lease regarding delay or non-payment of rental payments or we or the holder of the lease fail to meet the minimum level of evaluation, some or all of our leases may terminate or expire. There can be no assurance that any of the obligations required to maintain each lease will be met. The termination or expiration of our leases or the working interests relating to leases may reduce our opportunity to exploit a given prospect for oil production and thus could have a material adverse effect on our business, results of operations and financial condition.

 

 
12

 

We Expect Our Operating Expenses To Increase Substantially In The Future And We May Need To Raise Additional Funds. We have a history of net losses and expect that our operating expenses will increase substantially over the next 12 months as we continue to develop our oil sands leases. In addition, we may experience a material decrease in liquidity due to unforeseen capital calls or other events and uncertainties. As a result, we may need to raise additional funds, and such funds may not be available on favourable terms, if at all. If we cannot raise funds on acceptable terms, we may not be able to execute our business plan, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. This could have a material adverse effect on our business, results of operations and financial condition.

 

Our Ability To Produce Sufficient Quantities Of Oil From Our Properties May Be Adversely Affected By A Number Of Factors Outside Of Our Control. The business of exploring for and producing oil and gas involves a substantial risk of investment loss. Drilling oil wells involves the risk that the wells may be unproductive or that, although productive, the wells may not produce oil in economic quantities. Other hazards such as unusual or unexpected geological formations, pressures, fires, blowouts, loss of circulation of drilling fluids or other conditions may substantially delay or prevent completion of any well. Adverse weather conditions can also hinder drilling operations. A productive well could become uneconomic due to, for example, pressure depletion, water encroachment or mechanical difficulties, which could impair or prevent the production of oil and/or gas from the well. There can be no assurance that oil will be produced from all of our properties in which we have interests. Marketability of any oil that we acquire or discover may be influenced by numerous factors beyond our control. The marketability of our production will depend on the proximity of our reserves to and the capacity of, third party facilities and services, including oil and natural gas gathering systems, pipelines, trucking or terminal facilities, and processing facilities. The unavailability or insufficient capacity of these facilities and services could force us to shut-in producing wells, delay the commencement of production, or discontinue development plans for some of our properties, which would adversely affect our financial condition and performance. There may be periods of time when pipeline capacity is inadequate to meet our oil transportation needs. During periods when pipeline capacity is inadequate, we may be forced to reduce production or incur additional expense as existing production is compressed to fit into existing pipelines. Other risk factors include availability of drilling and related equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental protection. Our ability to manage these factors could have a material adverse effect on our business, results of operations and financial condition.

 

We Do Not Control All Of Our Operations. We do not operate all of our properties and we therefore have limited influence over the testing, drilling and production operations of those properties. Currently, we have a 90% working interest in 51 sections on six oil sands leases, a 100% working interest in five sections on one oil sands lease, where we are the operator of the 90% and 100% leases. We also have a 25% working interest in an additional 12 sections on two oil sands leases where one of our joint venture partners is the operator. These nine oil sands leases, which are all contiguous, cover 43,015 gross acres (17,408 gross hectares) where we currently have 34,096 net acres (13,798 net hectares). All nine oil sands leases are located in the Peace River oil sands area of Alberta, Canada. Our lack of operational control of the 12 sections currently not operated by us means we are exposed to the following possibilities:

 

the operator might initiate exploration or development on a faster or slower pace than we prefer;

 

the operator might propose to drill more wells or build more facilities on a project than we have funds for or that we deem appropriate, which could mean that we are unable or decline to participate in the project or share in the revenues generated by the project; or

 

if the operator does not initiate a joint operation proposal to conduct further operations on these 12 sections, the non-operators are entitled to propose a joint operation that is separate from any already existing project. As a non-operator on those 12 sections, we might be unable to pursue further operations on those sections unless we and possibly other joint participating non-operators directly pay the entire cost thereof. In such a scenario, the Joint Operating Agreement governing the relationship of the joint interest owners in these 12 sections allow a party to recoup the costs which are paid on behalf of other non-participating joint owners in addition to penalties because of their non-participation.

 

Any of these events could materially reduce the value of those properties affected.

 

Aboriginal Peoples May Make Claims Regarding The Lands On Which Our Operations Are Conducted. Aboriginal peoples have claimed aboriginal title and rights to a substantial portion of western Canada. Since aboriginal peoples have filed a claim claiming aboriginal title or rights to the lands on which some of our properties are located, and if such a claim is successful, it could have a material adverse effect on our operations.

 

The AER governs our operations in Alberta, Canada and they have implemented a new directive (“Directive 056”) through which the government of Alberta has issued its First Nations Consultation Policy on Land Management and Resource Development on May 16, 2005. The AER expects that all industry applicants must adhere to this policy and the consultation guidelines. These requirements and expectations apply to the licensing of all new energy developments and all modifications to existing energy developments, as covered in Directive 056. In the policy, the government of Alberta has developed consultation guidelines to address specific questions about how consultation for land management and resource development should occur in relation to specific activities. Prior to filing an application, the applicant must address all questions, objections, and concerns regarding the proposed development project and attempt to resolve them. This includes concerns and objections raised by members of the public, industry, government representatives, First Nations, Métis, and other interested parties. This process can cause significant delays in obtaining a drilling permit for exploration and/or a production well license for both oil and gas.

 

 
13

 

Our Operations Are Subject To A Wide Range of Environmental Legislation and Regulation From All Levels Of Government Of Which We Have No Control. Environmental legislation imposes, among other things, restrictions, liabilities and obligations in connection with the generation, handling, storage, transportation, treatment and disposal of hazardous substances and waste and in connection with spills, releases and emissions of various substances into the environment. As well, environmental regulations are imposed on the qualities and compositions of the products sold and imported. Environmental legislation also requires that wells, facility sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, certain types of operations, including exploration and development projects and significant changes to certain existing projects, may require the submission and approval of environmental impact assessments. Compliance with environmental legislation can require significant expenditures, and failure to comply with environmental legislation may result in the imposition of fines and penalties and liability for cleanup costs and damages. The costs of complying with environmental legislation in the future could have a material adverse effect on our business, results of operations and financial condition. We anticipate that changes in environmental legislation may require, among other things, reductions in emissions to the air from its operations and result in increased capital expenditures. Future changes in environmental legislation could occur and result in stricter standards and enforcement, larger fines and liability, and increased capital expenditures and operating costs, which could have a material adverse effect on our business, results of operations and financial condition.

 

Market Fluctuations In The Prices Of Oil Could Adversely Affect Our Business. Prices for oil tend to fluctuate significantly in response to factors beyond our control. These factors include, but are not limited to, the ongoing wars in the Middle East and actions of the Organization of Petroleum Exporting Countries and its maintenance of production constraints, the U.S. economic environment, weather conditions, the availability of alternate fuel sources, transportation interruption, the impact of drilling levels on crude oil and natural gas supply, and the environmental and access issues that could limit future drilling activities for the industry.

 

Changes in commodity prices may significantly affect our capital resources, liquidity and expected operating results. Price changes directly affect revenues and can indirectly impact expected production by changing the amount of funds available to reinvest in exploration and development activities. Reductions in oil could not only reduce revenues and profits, but could also reduce the quantities of reserves that are commercially recoverable. Significant declines in oil prices could result in non-cash charges to earnings due to impairment.

 

Changes in commodity prices may also significantly affect our ability to estimate the value of producing properties for acquisition and divestiture and often cause disruption in the market for oil producing properties, as buyers and sellers have difficulty agreeing on the value of the properties. Price volatility also makes it difficult to budget for and project the return on acquisitions and development and exploitation of projects. We expect that commodity prices will continue to fluctuate significantly in the future.

 

Our Stock Price Could Decline. Our common stock is traded on the OTCQB marketplace. 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 announcements of our business developments or our competitors, quarterly variations in operating results, and other events or factors. In addition, stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. Such broad market fluctuations may adversely affect the price of our common stock. Our stock price may decline as a result of future sales of our shares or the perception that such sales may occur.

 

We Could Be Subject To SEC Penalties If We Do Not File All Of Our SEC Reports. Although we are presently up to date in our filings, in the past we have not timely filed all of our annual and quarterly reports required to be filed by us with the SEC, in a timely manner. It is possible that the SEC could take enforcement action against us, including potentially the de-registration of our securities, if we fail to file our annual and quarterly reports in a timely manner as required by the SEC. If the SEC were to take any such actions, it could adversely affect the liquidity of trading in our common stock and the amount of information about our Company that is publicly available.

 

Broker-Dealers Are Not Permitted To Solicit Trades In Our Common Stock. Our common stock is considered to be a “penny stock” because it meets one or more of the definitions of “penny stock” in Rule 3a51-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the stock and may only trade in it on an unsolicited basis. The continued inability of brokers to recommend our stock could have a material adverse effect on our business, results of operations and financial condition.

 

Risks Related To Broker-Dealer Requirements Involving Penny Stocks / Risks Affecting Trading and Liquidity. Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account. These rules may have the effect of reducing the level of trading activity in the secondary market, if and when one develops.

 

 
14

 

Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.” Moreover, SEC Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Pursuant to the Penny Stock Reform Act of 1990, broker-dealers are further obligated to provide customers with monthly account statements. Compliance with the foregoing requirements may make it more difficult for investors in our stock to resell their shares to third parties or to alternatively dispose of them in the market or otherwise.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Office Leases

 

We lease and maintain office space in Edmonton, Alberta for corporate and administrative operations. This lease will expire on June 30, 2015.

 

Oil and Gas Properties

 

Acreage

 

Currently, we have a 90% working interest in 51 sections on six oil sands leases, a 100% working interest in five sections on one oil sands lease, and a 25% working interest in an additional 12 sections on two oil sands leases in the Peace River oil sands area of Alberta, all of these sections are contiguous. These nine oil sands leases cover 43,015 gross acres (17,408 gross hectares). Of the 68 contiguous sections on nine oil sands leases, one of our joint venture partners is the operator of 12 sections on two oil sands leases where we have a 25% working interest since the execution of the Farmout Agreement, and we are the operator on 56 sections on seven oil sands leases where we have working interests of either 90% or 100%.

 

For further information, see Oil and Gas Properties on our Balance Sheet and Note 3 and Note 4 in the notes to our consolidated financial statements contained herein.

 

 

 
15

 

The following table summarizes, by geographic area, our gross and net developed and undeveloped Peace River oil sands rights under lease as of September 30, 2014:

 

Peace River Oil Sands Rights as of September 30, 2014

   Gross
Hectares
   Net
Hectares
   Gross
Acres
   Net
Acres
 
Developed Acreage                
Alberta, Canada   8    2    20    5 
Total   8    2    20    5 
                     
Undeveloped Acreage                    
Alberta, Canada   17,400    13,796    42,995    34,091 
Total   17,400    13,796    42,995    34,091 
                     
TOTAL Developed and Undeveloped   17,408    13,798    43,015    34,096 

 

A developed acre is considered to mean those acres spaced or assignable to productive wells, a gross acre is an acre in which a working interest is owned, and a net acre is the result that is obtained when the fractional ownership working interest of a lease is multiplied by gross acres of that lease. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof.

 

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 or natural gas, regardless of whether or not that acreage contains proven reserves, but does not include undrilled acreage held by production under the terms of a lease. As is customary in the oil and gas industry, we can generally retain our interest in undeveloped acreage by engaging in drilling activity that establishes commercial production sufficient to maintain the leases, or by paying delay rentals during the remaining primary term of such a lease. The oil sands leases in which we have an interest are for a primary term of 15 years, and if we meet the Minimum Level of Evaluation (“MLE”) as set out by the government of Alberta oil sands tenure guidelines we can continue these leases beyond their primary term for an indefinite period.

 

The government of Alberta owns the land and we have acquired the rights to perform oil and gas activities on these lands. If we meet the conditions of the 15-year leases we will be permitted to drill on and produce oil from the land into perpetuity. These conditions give us until the expiration of the leases to meet the following requirements on our primary oil sands leases:

 

(i)       drill 68 wells throughout the 68 sections; or

 

(ii)     drill 44 wells within the 68 sections and acquire and process two miles of seismic on each other undrilled section.

 

We plan to meet the second of these conditions. As at December 31, 2014, we have an interest in ten wells, which can be counted toward these requirements. We have acquired and processed 25 miles of seismic on the leases, some which can be counted toward the MLE requirements. Our joint venture partner and operator of the SAGD Project has also acquired additional seismic that can be used towards our MLE requirements.

 

We have also identified two other wells drilled on these leases, which may be included in the satisfaction of the MLE requirements.

 

Our developed and undeveloped oil sands acreage as of December 31, 2014, covers 43,015 gross acres (34,096 net acres) on 68 sections of land under nine oil sands leases. Until we extend the leases “into perpetuity” based on the government of Alberta regulations, the lease expiration dates of our nine oil sands leases are as follows:

 

(i)32 sections of land or 20,242 gross acres (13,284 net acres) under five oil sands leases are set to expire on July 10, 2018;

 

(ii)31 sections of land or 19,610 gross acres (17,649 net acres) under three oil sands leases are set to expire on August 19, 2019; and

 

(iii)five sections of land or 3,163 gross acres (3,163 net acres) under one oil sands lease are set expire on April 9, 2024. It is the Company’s opinion that the Company has already met the governmental requirements for this lease and it will be applying to continue this lease into perpetuity.

 

Delivery Commitments

 

We are not subject to any obligations under existing delivery commitment contracts or agreements calling for the provision of fixed and determinable quantities of oil and gas.

 

 
16

 

Disclosure of Reserves

 

Our oil reserves are attributable solely to properties within Alberta, Canada. The following table discloses, in the aggregate, the Company’s estimated reserves on the Company’s Sawn Lake oil sands properties located in the Peace River oil sands area of Alberta, Canada, as of September 30, 2014, based on estimated constant prices and cost assumptions. We reported no proved, probable or possible reserves based on Petroleum Resources Management System (“PRMS”) standards as at September 30, 2013.

 

Summary of Oil and Gas Reserves as of September 30, 2014 (Constant Prices and Costs)
   RESERVES 
   Light and
Medium Oil
   Heavy Oil   Oil   Natural Gas   Natural Gas Liquids 
Reserves Category   Gross (Mbbl)    Net (Mbbl)    Gross (Mbbl)    Net (Mbbl)    Gross (1) (Mbbl)    Net (2) (Mbbl)    Gross (Mmcf)    Net (Mmcf)    Gross (Mbbl)    Net (Mbbl) 
Proved                                        
Developed Producing                   281    257                 
Developed Non-producing                                        
Undeveloped                   290    266                 
Total Proved                   571    523                 
Probable                   1,793    1,475                 
Total Proved plus Probable                   2,364    1,998                 
Possible                   2,320    1,900                 
Total Proved plus Probable plus Possible                   4,684    3,898                 

 

(1)Gross Reserves – are defined as the Company’s working interest reserves (operating or non-operating) before deduction of royalties.

(2)Net Reserves – are defined as the Company’s working interest reserves (operating or non-operating) after deduction of royalties.

Note: The numbers in this table may not add exactly due to rounding.

 

Under current SEC standards, “Proved Reserves” are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible, from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations, prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.

 

Under current SEC standards, the term “Reasonable Certainty” if deterministic methods are used, implies a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate recovery (“EUR”) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease.

 

Reasonable certainty can be established using techniques that have been proved effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty.

 

Under current SEC standards, “Reliable Technology” is a grouping of one or more technologies (including computational methods) that have been field tested and have demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

 

In order to establish reasonable certainty with respect to our estimated proved reserves, we employ in-situ technologies that have been demonstrated to yield results in the oil sands with consistency and repeatability. The technical data used in the estimation of our proved reserves include, but are not limited to, electrical logs, core analyses, geologic maps and available downhole and production data, seismic data and well test data. Reserves attributable to our producing wells which have limited production history and for undeveloped locations are estimated using performance from analogous wells in the surrounding area and technical data to assess the reservoir continuity.

 

The accuracy of any reserve estimate is a function of the quality of available geological, geophysical, engineering and economic data, the precision of the engineering and geological interpretation and judgment. The estimates of reserves and future cash flows are based on various assumptions and are inherently imprecise. Although we believe these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil reserves may vary substantially from these estimates. Also, the use of a 10% discount factor for reporting purposes may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which our business or the oil and natural gas industry in general are subject.

 

There are numerous uncertainties inherent in estimating quantities of proved reserves and estimates of reserves quantities and values must be viewed as being subject to significant change as more data about our properties becomes available.

 

 
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Estimates of probable and possible reserves are inherently imprecise. When producing an estimate of the amount of oil that is recoverable from a particular reservoir, probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered. Possible reserves are even less certain and generally require only a 10% or greater probability of being recovered. All categories of reserves are continually subject to revisions based on production history, results of additional exploration and development, price changes and other factors. Estimates of probable and possible reserves are by their nature much more speculative than estimates of proved reserves and are subject to greater uncertainties, and accordingly the likelihood of recovering those reserves is subject to substantially greater risk.

 

Third Party Reports

 

Our estimates of proved, probable and possible reserves were based on an independent third party report prepared and evaluated by DeGolyer and MacNaughton Canada Limited (“DeGolyer”) an independent qualified reserves evaluator. DeGolyer is an Alberta Corporation with offices in Calgary, Alberta. DeGolyer is a subsidiary of DeGolyer and MacNaughton which has been providing petroleum consulting services throughout the world since 1936. DeGolyer was engaged by our Company to evaluate our Company’s Sawn Lake oil sands properties located in Northern Alberta and prepare an independent assessment and evaluation of our Company’s reserves as at September 30, 2014. Included herein, as Exhibit 23.1, is a consent report from DeGolyer.

 

Preparation of Reserves Estimates and Reserves Evaluation

 

Our reserves data and estimates were prepared and evaluated by DeGolyer in compliance with SEC definitions and guidance and in accordance with generally accepted petroleum engineering principles. The technical persons employed by DeGolyer met the requirements regarding qualifications, independence, objectivity and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Natural Gas Reserves Information promulgated by the Society of Petroleum Engineers.

 

Our reserves estimates are prepared by independent examination and evaluation of our production data, reservoir pressure data, logs, geological data, and offset analogies. DeGolyer is provided full access to complete and accurate information pertaining to our properties, and to all applicable personnel of our Company. DeGolyer’s independent evaluation of our reserves was supervised by Mr. Douglas S. Christie, Vice President of DeGolyer. Mr. Christie is a registered professional geologist in Alberta, Canada and has over 33 years of oil and gas industry experience and 22 years of application evaluation experience. Our Board recently appointed a reserves and resources committee consisting of four Board members. The reserves and resources committee members are Mr. Said Arrata, Mr. David Roff, Mr. Colin Outtrim and Mr. Curtis James Sparrow. Our reserves estimates and process for developing such estimates are reviewed by our current reserves and resources committee and approved by our management. Our management on behalf of our Board ensures compliance with SEC disclosure and internal control requirements along with verifying the independence of all third-party consultants. Our management is ultimately responsible for reserve estimates and reserve disclosures and ensuring that they are in accordance with the applicable regulatory requirements and industry standards and practices.

 

Estimates of oil and natural gas reserves are projections based on a process involving an independent third party engineering firm’s collection of all required geologic, geophysical, engineering and economic data, and such firm’s complete external preparation of all required estimates are forward-looking in nature. These reports rely upon various assumptions, including assumptions required by the SEC, such as constant oil and natural gas prices, operating expenses and future capital costs. The process also requires assumptions relating to availability of funds and timing of capital expenditures for development of our proven undeveloped reserves. These reports should not be construed as the current market value of our reserves. Because of the uncertainties inherent in the interpretation of this data, we cannot be certain that the reserves will ultimately be realized. Our actual results could differ materially.

 

Proved Undeveloped Reserves

 

Our independent reserves report, prepared by DeGolyer, estimates that we have 290 thousand barrels proved undeveloped reserves, before deduction of royalties as at September 30, 2014, on our Sawn Lake oil sands properties located in the Peace River oil sands area of Alberta, Canada. We have no material changes in our proved undeveloped reserves that occurred during the year to be reported, for the reason that this is the first time we have reported proved undeveloped reserves in any of our SEC filings.

 

The operator of the SAGD Project has indicated spending plans related to development of some of our proved undeveloped reserves over the next year, which includes the drilling of an additional SAGD well pair and potentially the expansion of our joint SAGD plant facility.

 

Reserves Reported to Other Agencies

 

The Company has filed a Statement of Reserves Data and Other Oil and Gas Information on Form 51-101F1 with the Alberta Securities Commission pursuant to National Instrument 51-101 – Standard of Disclosure for Oil and Gas Activities, which included estimates of total proved, probable and possible (developed and or undeveloped) net oil reserves prepared in accordance with the Canadian Oil and Gas Evaluation Handbook (“COGEH”).

 

 
18

 

Oil and Gas Production, Production Prices and Production Costs

 

On September 16, 2014, the first SAGD well pair started producing oil from our joint Sawn Lake oil sands properties. We received our first revenue late in September of 2014 from the sales of our produced oil. The following table discloses our Company’s share of production and average sales price for the last three fiscal years:

 

   Oil 
   Production(2)   Average Sales Price per Unit   Average Production Costs per Unit 
Fiscal Year  (bbls)   ($/bbl)   ($/bbl) 
Peace River Oil Sands, Alberta, Canada:            
2014(1)  $818.6   $61.77   $(3)
2013  $   $   $ 
2012  $   $   $ 

 

(1) First production began September 16, 2014.

(2) Our Company’s working interest share before royalties.

(3) Currently all of our operating costs from the SAGD Project are being paid by the Farmee under the terms of the Farmout Agreement

 

Productive Wells

 

The following table sets forth our gross and net productive oil wells as of September 30, 2014:

 

   Producing
Oil Wells
   Producing
Gas Wells
   Total 
   Gross   Net   Gross   Net   Gross   Net 
Gas                        
Oil   1(1)   0.25(1)           1    0.25 

 

(1) SAGD producer well

 

Drilling and Other Exploratory and Development Activities

 

The following table summarizes the results of our drilling activities in the Peace River oil sands area of Alberta during the fiscal years ended September 30, 2014, 2013 and 2012.

 

   Development (Net Wells)   Exploratory (Net Wells)   Total 
   Oil   Gas   Service
Well
   Dry   Oil   Gas   Service
Well
   Dry   Net
wells
 
2014                                    
Alberta, Canada   0.25(1)       0.75(2)                       1 
                                              
2013                                             
Alberta, Canada                                    
                                              
2012                                             
Alberta, Canada                                    

 

 

(1) Our 25% working interest in one SAGD producer well.

(2) Our 25% working interest in one SAGD steam injection well, one water source well and one disposal well.

 

Present Activities – Peace River Oil Sands, Alberta Canada (Sawn Lake Properties)

 

Currently we have no wells in the process of being drilled. However, we have nine wells on our Sawn Lake oil sands properties that we previously drilled and completed which are currently suspended.

 

On July 30, 2013, we entered into the SAGD Project Agreement. Our Company’s participation in the SAGD Project is well underway. For Phase 1 of the SAGD Project, one SAGD well pair was drilled in the fourth quarter of 2013 to a depth of 650 meters and a horizontal length of 780 meters. After the construction of the SAGD facility for steam generation, water handling and oil treating was completed in 2014, and steam injection commenced on May 21, 2014. The first oil production commenced on September 16, 2014. Results to date indicate that the SAGD production process is effective in this Bluesky formation reservoir. Oil sales averaged 221 barrels of oil per day, half way through the 3rd thirty day period since the start-up of production. Over the next several months the SAGD well pair is expected to have increased steam injection and oil production as the steam chamber develops. The objective of this initial SAGD well pair was to establish that SAGD technology is effective in producing oil from the Bluesky reservoir, and results to date support this. Production is anticipated to peak around September 2015 corresponding to the end of the first year of production.

 

 
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On July 31, 2013, we entered into the Farmout Agreement. In accordance with the Farmout Agreement, the Farmee has agreed to provide up to $40,000,000 in funding for our portion of the costs for the SAGD Project, in return for a net 25% working interest in 12 sections where we had a working interest of 50% before the execution of the Farmout Agreement. The Farmee will also provide funding to cover monthly operating expenses of our Company, not to exceed $30,000 per month. In addition, and as recently amended, the Farmee has the option to elect, prior to December 31, 2015,by committing an additional $110,000,000 of financing to the development of our Company’s Sawn Lake oil sands properties, to obtain an additional working interest of 45% to 50% in the remaining 56 sections of land where we have working interests ranging from 90% to 100%. As required by the Farmout Agreement, as of December 15, 2014, the Farmee has currently paid Cdn$19,355,129 to the operator of the SAGD Project for the Farmee’s share and our share of the costs of the SAGD Project.

 

Currently, we have in place joint operating agreements (our “Joint Operating Agreements”) with our joint venture partners to manage the operations of our joint oil sands leases. Under these agreements our joint oil sands leases were evaluated seismically, geologically and by drilling to establish the continuity and the distribution of the crude bituminous-bearing Bluesky reservoir zone across our joint lands. The development progress of our properties is governed by several factors such as federal and provincial governmental regulations. Long lead times in getting regulatory approval for thermal recovery projects are commonplace in our industry. Road bans, winter access only roads and environmental regulations can and often do delay development of similar projects. Because of these and other factors, our oil sands project can take significantly longer to complete than regular conventional drilling programs for lighter oil. To date, our geological, engineering and economic studies lead us to believe that our working interest can support full profitable commercial production.

 

In August 2013, we received approval from the AER for our HCSS Project application. It is anticipated that we will develop a thermal demonstration project on our properties followed by a commercial expansion project on one half section of land located on section 10-92-13W5 of our Sawn Lake oil sands properties where we currently have a 90% working interest. This application, submitted in early 2012, was an application to modify our previously approved in-situ demonstration project for a well to test thermal production on our Sawn Lake oil sands leases. This modification changed the vertical CSS well earlier approved, into a thermal recovery project to test two wells that use a horizontal application of CSS. We are currently waiting on the production facility performance results from the SAGD Project in order to fine-tune our HCSS Project facility design before we initiate start-up operations on the ½ section of land where we plan to drill two horizontal wells to test the use of HCSS technology.

 

ITEM 3. LEGAL PROCEEDINGS

 

DISMISSED - I.G.M. Resources Corp. vs. Deep Well Oil & Gas, Inc., et al

 

On February 11, 2014, the Court dismissed, without any costs to the Company, the Plaintiff’s claims against Deep Well Oil & Gas, Inc. and its subsidiary Northern Alberta Oil Ltd.

 

Previously on March 10, 2005, I.G.M. Resources Corp. (the“Plaintiff”) filed against Classic, 979708 Alberta Ltd. (“979708”), Deep Well Oil & Gas, Inc., Nearshore, Steven P. Gawne, Rebekah Gawne, Gawne Family Trust, 1089144 Alberta Ltd., John F. Brown, Diane Lynn McClaflin, Cassandra Doreen Brown, Elissa Alexandra Brown, Brown Family Trust, Priority Exploration Ltd., Northern and Gordon Skulmoski (the “IGM Defendants”), a Statement of Claim in the Court of Queen’s Bench of Alberta Judicial District of Calgary. This suit was part of a series of lawsuits or actions undertaken by the Plaintiff against some of the other above-named IGM Defendants. The Plaintiff claimed the value of the assets sold was far in excess of the value paid for those assets. On April 23, 2004, Northern purchased some of Classic’s assets, including some of which are under dispute by the Plaintiff. On June 7, 2005, Deep Well acquired all of the common shares of Northern thereby giving Deep Well an indirect beneficial interest in the assets in which the Plaintiff had claimed an interest. The Plaintiff had sought an order setting aside the transaction between 979708, compensation in the amount of Cdn $15,000,000 and a declaration of trust declaring that Northern and Deep Well hold all of the assets acquired from 979708 and any property acquired by use of such assets or confidential information of 979708, in trust for the Plaintiff.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

 
20

 

PART II

 

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Deep Well’s stock is currently quoted on the OTCQB marketplace under the trading symbol DWOG. The following table sets forth the high and low sales prices for Deep Well common stock as reported on the OTCQB marketplace for the two most recent fiscal years indicated below. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions:

 

   High   Low 
         
Fiscal September 30, 2013          
First Quarter  $0.08   $0.05 
Second Quarter  $0.08   $0.05 
Third Quarter  $0.09   $0.03 
Fourth Quarter  $0.50   $0.03 
Fiscal September 30, 2014          
First Quarter  $0.60   $0.27 
Second Quarter  $0.43   $0.27 
Third Quarter  $0.42   $0.15 
Fourth Quarter  $0.41   $0.27 

 

Holders of Record

 

As of October 31, 2014, we had approximately 164 holders of record of our shares of common stock. Our Company estimates that investment dealers and other nominees are the record holders for approximately 2,200 beneficial holders.

 

Dividends

 

We have not paid cash dividends since inception. We intend to retain all of our earnings, if any, for use in our business and do not anticipate paying any cash dividends in the foreseeable future. The payment of any future dividends will be at the discretion of the Board of Directors (our “Board”) and will depend upon a number of factors, including future earnings, the success of our business activities, capital requirements, the general financial condition and our future prospects, general business conditions and such other factors as our Board may deem relevant.

 

Return of Capital Distribution

 

On August 9, 2013, our Company approved a distribution to our shareholders in the amount of $0.07 per share of common stock to be payable on September 20, 2013 (the “Payment Date”) to the holders of record of all the issued and outstanding shares of common stock of the Company as of the close of business on August 16, 2013, (the “Record Date”). This cash distribution to our Company’s shareholders was not a dividend paid out of the earnings and profits, but was a non-dividend distribution characterized as a “return of capital”.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table provides information as of September 30, 2014 with respect to shares of Deep Well’s common stock that may be issued under our existing equity compensation plans.

 

   Equity Compensation Plan as of
September 30, 2014
   (a)   (b)  (c)
Plan Category 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
          
Equity compensation plans approved by security holders   11,830,000(1)  $0.26    11,102,699(2)
                
Equity compensation plans not approved by security holders            
                
Total   11,830,000   $0.26    11,102,699(2)

  

 
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(1) On March 23, 2011, our Board granted our directors, Dr. Horst A. Schmid, Mr. Said Arrata, Mr. Satya Das, Mr. David Roff, Mr. Curtis James Sparrow and Mr. Malik Youyou, options to purchase 450,000 shares each of common stock at an exercise price of $0.14 per share of common stock, with one-third vesting immediately, one-third vesting on March 23, 2012, and one-third vesting on March 23, 2013, each with a five-year life from the original grant date. On June 20, 2013, our Board granted our directors Dr. Horst A. Schmid, Mr. Said Arrata, Mr. Satya Das, Mr. David Roff, Mr. Curtis James Sparrow and Mr. Malik Youyou, options to purchase 450,000 shares each of common stock at an exercise price of $0.05 per share of common stock, with one-third vesting immediately, one-third vesting on June 20, 2014, and one-third vesting on June 20, 2015, each with a five-year life from the original grant date. And on June 20, 2013, our Board also granted two consultants, Portwest Investments Ltd. and Concorde Consulting, options to purchase 1,000,000 shares each of common stock at an exercise price of $0.05 per share of common stock, with one-half vesting immediately and one-half vesting on June 20, 2014, each with a five-year life from the original grant date. And on June 20, 2013, our Board also granted one employee of our Company, options to purchase 150,000 shares of common stock at an exercise price of $0.05 per share of common stock, with one-third vesting immediately, one-third vesting on June 20, 2014, and one-third vesting on June 20, 2015, with a five-year life from the original grant date. From August 12 to 15, 2013, six of our directors and one consultant exercised a total of 3,200,000 stock options. On October 28, 2013, the our Board granted a contractor an option to purchase 250,000 shares of common stock at an exercise price of $0.30 per share of common stock, all vesting immediately, with a five-year life, for his services in connection with the Farmout Agreement. On December 4, 2013, the Board appointed Mr. Pascal Nodé-Langlois to its Board and in connection with this appointment the Board granted Mr. Nodé-Langlois an option to purchase 450,000 shares each of common stock at an exercise price of $0.34 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on December 4, 2014, and one-third on December 4, 2015, with a five-year life. On September 19, 2014, the Board granted Dr. Horst A. Schmid, Mr. Said Arrata, Mr. Satya Das, Mr. Pascal Node-Langlois, Mr. David Roff, Mr. Curtis James Sparrow and Mr. Malik Youyou options to purchase 600,000 shares each of common stock at an exercise price of $0.38 per share of common stock, 200,000 vesting immediately and the remaining vesting one-third on September 19, 2015, and one-third on September 19, 2016, with a five-year life. On September 19, 2014, the Board granted two consultants, Portwest Investments Ltd. and Concorde Consulting, an option to purchase each 1,200,000 shares each of common stock at an exercise price of $0.38 per share of common stock, 600,000 vesting immediately and remaining vesting on September 19, 2015. On September 19, 2014, the Board granted one employee an option to purchase 180,000 shares each of common stock at an exercise price of $0.38 per share of common stock, 60,000 vesting immediately and the remaining vesting one-third on September 19, 2015, and one-third on September 19, 2016, with a five-year life.

 

(2) Based on 229,326,987 issued and outstanding shares as at September 30, 2014. The maximum number of common shares that may be reserved for issuance under the Stock Option Plan (as defined below), as amended, may not exceed 10% of our Company’s issued and outstanding common shares.

 

Stock Option Plan

 

On November 28, 2005 and as amended on December 4, 2013, our Board adopted the Deep Well Oil & Gas, Inc. stock option plan (the “Stock Option Plan”). The Stock Option Plan was approved by a majority of our shareholders at the February 24, 2010 general meeting of shareholders. The Stock Option Plan, which is administered by our Board, permits options to acquire shares of Deep Well’s common stock to be granted to our directors, senior officers and employees of the Company and its subsidiaries, as well as certain consultants and other persons providing services to our Company. This Stock Option Plan was adopted to provide an incentive to the retention of our directors, officers and employees as well as consultants that we may wish to retain in the future. The maximum number of shares of common stock, which may be reserved for issuance under the Stock Option Plan may not exceed 10% of our issued and outstanding common stock, subject to adjustment as contemplated by the Stock Option Plan. For further information see Note 12 in the notes to our consolidated financial statements contained herein.

 

On November 17, 2014, our Board appointed Mr. Colin P. Outtrim to serve on our Board and in connection with Mr. Outtrim’s appointment our Board granted Mr. Outtrim an option to purchase 600,000 shares each of common stock at an exercise price of $0.23 per common share, 200,000 vesting immediately and the remaining vesting one-third on November 17, 2015, and one-third on November 17, 2016, with a five-year life.

 

Performance Graph

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and therefore are not required to provide the information required under this item.

 

Recent Sales of Unregistered Securities

 

Effective November 23, 2012, pursuant to a subscription agreement, our Company completed a private placement with Mr. Malik Youyou of an aggregate of 42,857,142 units at a price of $0.07 per unit, for total gross proceeds of $3,000,000. Each unit is comprised of one share of common stock and one common share purchase warrant. Each warrant entitles the holder to purchase one share of common stock at a price of $0.105 for a period of three years from the date of closing, provided that if the closing price of the common shares of our Company on the principal market on which our common shares trade is equal to or exceeds $1.00 for thirty consecutive trading days, the warrant term will automatically accelerate to the date that is thirty calendar days following the date that written notice has been given to the warrant holder. No commission or finder’s fees were payable in connection with this private placement. The units were issued pursuant to Regulation S (“Regulation S”) under the Securities Act of 1933, as amended (the “Securities Act”). The warrants will expire on November 23, 2015 unless expiration is automatically accelerated.

 

On July 10, 2013, pursuant to a subscription agreement, our Company closed a private placement with Portwest Investments Ltd. (“Portwest”) a company 100% owned by Dr. Horst A. Schmid, of an aggregate of 850,000 units at a price of $0.05 per unit, for total gross proceeds of $42,500. Each unit is comprised of one share of common stock and one common share purchase warrant. Each warrant entitles the holder to purchase one share of common stock at a price of $0.075 for a period of three years from the closing date, provided that if the closing price of the common stock of our Company on the principal market on which our shares trade is equal to or exceeds $1.00 for thirty consecutive trading days, the warrant term shall automatically accelerate to the date which is thirty calendar days following the date that written notice has been given to the warrant holder. No commission or finder’s fees were payable in connection with this private placement. The units were issued pursuant to Regulation S. The warrants will expire on July 10, 2018 unless expiration is automatically accelerated.

 

 
22

 

On July 31, 2013, pursuant to a subscription agreement, our Company closed a private placement to one investor, our current Farmee, of an aggregate of 45,111,778 shares of common stock for total gross proceeds of $22,000,000. As per the private placement documents, the common stock were to be issued to the investor after September 20, 2013 but before November 30, 2013. And on October 16, 2014, we issued out of treasury 45,111,778 shares of our common stock to the Farmee. No commission or finder’s fees were payable in connection with this private placement. The shares of common stock were issued pursuant to Regulation S.

 

Between August 12 and August 15, 2013, six directors and two consultants of our Company acquired a combined total of 3,768,096 common shares of our common stock, upon exercising stock options and warrants, at exercise prices ranging from $0.05 to $0.14 per common share for total combined gross proceeds to our Company of $372,000. The shares of common stock were issued pursuant to Section 4(2) of the Securities Act.

 

On October 3, 2014, a warrant holder of our Company acquired 47,618 common shares of our Company, upon exercising warrants, at an exercise price of $0.105 per share of common stock for gross proceeds to our Company of $4,999.90.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

There were no repurchases of equity securities by our Company or affiliated purchasers during the fourth quarter of the fiscal year ended September 30, 2014.

 

ITEM 6. SELECTED FINANCIAL DATA

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and therefore are not required to provide the information required under this item.

 

 
23

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes. This discussion includes forward-looking statements that reflect our current views with respect to future events and financial performance that involve risks and uncertainties. Our actual results, performance or achievements could differ materially from those anticipated in the forward-looking statements as a result of certain factors including risks discussed in “Cautionary Note Regarding – Forward-Looking Statements” below and elsewhere in this report, and under the heading “Risk Factors” and “Environmental Laws and Regulations” disclosed in this Annual Report.

 

Our consolidated financial statements and information are reported in US dollars and are prepared based upon US generally accepted accounting principles (“US GAAP”). On January 6, 2015, the noon rate of exchange for Canadian dollars expressed in US$ was Cdn$1.00 = US$0.8472 as reported by the Bank of Canada.

 

General Overview

 

Deep Well Oil & Gas, Inc., along with its subsidiaries through which it conducts business, is an emerging independent junior oil and gas exploration and development company headquartered in Edmonton, Alberta, Canada. Our immediate corporate focus is to develop the existing land base that we presently control in the Peace River oil sands area in Alberta, Canada. Our principal office is located at Suite 700, 10150 - 100 Street NW, Edmonton, Alberta, Canada T5J 0P6, our telephone number is (780) 409-8144, and our fax number is (780) 409-8146. Deep Well Oil & Gas, Inc. is a Nevada corporation and trades on the OTCQB marketplace under the symbol DWOG. We maintain a web site at www.deepwelloil.com. The OTCQB marketplace requires companies to be fully compliant in their filing requirements under the Exchange Act.

 

Results of Operations

 

Since the inception of our current business plan, our operations have consisted of various exploration and start-up activities relating to our properties, which included acquiring lease holdings by acquisitions and public offerings, seeking investors, locating joint venture partners, acquiring and analyzing seismic data, environmental regulations, as well as providing project management, drilling, testing and analysis of wells to define our oil sands reservoir, and development planning of our AER approved thermal recovery projects, including the recent start-up of the SAGD Project which began producing oil on September 16, 2014. The following table sets forth certain financial information along with our first revenue with respect to our operations:

 

   Fiscal Year Ended   Fiscal Year Ended 
   September 30, 2014   September 30, 2013 
         
Revenue  $50,570   $ 
Royalty expenses   (3,454)    
Revenue, net of royalty   47,116     
           
Expenses          
Operating expenses  $239,820   $ 
Operating expenses covered by Farmout   (192,705)    
General and administrative   1,970,824    854,358 
Cost related to Farmout       1,790,684 
Depreciation, accretion and depletion   100,610    112,192 
           
Net loss from operations   (2,071,433)   (2,757,234)
           
Other income and expenses          
Rental and other income   19,675    272,339 
Interest income   11,112    21,492 
(Gain) Loss on disposal of assets   386     
           
Net loss and comprehensive loss  $(2,040,260)  $(2,463,403)

 

Our Company reported its first oil revenue in the amount of $47,116 after deduction of royalties. Given that our first oil production began close to our year end on September 16, 2014, we produced oil for only 14 days during the year ending September 30, 2014, therefore the volumes of oil delivered were only 818.6 barrels net to us, before royalties, for an average oil price of $61.77 per barrel. Transportation costs are included in operating expenses which are covered by our Farmout Agreement. Our total share of the material costs and operating expenses of the SAGD Project, as disclosed below, has been funded in accordance with the Farmout Agreement, at a net cost to us of $Nil. As required by the Farmout Agreement, as disclosed below, the Farmee during our September 20, 2014 fiscal year paid Cdn$16,677,530 to the operator of the SAGD Project for the Farmee’s share and our share of the costs of the SAGD Project up to September 30, 2014. These costs included the drilling of the SAGD well pair; the purchase and transportation of equipment; installation and construction of the steam plant facility; testing and commissioning; the purchase of the water source and disposal wells and expenditures to connect these water wells to the steam plant facility along with a fuel source tie-in; and the monthly operating expenses associated with the steaming and production of the SAGD well pair up to September 30, 2014. The total SAGD Project capital costs for Phase 1 plus additions have been estimated by the operator to be Cdn$32.6 million.

 

 
24

 

For the year ended September 30, 2014, our general and administrative expenses increased by $1,116,466 compared to the year ended September 30, 2013, which was a 130.7% increase from the prior year primarily due to (i) an increase of $962,257 in non-cash share-based compensation charged to expenses, which was due to vested stock options we granted on October 28, 2013, December 4, 2013 and September 19, 2014 to contractors and directors; (ii) an increase of foreign exchange loss of $274,624, due to the currency depreciation of the Canadian dollar conversion to U.S. dollars; and (iii) an increase in engineering fees for the preparation of a mandatory independent reserves evaluation of our Sawn Lake properties.

 

We also received $360,000 during the current fiscal year from the Farmee in accordance with a Farmout Agreement to offset some of our monthly operational expenses. After adjusting for the non-cash items and operational expenses reimbursed in accordance with the Farmout Agreement, our general and administrative expenses were $675,498 for the year ended September 30, 2014 compared to $795,913 for the year ended September 30, 2013.

 

For the year ended September 30, 2013, we charged to expense $1,790,684 for costs relating to the Farmout Agreement, which included a one-time agency fee of $1,500,000.

 

For the year ended September 30, 2014, our depreciation and accretion expense decreased by $11,582 compared to the year ended September 30, 2013, which was primarily due to the depreciating value of our assets. Depreciation expense is computed using the declining balance method over the estimated useful life of the asset. Effective December 3, 2012, we entered into and closed upon a Purchase and Sale agreement with 1132559 Alberta Ltd. (“113”), one of our former joint venture partners, pursuant to which we acquired 113’s 10% working interest in most of the Sawn Lake oil sands properties where we already own working interests, in exchange for cash and the discontinuance of claims. In compliance with our accounting policy, only half of the depreciation is taken in the year of acquisition.

 

For the year ended September 30, 2014, our rental and other income was $19,675 compared to $272,339 for the year ended September 30, 2013, this decreased by $252,664 compared to the year ended September 30, 2013, was primarily due to the recovery of expenses in fiscal 2013, arising from the reversal of part of the receivables and bad debts previously written-off in the amount of $239,459 which was paid to us in connection with a Purchase and Sale agreement, whereby our Company acquired an additional 10% working interest in most of the Sawn Lake oil sands properties where our Company already owns working interests.

 

As a result of the above transactions, our net loss and comprehensive loss from operations for the year ended September 30, 2014 decreased by $423,143 compared to the year ended September 30, 2012. As discussed above this increase was primarily due to $1,790,684 charged to expense for costs in connection with the Farmout Agreement and offset by the reversal of part of the receivables and bad debts previously written-off.

 

Operations

 

As previously disclosed by us, on July 31, 2013 we entered into the Farmout Agreement with our new joint venture partner (the “Farmee”), to fund our share of the SAGD Project. The SAGD Project is located on our Sawn Lake properties in the Peace River oil sands region of Alberta. In accordance with the Farmout Agreement, the Farmee has agreed to provide up to $40,000,000 in funding for our portion of the costs for the SAGD Project, in return for a net 25% working interest in 12 sections where we had a working interest of 50% before the execution of the Farmout Agreement. Also, the Farmee is required to provide funding to cover our monthly operating expenses not to exceed $30,000 per month. In addition, as amended on November 17, 2014, the Farmee has the option to elect to obtain additional working interests ranging from 45% to 50% in the remaining 56 sections of land where we have working interests ranging from 90% to 100%, by committing an additional $110,000,000 of financing for the development of our Sawn Lake oil sands properties.   DSC_0089

SAGD Steam Plant Facility May 2014 – Startup of first steam.

 

 
25

 

Water Treatment Plant
Installation of the water treatment plant at our joint SAGD Project.
  Since entering into the Farmout Agreement and the SAGD Project Agreement with our joint venture partners we can report that the first oil production commenced on September 16, 2014 from the first SAGD well pair. The SAGD well pair was drilled to a vertical depth of approximately 650 meters with a horizontal length of 780 meters each. Steam injection began in May of 2014 and circulated for up to four months with production commencing in mid-September 2014 from the Bluesky oil sands reservoir. The operator along with its joint venture partners will evaluate the production levels and steam to oil ratios over the next few months to determine and verify the use of SAGD technology in the Bluesky reservoir. After the production facility performance evaluation period, the operator of the SAGD Project is expecting to proceed with Phase 2, which includes work on preliminary engineering design, regulatory approval, environmental approval work, determining regulatory requirements sufficient to define the work program, and the drilling of an additional SAGD well pair and the associated expansion of the current SAGD plant facility.

 

Results to date indicate that the use of SAGD technology is successful in producing oil in the bitumen form from the Bluesky formation reservoir. Oil sales averaged 221 barrels of oil per day, half way through the 3rd thirty day period since the start-up of production. Over the next several months the SAGD well pair is expected to have increased steam injection and oil production as the steam chamber develops. The objective of this initial SAGD well pair was to establish that SAGD technology works in the Bluesky formation reservoir, and results to date support this. We are now focused on achieving commercial rates. We expect to achieve these results about March 2015 when reservoir modelling indicates that the steam chamber will have reached the top of the Bluesky formation sandstone reservoir. Peak production is anticipated to occur in the fourth quarter corresponding to the end of our first fiscal year of production.

 

On March 18, 2014 and June 27, 2014, through our subsidiary company, Northern, we entered into and subsequently closed two Acquisition of Royalty Interest Agreements and General Indenture of Conveyance, Assignment and Transfer Agreements (collectively “the Agreements”), with one of our joint venture partners (“JV Partner”) and one related party (Mr. Malik Youyou), whereby we acquired and cancelled 5.5% of the disputed 6.5% overriding royalty claim (the “Purported 6.5% Royalty”) on certain lands owned by us. Our counsel and the vendor’s counsel negotiated the terms and conditions of Agreements. Pursuant to the terms and conditions of the Agreements to acquire the purported overriding royalty interest claims, we paid the following consideration:

 

(i)US$2,435,124 dollars (Cdn$2,697,600) to our JV Partner for the purchase and transfer of an undivided 3% interest out of the Purported 6.5% Royalty. The consideration paid was the original cost (in Canadian dollars) that our JV Partner paid to acquire its 3% interest in the Purported 6.5% Royalty.

 

(ii)US$1,007,000 dollars to Mr. Malik Youyou, who is a director and majority shareholder of our Company, for the purchase and transfer of an undivided 2.5% interest out of the Purported 6.5% Royalty. The consideration paid was for the reimbursement of the original cost (in US dollars) that Mr. Youyou paid to acquire this 2.5% interest in the Purported 6.5% Royalty from an arm’s length third party.

 

Although we continue to deny the validity of the Purported 6.5% Royalty, we determined that it was in the best interests of our shareholders to come to an arrangement to acquire and cancel most of the Purported 6.5% Royalty to prevent a potential encumbrance over our land or the possibility of future litigation resulting from these alleged royalty claims.

 

In August 2013, we received approval from the AER for our HCSS Project application. It is anticipated that we will develop a thermal demonstration project on our properties followed by a commercial expansion project on one half section of land located on section 10-92-13W5 of our Sawn Lake oil sands properties where we currently have a 90% working interest. This application, submitted in early 2012, was an application to modify our previously approved in-situ demonstration project for a well to test thermal production on our Sawn Lake oil sands leases. This modification changed the vertical CSS well earlier approved, into a thermal recovery project to test two wells that use a horizontal application of CSS. We are currently waiting on the production facility performance results from the SAGD Project in order to fine-tune our HCSS project facility design, before we initiate start-up operations on the ½ section of land where we plan to drill two horizontal wells to test the use of HCSS technology.

 

 
26

 

Currently we have a 90% working interest in 51 sections on six oil sands leases and a 100% working interest in five sections on one oil sands lease in the Peace River oil sands area of Alberta, where we are the operator. In addition, we have a 25% working interest in another 12 sections on two oil sands leases in the Peace River oil sands area of Alberta. These nine oil sands leases are contiguous and cover 43,015 gross acres (17,408 gross hectares). The development progress of our properties is governed by several factors such as federal and provincial governmental regulations. Long lead times in getting regulatory approval for thermal recovery projects are commonplace in our industry. Road bans, winter access only roads and environmental regulations can and often do delay development of similar projects. Because of these and other factors, our oil sands project can take significantly longer to complete than regular conventional drilling programs for lighter oil. To date; our geological, engineering and economic studies affirm that our working interest can support full profitable commercial production.

 

MDA Map 2014-09-30

 

Liquidity and Capital Resources

 

As of September 30, 2014, our total assets were $23,691,595 compared to $24,366,368 as of September 30, 2013. In comparison to the prior year, we had a decrease of $674,773 in our total assets, which was primarily due to (i) an increase in general and administrative expenses due to an increase in engineering fees; (ii) $250,000 paid for legal costs related to the Farmout Agreement; and (iii) $189,500 paid to one of our directors for an outstanding loan payable.

 

As of September 30, 2014, our total liabilities were $1,200,188 compared to $922,057 as of September 30, 2013. In comparison to the prior year, we had an increase of $278,131 in our total liabilities. This increase was the result of $692,124 ($772,288 Cdn) owed to the operator of the SAGD Project for our share of the cost overruns, operating expenses, including the Phase 2 front end costs for the SAGD Project, of which costs were subsequently paid by the Farmee after September 30, 2014, in accordance with the Farmout Agreement, and offset by (i) the payout of a $189,500 loan payable owed to one of our directors; and (ii) $250,000 paid for legal costs related to the Farmout Agreement.

 

Our working capital (current liabilities subtracted from current assets) is as follows.

 

   September 30, 2014   September 30, 2013 
Current Assets  $3,418,729   $7,770,925 
Current Liabilities   731,175    475,902 
Working Capital  $2,687,554   $7,295,023 

 

As of September 30, 2014, our Company had working capital of $2,687,554 compared to our working capital of $7,295,023 as of September 30, 2013. This decrease was primarily the result of the purchase and cancellation of 5.5% of the disputeda Purported 6.5% Royalty on certain lands owned by us, as further described below in our “Investing Activities”. Currently we have no long-term debt other than our estimated asset retirement obligations on oil and gas properties. Effective November 23, 2012, we completed a private placement financing with one investor for aggregate gross cash proceeds of $3,000,000. Also, on July 31, 2013, we completed another private placement financing with one investor for aggregate gross cash proceeds of $22,000,000. Also as disclosed above, on July 30, 2013 our Company entered into the Farmout Agreement to fund our Company’s share of the SAGD Project.

 

 
27

 

As reported on our Consolidated Statement of Cash Flows under “Operating Activities”, for the year ending September 30, 2014, we had a decrease of $1,007,570 compared to September 30, 2013 year end, which was primarily due to a decrease of a one-time agency fee in the amount of $1,500,000 that was paid out in our 2013 fiscal year end, that was related to the Farmout Agreement and offset by an increase of $381,280 in non-cash working capital. As of December 31, 2012, we reversed part of the receivables and bad debts for one former joint venture partner in the amount of $267,962, which was related to a purchase agreement whereby we acquired an additional 10% working interest in most of the Sawn Lake oil sands properties where we already own working interests.

 

As reported on our Consolidated Statement of Cash Flows under “Investing Activities”, we had an increase of $1,148,707 in cash flows from investing activities for the year ended September 30, 2014 compared to the year ended September 30, 2013. As previously described under “Operations” above, we acquired and cancelled 5.5% of the Purported 6.5% Royalty from two separate parties for a total cost of $3,442,124. We also had an increase in our Company’s security deposits held in trust with the AER for our asset retirement obligations for future abandonment and reclamation of our Company’s well sites. In December 2012 we closed a purchase and sale agreement with a former joint venture partner, whereby we acquired an additional 10% working interest in our joint properties along with a 10% working interest increase in the equipment purchased for the wells drilled within those joint properties, in exchange for $2,412,960 cash and the discontinuance of legal actions against our former joint venture partner to collect amounts owed to us for past operations conducted on our joint properties.

 

As reported on our Consolidated Statement of Cash Flows under “Financing Activities”, for the year ended September 30, 2014, we had a decrease of $12,555,936 in net cash provided in financing activities. This decrease of net cash used in Financing Activities was primarily due to us completing (i) a private placement with one investor in November 2012 for total gross proceeds of $3,000,000; (ii) a private placement with one investor in July 2013 for total gross proceeds of $22,000,000; and (iii) a return of capital paid out to our shareholders in September of 2013 in the amount of $12,895,065. In October 2013, we paid $189,500 for the remaining outstanding loan payable owed to one of our directors.

 

Our cash and cash equivalents for the year ending September 30, 2014 were $2,324,755 compared to $7,633,009 for the prior year ended September 30, 2013, this decrease in cash and cash equivalents was primarily due to the acquisition of 5.5% of the Purported 6.5% Royalty from two separate parties at a total cost of $3,442,124; and (ii) a Cdn$1,200,000 cash call that we paid to the Operator of the SAGD Project for the winterization program in September 2014, which we subsequently collected from our Farmout partner in October 2014.

 

For our long-term operations, we anticipate that, among other alternatives, we may raise funds during the next twenty-four months through sales of our equity securities. We also note that if we issue more shares of our common stock, our stockholders will experience dilution in the percentage of their ownership of common stock. We may not be able to raise sufficient funding from stock sales for long-term operations and if so, we may be forced to delay our business plans until adequate funding is obtained.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Cautionary Note Regarding Forward-Looking Statements

 

This Annual Report, including all referenced Exhibits, contains “forward-looking statements” within the meaning of the US federal securities laws. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words “may,” “believe,” “intend,” “will,” “anticipate,” “expect,” “estimate,” “project,” “future,” “plan,” “strategy,” “probable,” “possible,” or “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters, often identify forward-looking statements. For these statements, Deep Well claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this Annual Report include, among others, statements with respect to:

 

our current business strategy;
our future financial position and projected costs;
our projected sources and uses of cash;
our plan for future development and operations, including the building of all-weather roads;
our drilling and testing plans;
our proposed thermal in-situ project or projects;
the sufficiency of our capital in order to execute our business plan;
our resource estimates;
the timing and sources of our future funding;
the quantity of our reserves;
the value of our reserves;
the intent to issue any distributions to our shareholders;

  

 
28

 

our plans for development of our Sawn Lake properties;
funding from the Farmee to pay our costs for the SAGD Project in connection to the Farmout Agreement;
additional sources of funding from the Farmout Agreement;
funding from the Farmee to cover our monthly operating expenses;
present and future production of our properties; and
expectations regarding the ability of our Company and its subsidiaries to raise capital and to continually add to reserves through acquisitions and development.

 

These forward-looking statements are based on the beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. Factors that could cause actual results to differ materially from those set forward in the forward-looking statements include, but are not limited to:

 

changes in general business or economic conditions;
changes in legislation or regulation that affect our business;
our ability to obtain necessary regulatory approvals and permits for the development of our properties;
our ability to receive approvals from the AER for additional tests to further evaluate the wells on our lands;
our Farmout Agreement and Joint Operating Agreements;
opposition to our regulatory requests by various third parties;
actions of aboriginals, environmental activists and other industrial disturbances;
the costs of environmental reclamation of our lands;
availability of labor or materials or increases in their costs;
the availability of sufficient capital to finance our business and or development plans on terms satisfactory to us;
adverse weather conditions and natural disasters affecting access to our properties and well sites;
risks associated with increased insurance costs or unavailability of adequate coverage;
volatility in market prices for oil, natural gas prices, diluent, and natural gas liquids;
competition;
changes in labor, equipment and capital costs;
future acquisitions or strategic partnerships;
the risks and costs inherent in litigation;
imprecision in estimates of reserves, resources and recoverable quantities of oil (bitumen) and natural gas;
product supply and demand;
changes and amendments in the Canadian Oil and Gas Evaluation Handbook and or the Petroleum Resources Management System to general disclosure of reserves and resources standards and specific annual reserves and resources disclosure requirements for reporting issuers with oil and gas activities;
future appraisal of potential oil (bitumen) and gas properties may involve unprofitable efforts;
the ability to meet minimum level of evaluation requirements to continue our oil sands leases beyond their expiry dates;
changes in general business or economic conditions;
risks associated with the finding, determination, evaluation, assessment and measurement of oil (bitumen) and gas deposits or reserves;
geological, technical, drilling and processing problems;
third party performance of obligations under contractual arrangements;
failure to obtain industry partner and other third party consents and approvals, when required;
changes under governmental regulatory regimes and tax laws;
royalties payable in respect of oil (bitumen) and gas production;
unanticipated operating events which can reduce production or cause production to be shut-in or be delayed;
incorrect assessments of the value of acquisitions, and exploration and development programs;
stock market volatility and market valuation of the common stock of our Company;
fluctuations in currency and interest rates; and
the additional risks and uncertainties, many of which are beyond our control, referred to elsewhere in this Annual Report and in our other SEC filings.

 

The preceding bullets outline some of the risks and uncertainties that may affect our forward-looking statements. For a full description of risks and uncertainties, see the sections elsewhere in this Annual entitled “Risk Factors” and “Environmental Laws and Regulations”. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. Any forward-looking statement speaks only as of the date on which it was made and, except as required by law, we disclaim any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q, 8-K and any other SEC filing or amendments thereto should be consulted.

 

 
29

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 under the Exchange Act and therefore are not required to provide the information required under this item.

 

 
30

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

SADLER, GIBB & ASSOCIATES, LLC

Certified Public Accountants

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

Deep Well Oil and Gas, Inc.

 

We have audited the accompanying consolidated balance sheets of Deep Well Oil & Gas, Inc. (“the Company”) as of September 30, 2014 and 2013, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Deep Well Oil & Gas, Inc. as of September 30, 2014 and 2013, and the results of its operations and cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

 

/s/ Sadler, Gibb & Associates, LLC

 

Sadler, Gibb & Associates, LLC

Salt Lake City, UT

January 13, 2015

 

office 801.783.2950
fax 801.783.2960

 

www.sadlergibb.com 2455 E. Parleys Way Suite 320, Salt Lake City, UT 84109

 

 
31

 

DEEP WELL OIL & GAS, INC. (AND SUBSIDIARIES)

Consolidated Balance Sheets

September 30, 2014 and September 30, 2013

 

   September 30,   September 30, 
   2014   2013 
         
ASSETS        
Current Assets          
Cash and cash equivalents  $2,324,755   $7,633,009 
Accounts receivable net of allowance of $nil (September 30, 2013 - $17,048)   1,050,099    55,216 
Prepaid expenses   43,875    82,700 
           
Total Current Assets   3,418,729    7,770,925 
           
Long term investments   409,618    343,565 
Oil and gas properties, net, based on successful efforts method of accounting   19,604,050    15,921,770 
Property and equipment, net of depreciation   259,198    330,108 
           
TOTAL ASSETS  $23,691,595   $24,366,368 
           
LIABILITIES          
Current Liabilities          
Accounts payable and accrued liabilities  $714,198   $268,258 
Accounts payable and accrued liabilities– related parties   16,977    18,144 
Loan payable – related parties (Note 9)       189,500 
           
Total Current Liabilities   731,175    475,902 
           
Asset retirement obligations (Note 10)   469,013    446,155 
           
TOTAL LIABILITIES   1,200,188    922,057 
           
SHAREHOLDERS’ EQUITY          
Common Stock: (Note 11)          
Authorized: 600,000,000 shares at $0.001 par value Issued and outstanding: 229,326,987 shares (September 30, 2013 – 229,326,987 shares)   229,326    229,326 
Additional paid in capital   41,040,447    39,953,091 
Accumulated Deficit   (18,778,366)   (16,738,106)
           
Total Shareholders’ Equity   22,491,407    23,444,311 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $23,691,595   $24,366,368 

  

See accompanying notes to the consolidated financial statements

 

 
32

 

DEEP WELL OIL & GAS, INC. (AND SUBSIDIARIES)

Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Years Ended September 30, 2014 and 2013

 

   September 30,   September 30, 
   2014   2013 
         
Revenue  $50,570   $ 
Royalty expenses   (3,454)    
Revenue, net of royalty   47,116     
           
Expenses          
Operating expenses   239,820     
Operating expense covered by Farmout   (192,705)    
General and administrative   1,970,824    854,358 
Cost related to Farmout (Note 3)       1,790,684 
Depreciation, accretion and depletion   100,610    112,192 
           
Net loss from operations   (2,071,433)   (2,757,234)
           
Other income and expenses          
Rental and other income   19,675    272,339 
Interest income   11,112    21,492 
Loss on disposal of assets   386     
           
Net loss and comprehensive loss  $(2,040,260)  $(2,463,403)
           
Net loss per common share          
Basic and Diluted  $(0.01)  $(0.01)
           
Weighted Average Outstanding Shares (in thousands)          
Basic and Diluted   229,326    181,661 

 

See accompanying notes to the consolidated financial statements

 

 
33

 

DEEP WELL OIL & GAS, INC. (AND SUBSIDIARIES)

Consolidated Statements of Shareholders’ Equity

For the Period from September 30, 2012 to September 30, 2014

 

   Common Shares   Additional
Paid in
   Capital Stock Subscriptions   Accumulated      
   Shares   Amount   Capital   Received   Deficit   Total 
                         
Balance at September 30, 2012   136,739,971   $136,739   $27,166,742       $(14,274,703)  $13,028,778 
                               
Private Placement November 23, 2012                              
- Shares (Note 11)   42,857,142    42,858    2,957,142            3,000,000 
                               
Private Placement June 20, 2013                              
- Shares (Note 11)   850,000    850    26,598            27,448 
- Warrants (850,000) (Note 11)           15,052            15,052 
- Accounts Payable Forgiven
(Note 11)
           234,402            234,402 
                               
Private Placement July 31, 2013                              
- Shares (Note 11)   45,111,778    45,111    21,954,889            22,000,000 
                               
Stock options                              
- Exercised August 12, 2013 (Note 11)   2,000,000    2,000    179,000            181,000 
                               
Warrants                              
- Exercised August 12, 2013 (Note 11)   330,000    330    24,670            25,000 
                               
Stock options                              
- Exercised August 13, 2013 (Note 11)   600,000    600    69,900            70,500 
                               
Warrants                              
- Exercised August 14, 2013 (Note 11)   238,096    238    24,762            25,000 
                               
Stock options                              
- Exercised August 15, 2013 (Note 11)   600,000    600    69,900            70,500 
                               
Return of Capital Distribution                              
- September 20, 2013 (Note 11)           (12,895,065)           (12,895,065)
                               
Options granted for services           125,099            125,099 
                               
Net operating loss for the year ended September 30, 2013                   (2,463,403)   (2,463,403)
                               
Balance at September 30, 2013   229,326,987   $229,326   $39,953,091   $   $(16,738,106)  $23,444,311 
                               
Options granted for services           1,087,356            1,087,356 
                               
Net operating loss for the year ended September 30, 2014                   (2,040,260)   (2,040,260)
                               
Balance at September 30, 2014   229,326,987   $229,326   $41,040,447   $   $(18,778,366)  $22,491,407 

 

See accompanying notes to the consolidated financial statements

 

 
34

 

DEEP WELL OIL & GAS, INC. (AND SUBSIDIARIES)

Consolidated Statements of Cash Flows

For the Years Ended September 30, 2014 and 2013

 

   September 30,   September 30, 
   2014   2013 
         
CASH PROVIDED BY (USED IN):        
         
Operating Activities        
Net loss  $(2,040,260)  $(2,463,403)
Items not affecting cash:          
Share based compensation   1,087,356    125,099 
Bad debts   428    (261,666)
Depreciation, accretion and depletion   100,610    112,192 
Forgiveness of loan payable and accounts payable       234,402 
Settlement of lawsuit       12,274 
Loss on disposal of assets   (386)    
Net changes in non-cash working capital (Note 13)   (511,285)   (130,005)
           
Net Cash Used in Operating Activities   (1,363,537)   (2,371,107)
           
Investing Activities          
Purchase of property and equipment   (2,046)    
Investment in oil and gas properties   (3,672,309)   (2,566,139)
Long term investments   (80,862)   (40,371)
           
Net Cash Used in Investing Activities   (3,755,217)   (2,606,510)
           
Financing Activities          
Payments on loan payable – related parties   (189,500)   260,000 
Proceeds from issuance of common stock       25,001,500 
Return of capital distribution       (12,895,065)
           
Net Cash Provided by (Used in) Financing Activities   (189,500)   12,366,435 
           
Increase (decrease) in cash and cash equivalents   (5,308,254)   7,388,818 
           
Cash and cash equivalents, beginning of year   7,633,009    244,191 
           
Cash and cash equivalents, end of year  $2,324,755   $7,633,009 
           
Supplemental Cash Flow Information:          
Cash paid for interest  $   $ 
Cash paid for income taxes  $   $ 

 

See accompanying notes to the consolidated financial statements

 

 
35

 

DEEP WELL OIL & GAS, INC. (AND SUBSIDIARIES)

Notes to the Consolidated Financial Statements

September 30, 2014 and 2013

 

 

 

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

Nature of Business

 

Deep Well Oil & Gas, Inc. was originally incorporated on July 18, 1988 under the laws of the state of Nevada as Worldwide Stock Transfer, Inc. (Worldwide Stock Transfer, Inc. later changed its name to Allied Devices Corporation) and in connection with a plan of reorganization, effective on September 10, 2003, the company was reorganized and changed its name to Deep Well Oil & Gas, Inc. (“Deep Well”).

 

Deep Well together with its subsidiaries, Northern Alberta Oil Ltd. and Deep Well Oil & Gas (Alberta) Ltd, (collectively referred to as the “Company”) is an independent junior oil sands exploration and development company with an existing oil sands land base in the Peace River oil sands area in Alberta, Canada.

 

These consolidated financial statements have been prepared showing the name “Deep Well Oil & Gas, Inc. (and Subsidiaries)” (“the Company”) and the post-split common stock, with $0.001 par value.

 

Basis of Presentation

 

These consolidated financial statements are expressed in U.S. dollars and are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

These statements reflect all adjustments, consisting solely of normal recurring adjustments (unless otherwise disclosed) which, in the opinion of management, are necessary for a fair presentation of the information contained herein.

 

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Consolidation

 

These consolidated financial statements include the accounts of two wholly owned subsidiaries: (1) Northern Alberta Oil Ltd. ("Northern") from the date of acquisition, being June 7, 2005, incorporated under the Business Corporations Act (Alberta), Canada; and (2) Deep Well Oil & Gas (Alberta) Ltd., incorporated under the Business Corporations Act (Alberta), Canada on September 15, 2005. All inter-company balances and transactions have been eliminated.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

 

Accounts Receivable, Net

 

As of September 30, 2014, accounts receivable included a prepayment of $1,200,000 Cdn that the Company subsequently collected from Farmout partner on October 21, 2014.

 

Allowance for Doubtful Accounts

 

The Company determines allowances for doubtful accounts based on aging of specific accounts. Accounts receivable are stated at the historical carrying amounts net of allowances for doubtful accounts and include only the amounts the Company deems to be collectable. The allowance for bad debts was $nil and $17,048 at September 30, 2014 and September 30, 2013 respectively.

 

 
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Crude oil and natural gas properties

 

The Company uses the successful efforts method of accounting for crude oil and natural gas properties whereby costs incurred to acquire mineral interests in crude oil and natural gas properties, to drill and equip exploratory wells that find proved reserves, to drill and equip development wells, and expenditures for enhanced recovery operations are capitalized. Geological and geophysical costs, seismic costs incurred for exploratory projects, lease rentals and costs associated with unsuccessful exploratory wells or projects are expensed as incurred. Costs of seismic studies that are utilized in development drilling within an area of proved reserves are capitalized as development costs. To the extent a seismic project covers areas of both developmental and exploratory drilling, those seismic costs are proportionately allocated between capitalized development costs and exploration expense. Maintenance, repairs and costs of injection are expensed as incurred, except that the costs of replacements or renewals that expand capacity or improve production are capitalized.

 

Under the successful efforts method of accounting, the Company capitalizes exploratory drilling, equipping and facility costs on the balance sheet pending determination of whether the project has found proved reserves in economically producible quantities. The Company capitalizes costs associated with the acquisition or construction of support equipment and facilities with the drilling and development costs to which they relate. If proved reserves are assigned to a project, the associated capitalized costs become part of well equipment and facilities. However, if proved reserves are not found in a project, the capitalized costs associated with the project are expensed, net of any salvage value. Total capitalized costs pending the determination of proved reserves were $19.6 million and $15.9 million as of September 30, 2014 and 2013, respectively.

 

Property and Equipment

 

Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using the declining balance method over the estimated useful life of the asset. Only half of the depreciation rate is taken in the year of acquisition. The following is a summary of the depreciation rates used in computing depreciation expense:

 

  Software  - 100%
  Computer equipment  -55%
  Portable work camp  -30%
  Vehicles  -30%
  Road Mats  -30%
  Wellhead  -25%
  Office furniture and equipment  -20%
  Oilfield Equipment  -20%
  Tanks  -10%

 

Expenditures for major repairs and renewals that extend the useful life of the asset are capitalized. Minor repair expenditures are charged to expense as incurred. Leasehold improvements are amortized over the greater of five years or the remaining life of the lease agreement.

 

Long-Lived Assets

 

Oil and Gas Properties - Proved crude oil and natural gas properties are reviewed for impairment on a field-by-field basis each quarter, or when events and circumstances indicate a possible decline in the recoverability of the carrying value of such field. The estimated future cash flows expected in connection with the field are compared to the carrying amount of the field to determine if the carrying amount is recoverable. If the carrying amount of the field exceeds its estimated undiscounted future cash flows, the carrying amount of the field is reduced to its estimated fair value. Due to the unavailability of relevant comparable market data, a discounted cash flow method is used to determine the fair value of proved properties. The discounted cash flow method estimates future cash flows based on management’s estimates of future crude oil and natural gas production, commodity prices based on commodity futures price strips, operating and development costs, and a risk-adjusted discount rate.

 

Non-producing crude oil and natural gas properties primarily consist of undeveloped leasehold costs and costs associated with the purchase of certain proved undeveloped reserves. Individually significant non-producing properties, if any, are assessed for impairment on a property-by-property basis and, if the assessment indicates an impairment, a loss is recognized by providing a valuation allowance consistent with the level at which impairment was assessed. For individually insignificant non-producing properties, impairment losses are recognized by amortizing the portion of the properties’ costs which management estimates will not be transferred to proved properties over the lives of the leases based on experience of successful drilling and the average holding period. The Company’s impairment assessments are affected by economic factors such as the results of exploration activities, commodity price outlooks, anticipated drilling programs, remaining lease terms, and potential shifts in business strategy employed by management.

 

Non Oil and Gas Assets - The Company reviews for the impairment of long-lived assets annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Impairment is measured as the amount by which the assets’ carrying value exceeds its fair value. No impairments to the Company’s long-lived assets were identified or recorded in the fiscal years ended September 30, 2014 and 2013.

 

 
37

 

Depreciation, Depletion and Amortization

 

Depreciation, depletion and amortization of capitalized drilling and development costs of producing crude oil and natural gas properties, including related support equipment and facilities, are computed using the unit-of-production method on a field basis based on total estimated proved developed crude oil and natural gas reserves. Amortization of producing leaseholds is based on the unit-of-production method using total estimated proved reserves. In arriving at rates under the unit-of-production method, the quantities of recoverable crude oil and natural gas reserves are established based on estimates made by the Company’s internal geologists and engineers and external independent reserve engineers. Upon sale or retirement of properties, the cost and related accumulated depreciation, depletion and amortization are eliminated from the accounts and the resulting gain or loss, if any, is recognized. Unit of production rates are revised whenever there is an indication of a need, but at least in conjunction with annual reserve reports. Revisions are accounted for prospectively as changes in accounting estimates.

 

Asset Retirement Obligations

 

The Company accounts for asset retirement obligations by recording the fair value of the estimated future cost of the Company’s plugging and abandonment obligations. The asset retirement obligation is recorded when there is a legal obligation associated with the retirement of a tangible long-lived asset and the fair value of the liability can be reasonably estimated. Upon initial recognition of an asset retirement obligation, the Company increases the carrying amount of the long-lived asset by the same amount as the liability. Over time, the liabilities are accreted for the change in their present value through charges to oil and gas production and well operations costs. The initial capitalized costs are depleted over the useful lives of the related assets through charges to depreciation, depletion, and amortization. If the fair value of the estimated asset retirement obligation changes, an adjustment is recorded to both the asset retirement obligation and the asset retirement cost.

 

Revisions in estimated liabilities can result from revisions of estimated inflation rates, escalating retirement costs, and changes in the estimated timing of settling asset retirement obligations. As at September 30, 2014 and 2013, asset retirement obligations amount to $469,013 and $446,155, respectively. The Company has posted bonds, where required, with the Government of Alberta based on the amount the government estimates the costs of abandonment and reclamation to be.

 

Foreign Currency Translation

 

The functional currency of the Canadian subsidiaries is the United States dollar. However, the Canadian subsidiaries transact in Canadian dollars. Consequently, monetary assets and liabilities are remeasured into United States dollars at the exchange rate on the balance sheet date and non-monetary items are remeasured at the rate of exchange in effect when the assets are acquired or obligations incurred. Revenues and expenses are remeasured at the average exchange rate prevailing during the year. Foreign currency transaction gains and losses are included in results of operations.

 

Accounting Methods

 

The Company recognizes income and expenses based on the accrual method of accounting.

 

Dividend Policy

 

The Company has not yet adopted a policy regarding payment of dividends.

 

Financial, Concentration and Credit Risk

 

The Company does not have any concentration or related financial credit risk related to cash as most of the Company’s funds are maintained in a financial institution which has its deposits fully guaranteed by the Government of Alberta.

 

The Company is not directly subject to credit risk resulting from the concentration of its crude oil sales. For the year ended September 30, 2014, the Company has recorded oil sales received from the operator of the Company’s producing properties. The Company’s joint venture partner is the operator of the Company’s producing properties and it is the Company’s joint venture partner who sells 100% of the Company’s oil production to two or more purchasers in the oil and gas industry. The Company does not require collateral and management periodically evaluates the operator’s financial statements and the collectability of oil sales receivables from the operator and believes that the Company’s oil sales receivables are fully collectable and that the risk of loss is minimal.

 

Income Taxes

 

The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized.

 

 
38

 

Due to the uncertainty regarding the Company’s profitability, a valuation allowance has been recorded against the future tax benefits of its losses and no net benefit has been recorded in the consolidated financial statements.

 

Revenue Recognition

 

The Company is in the business of exploring for, developing, producing, and selling crude oil and natural gas. Crude oil revenue is recognized when the product is taken from the storage tanks on the lease and delivered to the purchaser and title transfers to the purchaser. Payment is generally received one to three months after the sale has occurred.

 

Occasionally the Company may sell specific leases, and the gain or loss associated with these transactions will be shown separately from the profit or loss from the operations or sales of oil and gas products. Such gain or losses will be measured and recognized when all of the following have occurred: (1) there is persuasive evidence of an arrangement to sell; (2) the price of the sale is fixed or determinable; (3) the title to the lease has transferred; and (4) collection is reasonably assured.

 

Advertising and Market Development

 

The Company expenses advertising and market development costs as incurred.

 

Basic and Diluted Net Income (Loss) Per Share

 

Basic net income (loss) per share amounts are computed based on the weighted average number of shares actually outstanding. Diluted net income (loss) per share amounts are computed using the weighted average number of common shares and common equivalent shares outstanding as if shares had been issued on the exercise of the common share rights, unless the exercise becomes anti-dilutive and then the basic and diluted per share amounts are the same. There were 51,340,385 common stock equivalents excluded from the calculation because their effect would be antidilutive.

 

Financial Instruments

 

Financial instruments include cash and cash equivalents, accounts receivable, long term investments, investment in equity securities, accounts payable and accounts payable – related parties. The fair value of these financial instruments approximates their carrying value because of the short-term maturity of these items unless otherwise noted. The fair value of the investment in equity securities cannot be determined as the market value is not readily obtainable. The equity securities are reported using the cost method.

 

Environmental Requirements

 

At the report date, environmental requirements related to the oil and gas properties acquired are unknown and therefore an estimate of any future cost cannot be made.

 

Share-Based Compensation

 

The Company accounts for stock options granted to directors, officers, employees and non-employees using the fair value method of accounting. The fair value of stock options for directors, officers and employees are calculated at the date of grant and is expensed over the vesting period of the options on a straight-line basis. For non-employees, the fair value of the options is measured on the earlier of the date at which the counterparty performance is complete or the date at which the performance commitment is reached. The Company uses the Black-Scholes model to calculate the fair value of stock options issued, which requires certain assumptions to be made at the time the options are awarded, including the expected life of the option, the expected number of granted options that will vest and the expected future volatility of the stock. The Company reflects estimates of award forfeitures at the time of grant and revises in subsequent periods, if necessary, when forfeiture rates are expected to change.

 

Recently Adopted Accounting Standards

 

In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The guidance eliminates the definition of a development stage entity thereby removing the incremental financial reporting requirements from U.S. GAAP for development or exploration stage entities, primarily presentation of inception to date financial information. The provisions of the amendments are effective for annual reporting periods beginning after December 15, 2014, and the interim periods therein. However, early adoption is permitted. Accordingly, the Company has adopted this standard as of September 30, 2014.

 

The Company does not expect the adoption of any other recent accounting pronouncements to have a material impact on its financial statements.

 

 
39

 

Estimates and Assumptions

 

Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of the assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used in preparing these consolidated financial statements.

 

Significant estimates by management include valuations of oil and gas properties, valuation of accounts receivable, useful lives of long-lived assets, asset retirement obligations, valuation of share-based compensation, and the realizability of future income taxes.

 

3. OIL AND GAS PROPERTIES

 

The Company’s undeveloped oil sands acreage as of September 30, 2014, covers 43,015 gross acres (34,096 net acres) on 68 sections of land under nine oil sands leases. However, the Company announced in late September of 2014 that the operator confirmed production from the joint SAGD Project on some of the Company’s acreage. Until such time that the SAGD Project lands are classified as developed the Company will classify all of its oil sands acreage as undeveloped as of September 30, 2014. Until the Company extends the leases “into perpetuity” based on the Alberta governmental regulations, the lease expiration dates of the Company’s nine oil sands leases are as follows:

 

1)32 sections of land under five oil sands leases are set to expire on July 10, 2018;

 

2)31 sections of land under three oil sands leases are set to expire on August 19, 2019; and

 

3)5 sections of land under one oil sand lease are set expire on April 9, 2024. It is the Company’s opinion that the Company has already met the governmental requirements for this lease and it will be applying to continue this lease into perpetuity.

 

Effective September 25, 2014, the Company, through its subsidiary Deep Well Alberta, entered into a Purchase and Sale agreement with Classic Energy Inc. (“Classic”), pursuant to which the Company acquired Classic’s 20% working interest in five sections in one Sawn Lake oil sands lease where the Company already owned working interests. As of September 25, 2014, the Company increased its net acres in the Sawn Lake oil sands properties from 33,463 to 34,096 net acres.

 

Lease Rental Commitments

 

The Company has acquired interests in certain oil sands properties located in North Central Alberta, Canada. The terms include certain commitments related to oil sands properties that require the payments of rents as long as the leases are non-producing. As of September 30, 2014, the Company’s net payments due under this commitment are as follows:

 

     (Cdn $) 
  2015  $48,294 
  2016  $48,294 
  2017  $48,294 
  2018  $48,294 
  2019  $29,478 
  Subsequent  $22,400 

 

The Government of Alberta owns this land and the Company has acquired the rights to perform oil and gas activities on these lands. If the Company meets the conditions of the 15-year leases the Company will then be permitted to drill on and produce oil from the land into perpetuity. These conditions give the Company until the expiration of the leases to meet the following requirements on its primary oil sands leases:

 

1.drill 68 wells throughout the 68 sections; or

 

2.drill 44 wells within the 68 sections and having acquired and processed two miles of seismic on each other undrilled section.

 

The Company plans to meet the second of these conditions. As at September 30, 2014 and 2013, the Company has an interest in ten wells, which can be counted towards these requirements.

 

 
40

 

The Company has identified two other wells drilled on these leases, which may be included in the satisfaction of this requirement. The Company has also acquired and processed 25 miles of seismic on the leases, which can be counted towards these requirements.

 

The Company follows the successful efforts method of accounting for costs of oil and gas properties. Under this method, only those exploration and development costs that relate directly to specific oil and gas reserves are capitalized; costs that do not relate directly to specific reserves are charged to expense. Producing, non-producing and unproven properties are assessed annually, or more frequently as economic events indicate, for potential impairment.

 

This consists of comparing the carrying value of the asset with the asset's expected future undiscounted cash flows without interest costs. Estimates of expected future cash flows represent management's best estimate based on reasonable and supportable assumptions. Proven oil and gas properties are reviewed for impairment on a field-by-field basis. No impairment losses were recognized for the year ended September 30, 2014 (September 30, 2013 - $nil).

 

Capitalized costs of proven oil and gas properties will be depleted using the unit-of-production method when the property is placed in production.

 

Substantially all of the Company's oil and gas activities are conducted jointly with others. The accounts reflect only the Company's proportionate interest in such activities.

 

Steam Assisted Gravity Drainage Demonstration Project

 

On July 30, 2013, the Company entered into a Steam Assisted Gravity Drainage demonstration project (“SAGD Project”) Agreement with the Company’s joint venture partner to participate in a recently, Alberta Energy Regulator (“AER”), approved SAGD Project on the Company’s 50% (before Farmout Agreement) owned oil sands properties located in North Central Alberta, Canada (also known as the Sawn Lake heavy oil reservoir). On August 15, 2013, and in accordance with the SAGD Project Agreement and the Amendment, the Company served notice (“Notice of Election”) to the operator of the Company’s election to participate in the SAGD Project. Upon signing the Notice of Election the Company was required to pay in full the cash calls for the Company’s initial share of the costs of the SAGD Project and in accordance with a Farmout Agreement dated July 31, 2013, the Company has since paid all cash calls in full to the operator of the SAGD Project.

 

Farmout Agreement

 

On July 31, 2013, the Company entered into Farmout agreement (the “Farmout Agreement”) with an additional joint venture partner (the “Farmee”) to fund the Company’s share of the AER approved SAGD Project at the Company’s Sawn Lake heavy oil reservoir in North Central Alberta, Canada. In accordance with the Farmout Agreement the Farmee has agreed to provide up to $40,000,000 in funding for the Company’s portion of the costs for the SAGD Project, in return for a net 25% working interest in 12 sections where the Company has a working interest of 50%. The Farmee will also provide funding to cover monthly operating expenses of the Company, of which the first such payment shall be in respect of the month of August 2013 and not to exceed $30,000 per month. In addition, until December 31, 2014, the Farmee has the option to elect to obtain a working interest of 40% to 45% working interest in the remaining 56 sections of land where the Company has working interests ranging from 80% to 90% (amended November 17, 2014, see Note 17 herein), by committing an additional $110,000,000 of financing to the development of the Company’s Sawn Lake oil sands properties. An agent fee of $1,500,000 was paid in connection with the Farmout Agreement.

 

SAGD Project – Phase 1

 

The SAGD Project started with the first phase (“Phase 1”) consisting of the drilling and completion of one SAGD well pair, the construction of a facility for steam generation, water handling and oil treating, plus water source and disposal facilities. As required by the Farmout Agreement, the Farmee has since paid Cdn $16,677,530 to the operator of the SAGD Project for the Farmee’s share and the Company’s share of the costs of the SAGD Project up to September 30, 2014. The total SAGD Project capital costs for Phase 1 plus additions have been estimated by the operator to be Cdn $32.6 million. In late September of 2014, the Company paid a cash call to the operator in the amount of Cdn $1,200,000 for the winterization program of the SAGD Project. Pursuant to the Farmout Agreement dated July 31, 2013, the Farmee reimbursed the Company in the amount of Cdn $1,200,000 for the cash call in October 2014.

 

SAGD Project – Phase 2

 

On June 27, 2014, the Company paid a Cdn $300,000 cash call to the operator for the proposed Phase 2 front end costs for the SAGD Project. The Phase 2 front end costs include work on preliminary engineering design, regulatory approval, environmental approval work and determining regulatory requirements sufficient to define the work program, schedule and estimated cost of this second phase which is anticipated to include the drilling of two additional SAGD well pairs and the associated expansion of the current SAGD steam plant. The Farmee has reimbursed the Company in the amount of Cdn $300,000 as per the Farmout Agreement dated July 31, 2013.

 

 
41

 

Water Rights Conveyance Agreement

 

On October 9, 2013, and in connection to the SAGD Project agreement dated July 30, 2013, the Company entered into a Water Rights Conveyance Agreement whereby the Company acquired a 25% working interest in one water source well and one water disposal well for a cost of Cdn $384,046, which in turn was reimbursed to the Company by the Farmee. Also pursuant to the Water Rights Conveyance Agreement dated October 9, 2013 and the SAGD Project agreement dated July 30, 2013, the Company was issued a cash call in the amount of Cdn $1,058,568 for the expenditures relating to the water source well, water disposal well and pipelines to connect them to the SAGD Project surface facility. The Farmee has since paid this cash call in the amount of Cdn $1,058,568 pursuant to the Farmout Agreement dated July 31, 2013.

 

Acquisition of Royalty Interests

 

On March 18, 2014 and June 27, 2014, the Company, through its 100% wholly owned subsidiary company Northern Alberta Oil Ltd., entered into and subsequently closed two Acquisition of Royalty Interest Agreements and General Indenture of Conveyance, Assignment and Transfer Agreements (collectively the “Agreements”), with the Company’s joint venture partner (“JV Partner”) and one related party (Mr. Malik Youyou), whereby the Company acquired and cancelled 5.5% of a disputed 6.5% overriding royalty claim (the “Purported 6.5% Royalty”) potentially on some lands owned by the Company. The Company’s counsel and vendor’s counsel negotiated the terms and conditions of both the “Acquisition of Royalty Interest” and “General Indenture of Conveyance, Assignment and Transfer” agreements. Although the Company does not confirm the validity of the Purported 6.5% Royalty, the Company determined that it was in the best interests of its shareholders to come to an arrangement to acquire and cancel most of the Purported 6.5% Royalty to prevent a potential encumbrance over its land or the possibility of future litigation resulting from these alleged royalty claims. Pursuant to the terms and conditions of the Agreements to acquire the purported overriding royalty interest claims, the Company paid the following consideration:

 

a)US $2,435,124 (Cdn $2,697,600) was paid to the JV Partner for the purchase and transfer of an undivided 3% interest out of the Purported 6.5% Royalty. The consideration paid was the original cost (in Canadian dollars) that the JV Partner paid to acquire its 3% interest in the Purported 6.5% Royalty.

 

b)US $1,007,000 was paid to Mr. Malik Youyou, who is a director and majority shareholder of the Company, for the purchase and transfer of an undivided 2.5% interest out of the Purported 6.5% Royalty. The consideration paid was for the reimbursement of the original cost (in US dollars) that Mr. Youyou paid to acquire this 2.5% interest in the Purported 6.5% Royalty from an arm’s length third party.

 

4. CAPITALIZATION OF COSTS INCURRED IN OIL AND GAS ACTIVITIES

 

The Company accounts for the cost of its oil sands projects and continues to capitalize its project costs after the completion of drilling, equipping and facility construction as long as a sufficient progress is being made in assessing the oil sands reserves to justify the oil sands project as a producing facility.

 

For the fiscal year ending September 30, 2014, the Company’s management determined that sufficient progress has been made in assessing its oil sands reserves for continued capitalization of exploratory drilling, equipping and facility costs. In relation to this sufficient progress assessment of its oil sands project the Company considered among other criteria; long lead times in getting regulatory approval for oil sands thermal recovery projects, road bans, winter access only properties and governmental and environmental regulations which can and often delay development of oil sands projects. Because of these and other factors, the Company’s oil sands project can take significantly longer to complete than regular conventional drilling programs for lighter oil. To date the Company’s geological, engineering, economic studies and recently AER approved thermal recovery projects; including the Company’s now producing SAGD Project, continue to lead them to believe that there is continuing progress toward bringing the project to commercial production. Therefore, the Company has continued to capitalize its costs associated with its oil sands project.

 

For the Company’s oil sands projects, exploratory drilling, equipping and facility costs are capitalized on the balance sheet under “Oil and Gas Properties” line item, pending a determination of whether potentially economic oil sands reserves have been discovered by the drilling effort to justify the oil sands projects a producing facility. The Company periodically assesses the exploration, drilling, equipping and facility capitalized costs for impairment and once a determination is made that a well is of no potential economic value, the costs related to that oil sands project are expensed as dry hole and reported in exploration expense. No impairments to the Company’s long-lived assets were identified or recorded in the fiscal years ended September 30, 2014 and 2013.

 

 
42

 

The following table illustrates capitalized costs relating to oil and gas – producing activities for two fiscal years ended September 30, 2014 and September 30, 2013:

 

     September 30, 2014   September 30, 2013 
  Unproved Oil and Gas Properties  $19,651,296   $15,963,517 
  Proved Oil and Gas Properties   4,568     
  Accumulated Depreciation and Depletion   (51,814)   (41,747)
  Net Capitalized Cost  $19,604,050   $15,921,770 

 

5. EXPLORATION ACTIVITIES

 

The following table presents information regarding the Company’s costs incurred in the oil and gas property acquisition, exploration and development activities for two fiscal years ended September 30, 2014 and September 30, 2013:

 

     September 30, 2014   September 30, 2013 
  Acquisition of Properties:          
  Proved  $   $ 
  Unproved   3,692,346    2,740,967 
  Exploration costs   47,182    55,810 
  Development costs        

 

6.INVESTMENT IN EQUITY SECURITIES

 

On February 25, 2005, the Company acquired an interest in Signet Energy Inc. (“Signet” formerly Surge Global Energy, Inc.) as a result of a Farmout Agreement dated February 25, 2005. Signet amalgamated with Andora Energy Corporation (“Andora”) in 2007.

 

As of November 19, 2008, the Company converted its Signet shares into 2,241,558 shares of Andora, which represents an equity interest in Andora of approximately 2.24% as of September 30, 2013, which is Andora’s fiscal year end. These shares are carried at a nominal value using the cost method and their value is included under oil and gas properties on the Company’s balance sheet.

  

7. PROPERTY AND EQUIPMENT

 

     September 30, 2014 
           Accumulated    Net Book 
      Cost    Depreciation    Value 
  Computer equipment  $32,198   $31,264   $934 
  Office furniture and equipment   34,130    26,880    7,250 
  Software   5,826    5,826     
  Leasehold improvements   4,936    4,936     
  Portable work camp   170,580    146,211    24,369 
  Vehicles   38,077    32,637    5,440 
  Oilfield equipment   249,045    135,030    114,015 
  Road mats   364,614    312,525    52,089 
  Wellhead   3,254    2,053    1,201 
  Tanks   96,085    42,185    53,900 
     $998,745   $739,547   $259,198 

 

 
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     September 30, 2013 
         Accumulated   Net Book 
     Cost   Depreciation   Value 
  Computer equipment  $31,084   $30,576   $508 
  Office furniture and equipment   33,199    24,938    8,261 
  Software   5,826    5,826     
  Leasehold improvements   4,936    4,602    334 
  Portable work camp   170,580    135,767    34,813 
  Vehicles   38,077    30,306    7,771 
  Oilfield equipment   249,045    106,527    142,518 
  Road mats   364,614    290,202    74,412 
  Wellhead   3,254    1,653    1,601 
  Tanks   96,085    36,196    59,889 
     $996,700   $666,593   $330,107 

 

There was $72,956 of depreciation expense for the year ended September 30, 2014 (September 30, 2013 - $86,884)

 

8. LONG TERM INVESTMENTS

 

Long term investments consist of cash held in trust by the Alberta Energy Regulator (“AER”) which bears an interest at a rate of prime minus 0.375% and has no stated date of maturity. These investments are required by the AER to ensure there are sufficient future cash flows to meet the expected future asset retirement obligations and are restricted for this purpose.

 

9. SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

 

Accounts payable – related parties was $16,977 as of September 30, 2014 (September 30, 2013 - $18,144) for expenses to be reimbursed to directors. This amount is unsecured, non-interest bearing, and has no fixed terms of repayment.

 

As of September 30, 2014, officers, directors, their families, and their controlled entities have acquired 52.92% of the Company’s outstanding common capital stock. This percentage does not include unexercised warrants or stock options.

 

The Company incurred expenses totalling $198,703 to one related party, Concorde Consulting, for professional fees and consulting services provided to the Company during the fiscal year ended September 30, 2014 (September 30, 2013 - $275,800, of which $98,500 of expenses related to Portwest was reversed as part of the Amending Agreement, referred to in Note 15. These amounts are included in the balance of accounts payable – related parties as of September 30, 2013).

 

As of June 27, 2014, $1,007,000 was paid to Mr. Malik Youyou, who is a director and majority shareholder of the Company, for the purchase and transfer of an undivided 2.5% interest out of the Purported 6.5% Royalty. The consideration paid was for the reimbursement of the original cost (in US Dollars) that Mr. Youyou paid to acquire this 2.5% interest in the Purported 6.5% Royalty from a third party based on that third parties alleged costs.

 

As of June 30, 2013, the Company received a loan for $260,000 as a note payable from one of the Company’s directors. On August 15, 2013, the loan payable was offset by the amount of $70,500 for exercising that director’s stock options reducing the total loan payable to $189,500 as of September 30, 2013. In November 2013, this note payable in the amount of $189,500, from one of the Company’s directors, was fully paid.

 

See Note 12 for description of stock options issued to related parties.

 

10. ASSET RETIREMENT OBLIGATIONS

 

The total future asset retirement obligation is estimated by management based on the Company’s net working interests in all wells and facilities, estimated costs to reclaim and abandon wells and facilities and the estimated timing of the costs to be incurred in future periods. At September 30, 2014, the Company estimates the undiscounted cash flows related to asset retirement obligation to total approximately $689,445 (September 30, 2013 - $674,296). The fair value of the liability at September 30, 2014 is estimated to be $469,013 (September 30, 2013 - $446,155) using a risk free rate of 3.74% and an inflation rate of 2%. The actual costs to settle the obligation are expected to occur in approximately 35 years.

 

 
44

 

Changes to the asset retirement obligation were as follows:

 

     September 30, 2014   September 30, 2013 
             
  Balance, beginning of year  $446,155   $425,700 
  Liabilities incurred   73,395    23,400 
  Effect of foreign exchange   (64,079)   (19,299)
  Disposal   (4,045)    
  Accretion expense   17,587    16,354 
  Balance, end of year  $469,013   $446,155 

  

11. COMMON STOCK

 

Effective on November 23, 2012, the Company completed a private placement for an aggregate of 42,857,142 units at a price of $0.07 per unit for an aggregate of $3,000,000. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.105 per common share for a period of three years from the date of closing, provided that if the closing price of the common shares of the Company on the principal market on which the shares trade is equal to or exceeds $1.00 for 30 consecutive trading days, the warrant term shall automatically accelerate to the date which is 30 calendar days following the date that written notice has been given to the warrant holders. The warrants expire on November 23, 2015. The value of the common shares and the warrants totaled $1,985,249 and $1,014,751, respectively.

 

On June 20, 2013, the Company completed a private placement for an aggregate of 850,000 units at a price of $0.05 per unit for an aggregate of $42,500. Each unit consists of one common share and one common share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.075 per common share for a period of three years from the date of closing, provided that if the closing price of the common shares of the Company on the principal market on which the shares trade is equal to or exceeds $1.00 for 30 consecutive trading days, the warrant term shall automatically accelerate to the date which is 30 calendar days following the date that written notice has been given to the warrant holders. The warrants expire on June 20, 2016. The value of the common shares and the warrants totaled $27,448 and $15,052, respectively.

 

On July 31, 2013, the Company completed a private placement for an aggregate of 45,111,778 common shares for an aggregate of $22,000,000. Pursuant to the subscription agreement between the Company and investor the Company issued the shares to the investor after September 20, 2013 but before November 30, 2013. No warrants were issued to the investor in connection with this private placement.

 

Between August 12 and August 15, 2013, six directors and two consultants of the Company acquired a combined total of 3,768,096 common shares, upon exercising stock options and warrants, at exercise prices ranging from $0.05 to $0.14 per common share for total combined gross proceeds to the Company of $372,000.

 

Return of Capital Distribution

 

On August 9, 2013, the Company approved a distribution to its shareholders in the amount of $0.07 per share to be payable on September 20, 2013 (the “Payment Date”) to the holders of record of all the issued and outstanding shares of common stock of the Company as of the close of business on August 16, 2013, (the “Record Date”). This cash distribution to the Company’s shareholders was not a dividend paid out of the earnings and profits, but was a non-dividend distribution characterized as a “return of capital”.

 

Warrants

 

On October 10, 2013, the Company extended the expiration date of two warrants to purchase up to an aggregate of 29,047,617 shares of the Company’s common stock. The exercise price of the warrants remains unchanged at $0.105 per share. As a result of this extension, the expiration date of the warrants has been amended from the original expiry date of November 9, 2013 to November 23, 2015.

 

On June 23, 2014, 47,618 partial warrants were cancelled and transferred to a non-related party.

 

 
45

 

The following table summarizes the Company’s warrants outstanding as of September 30, 2014:

 

      Shares Underlying
Warrants Outstanding
   Shares Underlying
Warrants Exercisable
 
  Range of Exercise Price   Shares Underlying Warrants Outstanding   Weighted Average Remaining Contractual Life   Weighted Average Exercise Price   Shares Underlying Warrants Exercisable   Weighted Average Exercise Price 
                        
  $0.105 at September 30, 2014    71,904,759    1.15   $0.105    71,904,759   $0.105 
  $0.075 at September 30, 2014    520,000    1.72    0.075    520,000    0.075 
       72,424,759    1.15   $0.105    72,424,759   $0.105 

 

The following is a summary of warrant activity for the year ending September 30, 2014:

 

      Number of Warrants   Weighted Average Exercise Price   Intrinsic Value 
                
  Balance, September 30, 2013    72,424,759   $0.105   $0.195 
  Cancelled at June 23, 2014    47,618    0.105    0.215 
  Granted at June 23, 2014    47,618    0.105    0.215 
  Exercised             
  Balance, September 30, 2014    72,424,759   $0.105   $0.215 
  Outstanding Warrants, September 30, 2014    72,424,759   $0.105   $0.215 

 

There were 72,424,759 warrants outstanding as of September 30, 2014 (September 30, 2013 – 72,424,759), which have a historical fair market value of $1,743,336 (September 30, 2013 - $1,743,336).

 

Measurement Uncertainty for Warrants

 

The Company used the Black-Scholes option pricing model (“Black-Scholes”) to value the options and warrants. This model was developed for use in estimating the fair value of traded “European” options which are liquid and that have no vesting restrictions and are fully transferable. The stock options that are granted to employees and directors and the warrants attached to the units issued by the Company are non-transferable and some vest over time, and are “American” options. Option pricing models require the input of subjective assumptions including expected share price volatility. The fair value estimate can vary materially as a result of changes in the assumptions. The following assumptions are used in the Black-Scholes option-pricing model:

 

Expected Term – Expected term of 5 years represents the period that the Company’s stock-based awards are expected to be outstanding.

 

Expected Volatility – Expected volatilities are based on historical volatility of the Company’s stock, adjusted where determined by management for unusual and non-representative stock price activity not expected to recur. The expected volatility used ranged from 96% to 116%.

 

Expected Dividend – The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company currently pays no dividends and does not expect to pay dividends in the foreseeable future.

 

Risk-Free Interest rate – The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The risk-free rate used ranged from 0.62% to 1.31%.

 

12. STOCK OPTIONS

 

On November 28, 2005, and as amended on December 4, 2014, the Board of Deep Well adopted the Deep Well Oil & Gas, Inc. Stock Option Plan (the “Plan’). The Plan was approved by the majority of shareholders at the February 24, 2010 general meeting of shareholders. The Plan, is administered by the Board, permits options to acquire shares of the Company’s common stock (the “Common Shares”) to be granted to directors, senior officers and employees of the Company and its subsidiaries, as well as certain consultants and other persons providing services to the Company or its subsidiaries.

 

 
46

 

The maximum number of shares, which may be reserved for issuance under the Plan, may not exceed 10% of the Company’s issued and outstanding Common Shares, subject to adjustment as contemplated by the Plan. The aggregate number of Common Shares with respect to which options may be vested to any one person (together with their associates) under the Plan, together with all other incentive plans of the Company in any one year shall not exceed 2% of the total number of Common Shares outstanding and in total shall not exceed 6% of the total number of Common Shares outstanding.

 

On March 23, 2011, the Company granted six of its directors options to purchase 450,000 shares each of common stock at an exercise price of $0.14 per Common Share, 150,000 vesting immediately and the remaining vesting one-third on March 23, 2012, and one-third on March 23, 2013, with a five-year life.

 

On June 20, 2013, the Company granted six of its directors options to purchase 450,000 shares each of common stock at an exercise price of $0.05 per Common Share, 150,000 vesting immediately and the remaining vesting one-third on June 20, 2014, and one-third on June 20, 2015, with a five-year life.

 

On June 20, 2013, the Company granted two consultants an option to purchase each 1,000,000 shares each of common stock at an exercise price of $0.05 per Common Share, 500,000 vesting immediately and remaining vesting on June 20, 2014.

 

On June 20, 2013, the Company granted one employee an option to purchase 150,000 shares each of common stock at an exercise price of $0.05 per Common Share, 50,000 vesting immediately and the remaining vesting one-third on June 20, 2014, and one-third on June 20, 2015, with a five-year life.

 

From August 12 to 15, 2013, there were 3,200,000 stock options exercised for total gross proceeds to the Company of $322,000 from six directors and one consultant.

 

On October 28, 2013, the Company granted a contractor an option to purchase 250,000 shares of common stock at an exercise price of $0.30 per Common Share, all vesting immediately, with a five-year life, for his services in connection with the Farmout Agreement dated July 31, 2013.

 

On December 4, 2013, the Company appointed a new director to its Board and in connection with the appointment the Company granted the new director an option to purchase 450,000 shares each of common stock at an exercise price of $0.34 per Common Share, 150,000 vesting immediately and the remaining vesting one-third on December 4, 2014, and one-third on December 4, 2015, with a five-year life.

 

On September 19, 2014, the Company granted seven of its directors options to purchase 600,000 shares each of common stock at an exercise price of $0.38 per Common Share, 200,000 vesting immediately and the remaining vesting one-third on September 19, 2015, and one-third on September 19, 2016, with a five-year life.

 

On September 19, 2014, the Company granted two consultants an option to purchase each 1,200,000 shares each of common stock at an exercise price of $0.38 per Common Share, 600,000 vesting immediately and remaining vesting on September 19, 2015.

 

On September 19, 2014, the Company granted one employee an option to purchase 180,000 shares each of common stock at an exercise price of $0.38 per Common Share, 60,000 vesting immediately and the remaining vesting one-third on September 19, 2015, and one-third on September 19, 2016, with a five-year life.

 

For the period ended September 30, 2014, the Company recorded share based compensation expense related to stock options in the amount of $1,087,356 (September 30, 2013 - $125,099) on the stock options that vested during the year and the stock options that were granted during the year. As of September 30, 2014, there was remaining unrecognized compensation cost of $1,251,266 related to the non-vested portion of these unit option awards. Compensation expense is based upon straight-line depreciation of the grant-date fair value over the vesting period of the underlying unit option.

 

     Shares Underlying
Options Outstanding
   Shares Underlying
Options Exercisable
 
  Range of Exercise Prices  Shares Underlying Options Outstanding   Weighted Average Remaining Contractual Life   Weighted Average Exercise Price   Shares Underlying Options Exercisable   Weighted Average Exercise Price 
  $0.14 at September 30, 2014   900,000    1.48   $0.14    900,000   $0.14 
  $0.05 at September 30, 2014   3,450,000    3.72    0.05    2,500,000    0.05 
  $0.30 at September 30, 2014   250,000    4.08    0.30    250,000    0.30 
  $0.34 at September 30, 2014   450,000    4.18    0.34    150,000    0.34 
  $0.38 at September 30, 2014   6,780,000    4.97    0.38    2,660,000    0.38 
      11,830,000    4.29   $0.26    6,460,000   $0.21 

 

 
47

 

The aggregate intrinsic value of exercisable options as of September 30, 2014, was $0.11 (September 30, 2013 - $0.19).

 

The following is a summary of stock option activity as at September 30, 2014:

 

     Number of Underlying Shares   Weighted Average Exercise Price   Weighted Average Fair Market Value 
  Balance , September 30, 2013   4,350,000   $0.07   $0.06 
  Balance, September 30, 2014   11,830,000   $0.26   $0.21 
  Exercisable, September 30, 2014   6,460,000   $0.21   $0.17 

 

A summary of the options granted at September 30, 2014 and September 30, 2013 and changes during the periods then ended is presented below:

 

     September 30, 2014   September 30, 2013 
     Shares   Weighted Average Exercise Price   Shares   Weighted Average Exercise Price 
                   
  Outstanding balance at beginning of period   900,000   $0.14    1,800,000   $0.14 
  Vested at March 23, 2013   3,450,000    0.05    900,000    0.14 
  Granted at June 20, 2013           4,850,000    0.05 
  Vested at June 20, 2013           1,950,000    0.05 
  Exercised August 12 – 15, 2013           1,800,000    0.14 
  Exercised August 12 – 15, 2013           1,400,000    0.05 
  Granted at October 28, 2013   250,000    0.30         
  Granted at December 4, 2013   450,000    0.34         
  Vested at June 20, 2014   1,950,000    0.05         
  Granted at September 19, 2014   6,780,000    0.38         
  Vested at September 19, 2014   2,660,000    0.38         
  Outstanding at end of period   11,830,000   $0.26    4,350,000   $0.07 
  Exercisable   6,460,000   $0.21    1,450,000   $0.11 

 

There were 5,370,000 unvested stock options outstanding as of September 30, 2014 (September 30, 2013 – 2,900,000).

 

Measurement Uncertainty for Stock Options

 

The Company used the Black-Scholes option pricing model (“Black-Scholes”) to value the options and warrants. This model was developed for use in estimating the fair value of traded “European” options which are liquid and that have no vesting restrictions and are fully transferable. The stock options that are granted to employees and directors and the warrants attached to the units issued by the Company are non-transferable and some vest over time, and are “American” options. Option pricing models require the input of subjective assumptions including expected share price volatility. The fair value estimate can vary materially as a result of changes in the assumptions. The following assumptions are used in the Black-Scholes option-pricing model:

 

Expected Term – Expected term of 5 years represents the period that the Company’s stock-based awards are expected to be outstanding.

 

Expected Volatility – Expected volatilities are based on historical volatility of the Company’s stock, adjusted where determined by management for unusual and non-representative stock price activity not expected to recur. The expected volatility used ranged from 96% to 122%.

 

Expected Dividend – The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company currently pays no dividends and does not expect to pay dividends in the foreseeable future.

 

Risk-Free Interest rate – The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. The risk-free rate used ranged from 0.62% to 1.83%.

 

 
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13. CHANGES IN NON-CASH WORKING CAPITAL

 

     September 30,   September 30, 
     2014   2013 
  Accounts receivable  $(994,883)  $101,035 
  Prepaid expenses   38,825    (36,468)
  Accounts payable   444,773    (194,572)
     $(511,285)  $(130,005)

 

14. INCOME TAXES

 

As of September 30, 2014, the Company has approximately $5,909,394 (2013 – $5,759,755) of operating losses expiring through 2034 that may be used to offset future taxable income but are subject to various limitations imposed by rules and regulations of the Internal Revenue Service. The net operating losses are limited each year to offset future taxable income, if any, due to the change of ownership in the Company's outstanding shares of common stock. In addition, at September 30, 2014, the Company had an unused Canadian net operating loss carry-forward of approximately $10,361,017 (2013 – $11,687,391), expiring through 2034. These operating loss carry-forwards may result in future income tax benefits of approximately $4,658,542. However, because realization is uncertain at this time, a valuation reserve in the same amount has been established. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

The components of the net deferred tax asset, the statutory tax rate, the effective rate and the elected amount of the valuation allowance are as follows:

 

     Year Ended
September 30, 2014
   Year Ended
September 30, 2013
 
  Statutory and effective tax rate        
  Domestic        
  Statutory U.S. federal rate   35%   35.00%
  Foreign   25%   25.00%

 

     Year Ended
September 30, 2014
   Year Ended
September 30, 2013
 
  Income taxes recovered at the statutory and effective tax rate        
  Domestic          
  Statutory U.S. federal rate  $449,831   $607,443 
  Foreign   188,757    181,963 
             
  Timing differences:          
  Non-deductible expenses   (487,505)   (74,171)
  Other deductible charges   59,858    67,568 
  Benefit of tax losses not recognized in the year   (210,941)   (782,803)
  Income tax recovery (expense) recognized in the year  $   $ 

 

The approximate tax effects of each type of temporary difference that gives rise to deferred tax assets are as follows:

 

     Year Ended September 30, 2014   Year Ended September 30, 2013 
  Deferred income tax assets (liabilities)        
  Net operating loss carry-forwards  $4,658,542   $4,937,762 
  Oil and gas properties   54,589    731,166 
  Equipment   187,394    183,824 
  Valuation allowance   (4,900,525)   (5,852,752)
  Net deferred income tax assets  $   $ 

 

 
49

 

In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns for the open tax years in such jurisdictions. The Company has identified its federal income tax returns for the previous five years remain subject to examination. The Company’s income tax returns in state income tax jurisdictions also remain subject to examination for the previous five years. The Company currently believes that all significant filing positions are highly certain and that all of its significant income tax filing positions and deductions would be sustained upon audit. Therefore, the Company has no significant reserves for uncertain tax positions, and no adjustments to such reserves were required by generally accepted accounting principles. No interest or penalties have been levied against the Company and none are anticipated, therefore no interest or penalty has been included in the provision for income taxes in the consolidated statements of operations.

 

15. COMMITMENTS

 

Compensation to Executive Officers

 

Since the acquisition of Northern Alberta Oil Ltd., the Company and Northern have entered into the following contracts with the following companies for the services of their officers:

 

1.)Portwest Investments Ltd. (“Portwest”), a company owned 100% by Dr. Horst A. Schmid (the “Consultant”), for providing services to the Company as Chief Executive Officer and President for Cdn $12,500 per month. On July 1, 2005, the Company entered into a consulting agreement (the “Prior Agreement”) with Portwest, as filed with the Company’s annual report on Form 10-KSB filed on February 23, 2007, and incorporated by reference herein. On July 10, 2013, the Company and Portwest agreed to amend (the “Amending Agreement”) the Prior Agreement whereby the following was settled and amended:

 

  i. Effective date of the Amending Agreement will be June 20, 2013;
  ii. Term of Agreement will be until December 31, 2014;
  iii. The fees payable to the Consultant in the Prior Agreement will be terminated and the Company will grant the Consultant 5-year options on 1,000,000 of its common shares exercisable at $0.05 per share, which was the market price at that time. One half of these shares were vested immediately and the remaining one half will be vested on June 20, 2014; 
  iv. The Consultant will receive:

 

a.Cdn $70,000, and
b.850,000 units of the Company’s shares and warrants at a price of $0.05 per unit, which was the market price at that time. Each unit shall be comprised of one restricted Company common share and one 3 year full warrant entitling Portwest to be able to purchase another share for $0.075. The warrants expire on June 20, 2016,

 

As consideration for the execution of the Amending Agreement and the Termination of parts of the Prior Agreement, and waiving Cdn $239,528 accrued by the Company as owing to Portwest.

 

In the September 30, 2014 year-end, no fees were owed or paid to Portwest. As of September 30, 2013, the Company has settled all outstanding amounts owed to Portwest.

 

2.)Concorde Consulting, a company owned 100% by Mr. Curtis J. Sparrow, for providing services as Chief Financial Officer to the Company for Cdn $15,000 per month. As of September 30, 2014, the Company owed Concorde Consulting Cdn $nil for services provided to the Company.

 

Rental Agreement

 

On January 21, 2014, the Company renewed its Edmonton office lease commencing effective on January 1, 2014 and expiring on June 30, 2015. The quarterly payments due in Cdn are as follows:

 

  2015 Q1 (October - December)   9,031 
  2015 Q2 (January - March)   9,031 
  2015 Q3 (April - June)   9,031 

 

The total sum of future minimum lease payments through lease expiration on June 30, 2015 is $27,904.

 

 
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16. LEGAL ACTIONS

 

DISSMISSED - I.G.M Resources Corp. vs. Deep Well Oil & Gas, Inc., et al

 

On February 11, 2014, the Court dismissed, without any costs to the Company, the Plaintiff’s claims against Deep Well Oil & Gas, Inc. and its subsidiary Northern Alberta Oil Ltd.

 

On March 10, 2005, I.G.M. Resources Corp. (the “Plaintiff”) filed against Classic Energy Inc., 979708 Alberta Ltd., Deep Well Oil & Gas, Inc., Nearshore Petroleum Corporation, Mr. Steven P. Gawne, Rebekah Gawne, Gawne Family Trust, 1089144 Alberta Ltd., John F. Brown, Diane Lynn McClaflin, Cassandra Doreen Brown, Elissa Alexandra Brown, Brown Family Trust, Priority Exploration Ltd., Northern Alberta Oil Ltd. and Gordon Skulmoski (the “IGM Defendants”) a Statement of Claim in the Court of Queen's Bench of Alberta Judicial District of Calgary. This suit is a part of a series of lawsuits or actions undertaken by the Plaintiff against some of the other above IGM Defendants.

 

The Plaintiff was and still is a minority shareholder of 979708 Alberta Ltd. ("979708"). 979708 was in the business of discovering, assembling and acquiring oil and gas prospects. In 2002 and 2003, 979708 acquired oil and gas prospects in the Sawn Lake area of Alberta. On or about the 14th of July, 2003, all or substantially all the assets of 979708 were sold to Classic Energy Inc. The Plaintiff claims the value of the assets sold was far in excess of the value paid for those assets. On April 23, 2004 Northern Alberta Oil Ltd., purchased Classic Energy Inc.'s assets some of which are under dispute by the Plaintiff. On June 7, 2005 Deep Well acquired all of the common shares of Northern thereby giving Deep Well an indirect beneficial interest in the assets in which the Plaintiff is claiming an interest.

 

The Plaintiff was seeking an order setting aside the transaction and returning the assets to 979708, compensation in the amount of Cdn $15,000,000, a declaration of trust declaring that Northern and Deep Well hold all of the assets acquired from 979708 and any property acquired by use of such assets, or confidential information of 979708, in trust for the Plaintiff.

 

17. SUBSEQUENT EVENTS

 

On October 3, 2014, a warrant holder of the Company acquired 47,618 common shares of the Company, upon exercising warrants, at an exercise price of $0.105 per common share for gross proceeds to the Company of $4,999.90.

 

On October 21, 2014, the Company’s Farmout partner reimbursed the Company in the amount of Cdn $1,200,000 for a cash call the Company paid to the Operator of the SAGD Project for the winterization program.

 

On November 17, 2014, the Company appointed a new director to its Board and in connection with the appointment the Company granted the new director an option to purchase 600,000 shares each of common stock at an exercise price of $0.23 per Common Share, 200,000 vesting immediately and the remaining vesting one-third on November 17, 2015, and one-third on November 17, 2016, with a five-year life.

 

As previously disclosed, on July 31, 2013, the Company through its subsidiary companies entered into a Farmout Agreement with one of its joint venture partners (the “Farmee”) to fund the Company’s share of the SAGD Project. Effective on November 17, 2014, the Company and the Farmee agreed to amend the Farmout Agreement (the “Amending Agreement”) to extend the expiry date of the Farmee’s option, from December 31, 2014 to December 31, 2015, to elect to acquire additional working interests of 45% to 50% in the remaining 56 sections of land where the Company has working interests ranging from 90% to 100%, by committing an additional $110,000,000 of financing to the development of the Company’s Sawn Lake oil sands properties.

 

18.CRUDE OIL AND NATURAL GAS PROPERTY INFORMATION

 

Results of Operations from Oil and Gas Producing Activities

 

The following table sets forth the results of the Company’s operations from oil (in the form of bitumen) producing activities from the Company’s Sawn Lake oil sands properties located in Alberta, Canada, for the years ended September 30, 2014 and 2013:

 

     September 30, 2014   September 30, 2013 
  Oil sales after royalties  $47,116   $ 
             
  Production (Operating) expenses   (47,115)    
  Exploration expenses   (47,182)   (55,810)
  Depreciation, accretion and depletion   (97,646)   (106,476)
      (144,827)   (162,286)
             
  Income tax expenses        
  Results of operations from producing activities  $(144,827)  $(162,286)

 

 
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The Company reported its first oil revenue in the amount of $47,116 after deduction of royalties. Given that the Company’s first oil production began on September 16, 2014, the Company produced oil for only 14 days during the year ending September 30, 2014; therefore the volumes of oil delivered were only 818.6 barrels net to the Company, before royalties, with an average oil sales price of $61.77 per barrel. Operating expenses are zero since at this time they were paid for under the Farmout Agreement. Transportation costs are included in these operating costs. The total share of the material costs and operating expenses of the Company’s joint SAGD Project, has been funded in accordance with the Farmout Agreement, at a net cost to the Company of $Nil. As required by the Farmout Agreement, the Farmee has since paid Cdn $16,677,530 to the operator of the SAGD Project for the Farmee’s share and the Company’s share of the costs of the SAGD Project up to September 30, 2014. These costs included the drilling of the SAGD well pair; the purchase and transportation of equipment; installation and construction of the steam plant facility; testing and commissioning; the purchase of the water source and disposal wells and expenditures to connect these water wells to the steam plant facility along with a fuel source tie-in; and the monthly operating expenses associated with the steaming and production of the SAGD well pair up to September 30, 2014.

 

Capitalized Costs Relating Specifically to the SAGD Project

 

The Company entered into a Farmout Agreement dated July 31, 2013, whereby the Company’s operating costs of the SAGD Project are paid in full by the Farmee in accordance with the Farmout Agreement; therefore the Company has not capitalized any of the operating costs paid by the Farmee to the operator of the SAGD Project. As required by the Farmout Agreement, the Farmee has since paid Cdn $16,677,530 to the operator of the SAGD Project for the Farmee’s share and the Company’s share of the costs of the SAGD Project up to September 30, 2014. See Note 4 herein “Capitalization of Costs Incurred in Oil and Gas Activities”.

 

Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development

 

See Note 5 herein “Exploration Activities”.

 

19.SUPPLEMENTARY INFORMATION ON OIL AND GAS RESERVES (UNAUDITED)

 

The following supplemental information regarding the Company’s oil and gas activities is presented pursuant to the disclosure requirements promulgated by the U.S. Securities and Exchange Commission (“SEC”) and ASC 932, Extractive Activities - Oil and Gas, (“ASC 932”).

 

Users of this supplemental information should be aware that the process of estimating quantities of “proved” and “proved developed” oil reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for the reservoir. The data for a reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures. Proved reserves represent estimated quantities of natural gas and crude oil that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions in effect when the estimates were made. Proved developed reserves are proved reserves expected to be recovered through wells and equipment in place and under operating methods used when the estimates were made.

 

Under current SEC standards, “Proved Reserves” are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible, from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations, prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.

 

Under current SEC standards, the term “Reasonable Certainty” if deterministic methods are used, implies a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate recovery (“EUR”) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease. Reasonable certainty can be established using techniques that have been proved effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty.

 

Under current SEC standards, “Reliable Technology” is a grouping of one or more technologies (including computational methods) that have been field tested and have demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

 

 
52

 

Estimated Oil and Gas Reserve Quantities of Proved Developed and Proved Undeveloped Reserves

 

The following table illustrates the Company’s estimated net proved reserves for the periods indicated, as estimated by third party reservoir engineers. The Company’s oil reserves are attributable solely to properties within Alberta, Canada. The following table discloses, in the aggregate, the Company’s estimated reserves on the Company’s Sawn Lake oil sands properties located in the Peace River oil sands area of Alberta, Canada, as of September 30, 2014, based on estimated constant prices and cost assumptions.

 

     Oil   Natural Gas   Total  
     Gross (1) (Mbbl)   Net (2) 
Mbbl)
   Gross
(Mmcf)
  

Net
(Mmcf)

   BOE
(MBOE)
 
  Proved developed and undeveloped reserves:                         
  as of September 30, 2013                    
  Revisions of previous estimates   572    530            572 
  Improved recovery                    
  Purchases of minerals in place                    
  Extensions and discoveries                    
  Production   (1)   (1)           (1)
  Sales of minerals in place                    
  as of September 30, 2014   571    530            571 
                            
  Proved developed reserves:                         
  as of September 30, 2013                    
  as of September 30, 2014   571    530            571 

 

(1)Gross Reserves – are defined as the Company’s working interest reserves (operating or non-operating) before deduction of royalties.

(2)Net Reserves – are defined as the Company’s working interest reserves (operating or non-operating) after deduction of royalties.

 

Revisions of previous estimates – are revisions that represent changes in previous estimates of proved reserves, either upward or downward, resulting from new information (except for an increase in proved acreage) normally obtained from development drilling and production history or resulting from a change in economic factors. The Company was assigned probable reserves based on Petroleum Resources Management System (“PRMS”) standards as of the Company’s September 30, 2013 fiscal year end, of which a percentage of these probable reserves were then assigned as proved reserves in connection with production from the Company’s SAGD Project which began producing on September 16, 2014.

 

Improved recovery – are changes in reserve estimates resulting from application of improved recovery techniques. The Company reported no proved reserves based on Petroleum Resources Management System (“PRMS”) standards as of the Company’s September 30, 2013 fiscal year end, therefore there were no changes of previous estimates for improved recovery to be disclosed from the prior years developed and undeveloped reserve estimates.

 

Purchases of minerals in place – For the year ended September 30, 2014, the Company did not report any property acquisitions whereby the Company purchased any properties with proved reserves.

 

Extensions and discoveries – are additions to proved reserves that result from (1) extension of the proved acreage of previously discovered reservoirs through additional drilling in periods subsequent to discovery and (2) discovery of new fields with proved reserves or of new reservoirs of proved reserves in old fields. There were no additions to proved reserves resulting from extensions or discoveries during the fiscal year September 30, 2014.

 

Production – The Company’s first SAGD well pair began producing oil on September 16, 2014.

 

Sales of minerals in place – For the year ended September 30, 2014, the Company did not report any sale of its properties of which had proved reserves.

  

 
53

 

The following table discloses, in the aggregate, the Company’s estimated proved developed and undeveloped reserves on the Company’s Sawn Lake oil sands properties located in the Peace River oil sands area of Alberta, Canada, as of September 30, 2014, based on estimated constant prices and cost assumptions.

 

Summary of Oil and Gas Reserves as of September 30, 2014 (Constant Prices and Costs)

 

   RESERVES 
   Light and
Medium Oil
   Heavy Oil   Oil   Natural Gas   Natural Gas
Liquids
 
Reserves Category  Gross (Mbbl)   Net
(Mbbl)
   Gross (Mbbl)   Net
(Mbbl)
   Gross (1) (Mbbl)   Net (2) (Mbbl)   Gross (Mmcf)   Net
(Mmcf)
   Gross
(Mbbl)
   Net (Mbbl) 
Proved                                        
Developed Producing                   281    260                 
Developed Non-producing                                        
Undeveloped                   290    269                 
Total Proved                   571    529                 

 

(1) Gross Reserves – are defined as the Company’s working interest reserves (operating or non-operating) before deduction of royalties.

(2) Net Reserves – are defined as the Company’s working interest reserves (operating or non-operating) after deduction of royalties.

 

Standardized Measure of Discounted Future Net Cash Flows Related to Proved Oil and Gas Reserve Quantities

 

The following table discloses, in the aggregate, the Company’s estimated net present value of future cash flows attributable to the Company’s estimated oil reserves on the Company’s Sawn Lake oil sands properties located in the Peace River oil sands area of Alberta, Canada, as of September 30, 2014, based on estimated constant prices and cost assumptions. The future cash flow estimate set forth below are estimates only and the actual realized cash flow may be greater or less than those calculated and should not be considered as representative of the current value of the Company.

 

     Year Ended   Year Ended 
  In Thousands  September 30, 2014(1)   September 30, 2013(1) 
             
  Future cash inflows  $31,062   $ 
  Future Royalties   (2,456)    
  Future Operating costs   (13,040)    
  Future Development Costs   (8,586)    
  Future Abandonment Costs   (161)    
  Future income tax expenses        
  Future net cash flows  $6,819   $ 
  10% annual discount for estimated timing of cash flows   (4,919)    
  Standardize measure of discounted future net cash flows  $1,900   $ 

 

(1) Future net cash flows were converted from Cdn$ to US$ in this table based on the year-end exchange rate of $0.8962. 

 

The Company reported no proved reserves based on Petroleum Resources Management System (“PRMS”) standards as of the Company’s September 30, 2013 fiscal year end, therefore there were no changes to the standardized measure of discounted future net cash flows from previous estimates attributable to the Company’s proved developed and undeveloped reserve estimates from the prior years.

 

 
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

On November 16, 2012, we formally informed Madsen & Associates CPAs, Inc. (“Madsen”) of the appointment of a different auditor as our independent registered public accounting firm upon expiry of Madsen’s term of appointment. The reports of Madsen on our financial statements as of and for the years ended September 30, 2011 and 2010 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. Our Board participated in and approved the decision to appoint a different independent registered public accounting firm upon expiry of Madsen’s term of appointment. This decision was formally finalized on December 11, 2012.

 

During the years ended September 30, 2011, and 2010, and through November 16, 2012, there have been no disagreements with Madsen on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Madsen would have caused them to make reference thereto in connection with their report on the financial statements for such years. Our Company has requested that Madsen furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. For further information see our current report on Form 8-K filed on December 17, 2012 and incorporated herein by reference.

 

On November 16, 2012, our Company engaged Sadler, Gibb & Associates, L.L.C. (“Sadler Gibb”) as its new independent registered public accounting firm. During the years ended September 30, 2011 and 2010, and through November 16, 2012, our Company did not consult with Sadler Gibb regarding any of the following:

 

(i)the application of accounting principles to a specific transaction, either completed or proposed;

 

(ii)the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and none of the following was provided to the Company: (a) a written report, or (b) oral advice that Sadler Gibb concluded was an important factor considered by the Company in reaching a decision as to accounting, auditing or financial reporting issue; or

 

(iii)any matter that was subject of a disagreement, as that term is defined in Item 304 of Regulation S-K.

  

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

As of the end of the fiscal year ended September 30, 2014, an evaluation of the effectiveness of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) was carried out under the supervision and with the participation of our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that as of the end of that fiscal year, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

 

It should be noted that while our principal executive officer and principal financial officer believe that our disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

 

Our management, which included our principal executive officer and principal financial officer, assessed our internal control over financial reporting as of September 30, 2014. This assessment was based on criteria for effective internal control over financial reporting described in the internal control integrated framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management believes that, as of September 30, 2014, our internal control over financial reporting was effective.

 

 
55

 

Attestation Report of the Independent Registered Public Accounting Firm

 

We are a smaller reporting company within the meaning of Rule 12b-2 under the Exchange Act. Therefore this Annual Report is not required to include an attestation report of our independent registered public accounting firm, Sadler Gibb with respect to our internal control over financial reporting. Sadler Gibb audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of our internal control over financial reporting. Accordingly, Sadler Gibb expressed no such opinion on our internal control over financial reporting as of September 30, 2014.

 

Changes in Internal Control Over Financial Reporting

 

During the fiscal year ended September 30, 2014 there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

Deep Well reported all information that was required to be disclosed on Form 8-K during the fourth quarter of the fiscal year covered by this Annual Report.

 

PART III 

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

The directors and executive officers of Deep Well are as follows:

 

As at September 30, 2014
Name   Age   Position/Office  
           
Mr. Said Arrata   74   Director  
Mr. Satya Brata Das   58   Director  
Mr. Pascal Nodé-Langlois   67   Director  
Mr. David Roff   43   Director  
Dr. Horst A. Schmid   81   Director and Chairman of the Board, President and Chief Executive Officer  
Mr. Curtis James Sparrow   57   Director and Chief Financial Officer, Secretary and Treasurer  
Mr. Malik Youyou   61   Director and Vice Chairman  

 

Biographies of Directors and Executive Officers

 

Brief biographies of the directors and executive officers of Deep Well are set forth below. All directors hold office until the next shareholders’ meeting or until their death, resignation, retirement, removal, disqualification or until their successors have been elected and qualified. Vacancies in the existing Board may be filled by majority vote of the remaining directors. Officers of our Company serve at the will of the Board. As of September 30, 2014 there were no written employment contracts outstanding for officers, other than the consulting contracts as disclosed herein.

 

Mr. Said Arrata has served as director of Deep Well since March 8, 2011. Mr. Arrata is a highly experienced energy executive who brings a sophisticated understanding of energy company development to the Deep Well Board. Mr. Arrata is the chairman of the board of directors and chief executive officer of Sea Dragon Energy Inc., a firm domiciled in Calgary, Alberta, devoted exclusively to overseas production, and concentrated in Egypt. In 2007 the company he co-founded, Centurion Energy, was sold for $1.2 billion to Dana Gas Inc. and Mr. Arrata subsequently established Sea Dragon Energy Inc. Since May of 2007, Mr. Arrata has been a board member of Dan Gas Inc., a company which operates oil and gas concessions in Egypt and the Province of Kurdistan. Reputed as a company-builder, focused on building maximum value for shareholders during his more than 40 years in the oil and gas industry during which he held management and board positions with major oil and gas companies in Canada and overseas. Mr. Arrata holds a B.Sc. degree in Petroleum Engineering along with several post-graduate accreditations at various universities in North America and is an active member of several professional engineering and industry associations.

 

 
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Mr. Satya Brata Das has served as director of Deep Well since March 8, 2011. Mr. Das offers strategic advice and guidance to public and private sector leaders as co-founder, director and Principal of Edmonton based Cambridge Strategies Inc. A public policy expert on the sustainable development of heavy oil and the oil sands, he is author of “Green Oil: Clean Energy for the 21st Century?” A frequent commentator on air, in print and on podiums, Mr. Das brings his deep experience and insight on public policy issues to the Deep Well Board. A former columnist, foreign correspondent and editorialist, Mr. Das has advised at the highest levels of municipal, provincial and federal governments in Canada.

 

Dr. Horst A. Schmid has served as director and Chairman of Deep Well since February 6, 2004. From June 29, 2005 to the present he has been the Chief Executive Officer and President of Deep Well. From September 1996 to the present, Dr. Schmid has been director, President and Chief Executive Officer of Portwest Investment Ltd., a private firm, located in Edmonton, Alberta, Canada. Prior to that, Dr. Schmid spent 15 years as Cabinet Minister for the government of Alberta and ten years as Commissioner General for Trade and Tourism for the province of Alberta. During that time he was involved in numerous successful overseas negotiations for the Alberta Oil & Gas Industry, achieving major contracts for Alberta Exploration/Production/Service Companies. He is the recipient of many Canadian and International Awards for his accomplishments. Dr. Schmid received an Honorary Law Degree from the University of Alberta.

 

Mr. Curtis James Sparrow has served as director of Deep Well since February 6, 2004. From that time until the present Mr. Sparrow has also been the Chief Financial Officer, Corporate Secretary and Treasurer of Deep Well. Since the mid-1980s, Mr. Sparrow has been a self-employed management consultant specializing in the natural resource sector. Mr. Sparrow has been involved in the oil and gas industry in various capacities for over 35 years. He has held directorships and senior officer positions with junior exploration and development companies before becoming a self-employed consultant. He has also participated in the marketing side of the oil and gas industry, and was part of an acquisition team formed to assess and develop a bid for a multi-billion dollar integrated oil company. His experience also includes corporate and project management, international businesses and mining. Mr. Sparrow received his Bachelor of Science Degree in Engineering and M.B.A. from the University of Alberta. Mr. Sparrow is also a registered Professional Engineer.

 

Mr. David Roff has served as a director of Deep Well since April 3, 2006. Mr. Roff is the co-president of Brave Investment Corporation, a private consulting and investment company and has held this position since 2001. Mr. Roff has extensive experience working with small cap public and private companies for more than fifteen years. Prior to that, Mr. Roff was a management consultant for Coopers & Lybrand Consulting where he advised large financial institutions, investment fund complexes and other organizations on technology and internal control strategies. Mr. Roff is a Chartered Professional Accountant with a B.A. degree from the University of Western Ontario.

 

Mr. Malik Youyou has served as director of Deep Well since August 20, 2008 and Vice Chairman of Deep Well since January 1, 2014. Mr. Youyou is an experienced international entrepreneur, investor and director of several companies. With more than three decades of business experience in highly competitive global markets, beginning in his native France, Mr. Youyou brings a strong international perspective to Deep Well’s Board. Mr. Youyou has created and led several companies involved in the development, branding, and marketing of luxury goods from leading international houses.

 

Mr. Pascal Nodé-Langlois has served as a director of Deep Well since December 4, 2013. Mr. Nodé-Langlois is a French entrepreneur with a broad experience in banking. In 1975, he founded in Switzerland, the company Stock and Commodity Services SA (“SCS”). In 1991, SCS became Banque SCS Alliance SA (BSA), a fully licensed Swiss bank with branches in Switzerland and subsidiaries abroad. In 2006, after a consistent career of more than 30 successful years as the principal owner, managing director and chairman of the board of directors of BSA (previously SCS), Mr. Nodé-Langlois sold his stake in the bank. In 2007, he founded a new financial boutique, in Luxembourg: Voltaire Group SA. This company operates as a holding company. It acquires majority participations and/or creates operating companies with the aim of providing a wide variety of financial services in the areas of expertise that Mr. Nodé-Langlois developed during his previous activity in banking. Its main present participation is PARfinance SA, a Swiss registered wealth management company.

 

On November 17 2014, our Board appointed Mr. Colin P. Outtrim as a director of Deep Well. Mr. Outtrim is a highly experienced petroleum engineer bringing with him extensive reservoir appraisal knowledge to our Board. Mr. Outtrim has over 40 years of experience in the global petroleum reserves and resources industry and has conducted and or participated in several hundred reservoir engineering and economic evaluation projects covering oil, gas and geothermal properties in all parts of the world having asset values from between one million to 20 billion dollars. Early in his career he worked with the Alberta Government Energy Resources and Conversation Board (now known as the AER) as a Reserves Engineer assessing the Alberta oil sands, at which time he also president and chief executive officer of Outtrim Szabo Associates Ltd. which served petroleum companies undertaking energy developments around the world. In 2004 Outtrim Szabo Associates Ltd. was acquired by DeGolyer and Mr. Outtrim became president and a director of DeGolyer until his retirement in 2012. From 2008 to 2012, Deep Well engaged DeGolyer to prepare Deep Well’s independent reserves and resources analysis reports, at which time Mr. Outtrim was providing independent consulting engineering services to Deep Well through DeGolyer. His career has provided him broad experience reporting to audit committees as a “qualified reserves evaluator and auditor”. He is one of a few expert members from around the world selected to sit on and serve as a technical member of the Experts Group sub-committee on the United Nations Economic Commission for Europe (“UNECE”), the United Nations Framework Classification (“UNFC”) for the standardization of petroleum reserves and resource definitions, and has recently completed a three-year term on the board of trustees of the Society of Petroleum Engineers Canadian Educational Trust Fund as trustee and treasurer. He is currently serving as director and reserves audit committee chairman of CaiTerra International Energy Corporation and currently provides reservoir engineering advisory services to Tallahassee Resources Inc. He is also the past chairman of the Petroleum Society of the Canadian Institute of Mining. Mr. Outtrim holds a B.Sc. in Geological Engineering from the University of British Columbia and is a registered Petroleum Engineer.

 

 
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Family Relationships

 

There are no family relationships among the directors and executive officers of our Company.

 

Involvement in Certain Legal Proceedings

 

The following does not describe any past legal proceeding to which Deep Well or its subsidiaries are a party. For a description of certain past legal proceedings involving Deep Well and its subsidiaries, see Item 3 “Legal Proceedings” of this Annual Report. In the past ten years:

 

No bankruptcy petition has been filed by or against any business of which any current director was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.

 

No current director has been convicted in a criminal proceeding and is not subject to a pending criminal proceeding (excluding traffic violations and other minor offenses).

 

No current director has been the subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.

 

No current director has been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of section 229.401 of Regulation S-K, or to be associated with persons engaged in any such activity.

 

No current director has been found by a court of competent jurisdiction in a civil action or by the SEC to have violated a Federal or State securities law that has not been reversed, suspended, or vacated.

 

No current director has been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law that has not been subsequently reversed, suspended or vacated.

 

No current director has been the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation; any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order or disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity.

 

No current director has been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Section 16 (a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our Company’s officers, directors and persons who beneficially own more than 10% of a registered class of our Company’s equity securities to file reports of ownership and changes in ownership with the SEC, and to furnish to our Company copies of such reports. Based solely on the review of Forms 3 and 4 received by our Company during the September 30, 2014 fiscal year, as required under Section 16(a)(2) of the Exchange Act, the following directors, although they reported all their transactions as required on either a Form 3 or Form 4, did not report on a timely basis as follows: Mr. Said Arrata, a director of our Company, filed one Form 4 late (relating to one transaction); Mr. Satya Brata Das, a director of our Company, filed one Form 4 late (relating to two transactions); Mr. Pascal Nodé-Langlois, a director of our Company filed one Form 3 late (relating to one transaction) and one Form 4 late (relating to five transactions); Dr. Horst A. Schmid, a director of our Company, filed one Form 4 late (relating to one transaction); Mr. Curtis James Sparrow, a director of our Company, filed one Form 4 late (relating to one transaction); and Mr. Malik Youyou, a director and a 10% or more beneficial owner of our Company, filed two Form 4s late (relating to 34 transactions).

 

 
58

 

Code of Ethics

 

Our Company recently adopted a formal Code of Business Conduct and Ethics policy governing our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, including our directors and employees, to promote honest and ethical conduct, full, fair, accurate, understandable and timely disclosure in our reports to the SEC, and compliance with applicable governmental laws, rules and regulations. A copy of our Code of Business Conduct and Ethics policy may be obtained from our website at www.deepwelloil.com, or by written request addressed to the Corporate Secretary of Deep Well Oil & Gas, Inc., Suite 700, 10150 – 100 Street, Edmonton, Alberta, T5J 0P6, Canada. Filed herewith, as Exhibit 14.1, is a copy of our Code of Business Conduct and Ethics policy.

 

Corporate Governance

 

Director Independence

 

Under the standards for independence set forth by the NASDAQ Stock Market Rule 5605(a)(2) and the independence standards specified in Rule 10A-3 under the Exchange Act, our Board determined that as of September 30, 2014, our Board consisted of a majority of independent directors, with four being independent and three being non-independent directors. The directors of our Company are as follows:

 

As at September 30, 2014  
Name   Year When First
Appointed as Director
     
Mr. Said Arrata   2011   Independent director  
Mr. Satya Brata Das   2011   Independent director  
Mr. Pascal Nodé-Langlois   2013   Independent director  
Mr. David Roff   2006   Independent director  
Dr. Horst A. Schmid   2004   Non-independent director  
Mr. Curtis James Sparrow   2004   Non-independent director  
Mr. Malik Youyou   2008   Non-Independent director  

 

Board Meetings, Committees and Annual Meeting Attendance

 

In the fiscal year ended September 30, 2014 our Board had six meetings. Each director of our Company attended 100% of all meetings held by the Board. As our Board only recently appointed the following committees there were no meetings held by any of our recently appointed committees during our September 30, 2014 fiscal year.

 

All of our directors attended our last general meeting of shareholders held on September 17, 2014. Our Board’s policy is to encourage all of its directors to attend all general meetings of our shareholders. Such attendance allows for direct interaction between shareholders and members of our Board.

 

Corporate Governance and Nominating Committee

 

Our Board recently appointed a corporate governance and nominating committee consisting of four Board members. Our Board appointed Mr. Satya Brata Das, Mr. Pascal Nodé-Langlois, Mr. Colin Outtrim and Mr. David Roff to serve on our corporate governance and nominating committee. Our Board appointed Mr. Pascal Nodé-Langlois as chairman of the corporate governance and nominating committee. As the Board only recently appointed a corporate governance and nominating committee there were no meetings held by this committee during the September 30, 2014 fiscal year. Our Board also recently adopted a formal corporate governance and nominating committee charter. A copy of this charter may be obtained from our website at www.deepwelloil.com. Filed herewith, as Exhibit 99.5, is a copy of our Corporate Governance and Nominating Committee Charter.

 

The purpose of our corporate governance and nominating committee is to, but not limited to: (i) assist the Board in identifying individuals qualified to serve as members of our Board; (ii) develop and recommend to the Board corporate governance guidelines for our Company; and (iii) oversee the evaluation of the Board and management of our Company.

 

Audit Committee

 

Our Board recently appointed an audit committee consisting of four Board members. Our Board appointed Mr. Said Arrata, Mr. Satya Brata Das, Mr. Pascal Nodé-Langlois and Mr. David Roff to serve on our audit committee. Our Board appointed Mr. David Roff as chairman of the audit committee. As the Board only recently appointed an audit committee there were no meetings held by this committee during the September 30, 2014 fiscal year. Our Board also recently adopted a formal audit committee charter. A copy of this charter may be obtained from our website at www.deepwelloil.com. Filed herewith, as Exhibit 99.3, is a copy of our Audit Committee Charter.

 

 
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Our Board has determined that Mr. David Roff, who was recently appointed to serve on our audit committee, is independent and is recognized as an audit committee financial expert. Mr. Roff is a chartered professional accountant, with a B.A. degree from the University of Western Ontario, has worked as an auditor from 1995 to 1998 and is a Certified Public Accountant in good standing since 1995.

 

The purpose of our audit committee is to prepare the audit committee report required by the SEC to be included in our proxy statement and to assist our Board in overseeing and monitoring: (i) the quality and integrity of our financial statements; (ii) our accounting and reporting processes and consolidated financial statements audits; (iii) our compliance with legal and regulatory requirements; (iv) our independent registered public accounting firm’s qualifications and independence; (v) the performance of our independent registered public accounting firm; and (vi) our systems of disclosure controls and procedures, internal controls over financial reporting, and compliance with ethical standards adopted by our Board.

 

Compensation Committee

 

Our Board recently appointed a compensation committee consisting of four Board members. Our Board appointed Mr. Said Arrata, Mr. Satya Brata Das, Mr. Pascal Nodé-Langlois and Mr. Colin Outtrim to serve on our compensation committee. Our Board appointed Mr. Satya Brata Das as chairman of the compensation committee. As the Board only recently appointed a compensation committee there were no meetings held by this committee during the September 30, 2014 fiscal year. Our Board also recently adopted a formal compensation committee charter. A copy of this charter may be obtained from our website at www.deepwelloil.com. Filed herewith, as Exhibit 99.4, is a copy of our Compensation Committee Charter.

 

The purpose of our compensation committee is to assist our Board in discharging its responsibilities relating to: (i) determining, reviewing, approving or recommending to our Board, the compensation of our executive officers, committee members and directors; (ii) monitoring our incentive and equity-based compensation plans; (iii) preparing the compensation committee report if and when required to be included in our proxy statement under the rules and regulations of the SEC; (iv) evaluating the performance of the committee, including a review of the committee’s compliance with its charter, and reviewing and reassessing its charter and submitting any recommended changes to our Board for its consideration; and (v) oversee all matters relating to shareholder approval, on a non-binding basis of executive compensation (“say-on-pay” votes), including the frequency of such votes and the appropriate committee response to a say-on-pay vote.

 

Reserves and Resources Committee

 

Our Board recently appointed a reserves and resources committee consisting of four Board members. Our Board appointed Mr. Said Arrata, Mr. Colin Outtrim, Mr. David Roff and Mr. Curtis James Sparrow to serve on our reserves and resources committee. Our Board appointed Mr. Colin Outtrim as chairman of the reserves and resources committee. As the Board only recently appointed a reserves and resources committee there were no meetings held by this committee during the September 30, 2014 fiscal year. Our Board also recently adopted a formal reserves and resources committee charter. A copy of this charter may be obtained from our website at www.deepwelloil.com. Filed herewith, as Exhibit 99.6, is a copy of our Reserves and Resources Committee Charter.

 

The purpose of our reserves and resources committee is to assist our Board in monitoring: (i) the integrity of the independent reserves and resources estimates and related U.S. and Canadian regulatory disclosures of our Company; and (ii) the qualifications and independence of the independent reservoir engineers, geologists and geophysicists.

 

Our reserves data and estimates are prepared by independent examination and evaluation of our production data, reservoir pressure data, logs, geological data, and offset analogies in compliance with SEC definitions and guidance and in accordance with generally accepted petroleum engineering principles. The technical persons employed by the independent reserves evaluators are required to meet the requirements regarding qualifications, independence, objectivity and confidentiality set forth in the “Standards Pertaining to the Estimating and Auditing of Oil and Natural Gas Reserves Information” promulgated by the Society of Petroleum Engineers. Our independent reserves evaluators are provided full access to complete and accurate information pertaining to our properties, and to all applicable personnel of our Company. Our reserves estimates and process for developing such estimates are reviewed by our current reserves and resources committee and approved by our management. Our management on behalf of our Board ensures compliance with SEC disclosure and internal control requirements along with verifying the independence of all third-party consultants. Our management is ultimately responsible for reserve estimates and reserve disclosures and ensuring that they are in accordance with the applicable regulatory requirements and industry standards and practices.

 

Shareholder Communications

 

We recognize the investment in our Company that shareholders of our common stock have made and accordingly, we are committed to the open exchange of ideas, concerns and suggestions with our shareholders. Shareholders desiring to communicate with the Board of our Company can do so by mailing a letter to the attention of the Chairman of the Board addressed to our Company’s corporate office at Suite 700, 10150 – 100 Street, Edmonton, Alberta, T5J 0P6.

 

 
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Board Leadership Structure and Role in Risk Oversight

 

As of September 30, 2014, Dr. Horst A. Schmid served as our President and Chief Executive Officer and also serves as the Chairman of our Board. Because of the small size of our Company we do not have a lead independent director. Our Board of Directors consists of four independent and three non-independent directors as of September 30, 2014. Our independent directors take an active role on our Board and make up a majority of our Board. Given the size of our Company, our entire Board believes that our current board leadership structure is appropriate at this time and that Dr. Horst A. Schmid and Mr. Curtis James Sparrow bring valuable industry experience and historical knowledge of our Company’s history.

 

Our entire Board performs the role of risk oversight and includes all of our executive officers. Our management submits weekly updates to our entire Board for review and discussion. These weekly updates include, but are not limited to, regulatory disclosure, administrative and operational updates, weekly financial status and discussion of major expenditures. Our independent Board members regularly discuss their concerns and observations regarding all aspects of our Company’s business plans, risks and operations. These weekly updates facilitate discussions regarding risk-related information or concerns between our Board and our management. Dr. Horst A. Schmid and our entire Board form the agendas for all Board meetings.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table provides information about the compensation paid to, earned or received during the two fiscal years ended September 30, 2014 and September 30, 2013, by the executive officers listed below (the “Named Executive Officers”).

 

Executive Compensation Summary
Name and Principal Position  Fiscal
Year Sept. 30
   Fee
$US
   Bonus US$   Stock Awards US$   Option Awards US$   Non-Equity Incentive Plan Compensation
US$
   Non-qualified Deferred Compensation Earnings
US$
   All Other Compensation US$   Total US$ 
Dr. Horst A. Schmid (1)   2014   $(2)  $   $   $266,994(3)  $   $   $   $266,994(9)
President and   2013   $(2)  $   $   $36,496(4)  $   $   $   $78,996(9)
Chief Executive Officer                                             
                                              
Mr. Curtis James Sparrow (5)   2014   $166,356(6)  $32,347   $   $266,994(7)  $   $   $   $465,697(9)
Chief Financial Officer   2013   $177,300(6)  $   $   $36,496(8)  $   $   $   $213,796(9)

 

(1) Dr. Horst A. Schmid has served our Company as director and Chairman of the Board since February 6, 2004. Since June 29, 2005 to present Dr. Schmid has been the President and Chief Executive Officer of our Company.

 

(2) Portwest, a company owned 100% by Dr. Horst A. Schmid, provided services as Chief Executive Officer and President to our Company for $Nil for the 2014 fiscal year and $Nil for the 2013 fiscal year. For further information see Note 15 in the notes to our consolidated financial statements contained herein.

 

(3) Disclosed herein are the estimated valuations for Dr. Horst A. Schmid’s direct and indirect stock options that vested on June 20, 2014 and September 19, 2014. On June 20, 2013, our Board granted Dr. Schmid, as a director of our Company, options to purchase 450,000 shares of common stock at an exercise price of $0.05 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on June 20, 2014, and one-third on June 20, 2015, with a five-year life, and on August 12, 2013, Dr. Schmid acquired 150,000 shares of our Company’s common stock upon the exercise of some of these options for an exercise price of $0.05 per common share. Also on June 20, 2013, our Board granted Portwest, options to purchase 1,000,000 shares of common stock at an exercise price of $0.05 per share of common stock, with one-half vesting immediately and one-half vesting on June 20, 2014, with a five-year life, and as of September 30, 2013, Portwest had not exercised any of these options. On September 19, 2014, our Board granted Dr. Schmid, as a director of our Company, options to purchase 600,000 shares of common stock at an exercise price of $0.38 per share of common stock, 200,000 vesting immediately and the remaining vesting one-third on September 19, 2015, and one-third on September 19, 2016, with a five-year life, and as of September 30, 2014, Dr. Schmid had not exercised any of these options. On September 19, 2014, our Board granted Portwest, options to purchase 1,200,000 shares of common stock at an exercise price of $0.38 per share of common stock, with one-half vesting immediately and one-half vesting on September 19, 2015, with a five-year life, and as of September 30, 2014, Portwest has not exercised any of these options. For the assumptions used in the valuation of these stock option awards see Note 12 in the notes to our consolidated financial statements contained herein.

 

 
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(4) Disclosed herein are the estimated valuations for Dr. Horst A. Schmid’s direct and indirect stock options that vested on March 23, 2013 and June 20, 2013. On March 23, 2011, our Board granted Dr. Schmid, as a director of our Company, options to purchase 450,000 shares of common stock at an exercise price of $0.14 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on March 23, 2012, and one-third on March 23, 2013, with a five-year life, and as of September 30, 2014, Dr. Schmid had not exercised any of these options. As previously disclosed in footnote (3) above, on June 20, 2013, our Board granted Dr. Schmid, as a director of our Company, options to purchase 450,000 shares of common stock at an exercise price of $0.05 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on June 20, 2014, and one-third on June 20, 2015, with a five-year life, and on August 12, 2013, Dr. Schmid acquired 150,000 shares of our Company’s common stock upon the exercise of some of these options for an exercise price of $0.05 per common share. Also, as previously disclosed in footnote (3) above, on June 20, 2013, our Board granted Portwest, options to purchase 1,000,000 shares of common stock at an exercise price of $0.05 per share of common stock, with one-half vesting immediately and one-half vesting on June 20, 2014, with a five-year life, and as of September 30, 2013, Portwest had not exercised any of these options. For the assumptions used in the valuation of these stock option awards see Note 12 in the notes to our consolidated financial statements contained herein.

 

(5) Mr. Curtis James Sparrow has served our Company as director since February 6, 2004. Since February 9, 2004 Mr. Sparrow has been the Chief Financial Officer, Corporate Secretary and Treasurer of our Company.

 

(6) Concorde Consulting, a company owned 100% by Mr. Curtis James Sparrow, provided services as Chief Financial Officer to our Company for $166,356 (Cdn$180,000) for the 2014 fiscal year and $177,300 (Cdn$180,000) for the 2013 fiscal year.

 

(7) Disclosed herein are the estimated valuations for Mr. Curtis James Sparrow’s direct and indirect stock options that vested on June 20, 2014 and September 19, 2014. On June 30, 2013, our Board granted Mr. Sparrow, as a director of our Company, options to purchase 450,000 shares of common stock at an exercise price of $0.05 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on June 20, 2014, and one-third on June 20, 2015, with a five-year life, and on August 12, 2013, Mr. Sparrow acquired 150,000 shares of our Company’s common stock upon the exercise of these options for an exercise price of $0.05 per common share. Also on June 20, 2013, our Board granted Concorde Consulting, options to purchase 1,000,000 shares of common stock at an exercise price of $0.05 per share of common stock, with one-half vesting immediately and one-half vesting on June 20, 2014, with a five-year life, and on August 12, 2013, Concorde Consulting acquired 500,000 shares of our Company’s common stock upon the exercise of half of these options for an exercise price of $0.05 per common share. On September 19, 2014, our Board granted Mr. Sparrow, as a director of our Company, options to purchase 600,000 shares of common stock at an exercise price of $0.38 per share of common stock, 200,000 vesting immediately and the remaining vesting one-third on September 19, 2015, and one-third on September 19, 2016, with a five-year life, and as of September 30, 2014, Mr. Sparrow had not exercised any of these options. On September 19, 2014, our Board granted Concorde Consulting, options to purchase 1,200,000 shares of common stock at an exercise price of $0.38 per share of common stock, with one-half vesting immediately and one-half vesting on September 19, 2015, with a five-year life, and as of September 30, 2014, Concorde Consulting had not exercised any of these options. For the assumptions used in the valuation of these stock option awards see Note 12 in the notes to our consolidated financial statements contained herein.

 

(8) Disclosed herein are the estimated valuations for Mr. Curtis James Sparrow’s direct and indirect stock options that vested on March 23, 2013 and June 20, 2013. On March 23, 2011, our Board granted Mr. Sparrow, as a director of our Company, options to purchase 450,000 shares of common stock at an exercise price of $0.14 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on March 23, 2012, and one-third on March 23, 2013, with a five-year life, and on August 12, 2013, Mr. Sparrow acquired 450,000 shares of our Company’s common stock upon the exercise of these options for an exercise price of $0.14 per common share. As previously disclosed in footnote (7) above, on June 30, 2013, our Board granted Mr. Sparrow, as a director of our Company, options to purchase 450,000 shares of common stock at an exercise price of $0.05 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on June 20, 2014, and one-third on June 20, 2015, with a five-year life, and on August 12, 2013, Mr. Sparrow acquired 150,000 shares of our Company’s common stock upon the exercise of these options for an exercise price of $0.05 per common share. Also, as previously disclosed in footnote (7) above, on June 20, 2013, our Board granted Concorde Consulting, options to purchase 1,000,000 shares of common stock at an exercise price of $0.05 per share of common stock, with one-half vesting immediately and one-half vesting on June 20, 2014, with a five-year life, and on August 12, 2013, Concorde Consulting acquired 500,000 shares of our Company’s common stock upon the exercise of half of these options for an exercise price of $0.05 per share of common stock. For the assumptions used in the valuation of these stock option awards see Note 12 in the notes to our consolidated financial statements contained herein.

  

Compensation Arrangements for Executive Officers

 

Our Company currently does not provide retirement benefits to its executive officers.

 

Our Company has entered into the following contracts with the following companies for services of certain officers and/or directors of our Company:

 

1.Portwest for providing services as Chief Executive Officer and President to our Company for Cdn$12,500 per month. On July 1, 2005, our Company entered into a consulting agreement (the “Prior Agreement”) with Portwest, as filed with our Company’s annual report on Form 10-KSB filed on February 23, 2007, and incorporated by reference herein. On July 10, 2013, our Company and Portwest agreed to amend the Prior Agreement whereby the following was settled and amended:

 

a)the effective date of the amending agreement was June 20, 2013;
b)the term of Prior Agreement expired on December 31, 2014;
c)The fees payable to Portwest in the Prior Agreement will be terminated and our Company will grant Portwest 5-year options on 1,000,000 of its common shares exercisable at $0.05 per share of common stock, which was the market price at that time. One half of these shares were vested immediately and the remaining one half vested on June 20, 2014;
d)Portwest, as consideration for the execution of the amending agreement, the termination of parts of the Prior Agreement and the waiving of Cdn$239,528 accrued by our Company as owing to Portwest, received:
   
  i. Cdn$70,000; and
  ii. 850,000 units of our Company’s shares and warrants at a price of $0.05 per unit, which was the market price at that time. Each unit shall be comprised of one restricted Company common share and one 3-year full warrant entitling Portwest to be able to purchase another share for $0.075. The warrants will expire on June 20, 2016.

 

 
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In the 2014 fiscal year, no fees were owed or paid to Portwest. As of September 30, 2013, our Company has settled all outstanding amounts owed to Portwest.

 

2.Concorde Consulting, a company owned 100% by Mr. Curtis James Sparrow for providing services as Chief Financial Officer to our Company for Cdn$15,000 per month. As of September 30, 2014, the Company owed Concorde Consulting Cdn $nil for services provided to the Company.

 

On March 23, 2011, and as herein reported under the Executive Compensation Summary table, our Board granted Dr. Schmid and Mr. Sparrow, as directors of our Company, options to purchase 450,000 shares each of common stock at an exercise price of $0.14 per common share, one-third vesting immediately, one-third vesting on March 23, 2012, and one-third vesting on March 23, 2013, each with a five-year life.

 

On June 20, 2013, and as herein reported under the Executive Compensation Summary table, our Board granted Dr. Schmid and Mr. Sparrow, as directors of our Company, options to purchase 450,000 shares each of common stock at an exercise price of $0.05 per common share, one-third vesting immediately, one-third vesting on June 20, 2014, and one-third on June 20, 2015, each with a five-year life.

 

On September 19, 2014, and as herein reported under the Executive Compensation Summary table, our Board granted Dr. Schmid and Mr. Sparrow, as a directors of our Company, options to purchase 600,000 shares of common stock at an exercise price of $0.38 per common share, one-third vesting immediately and the remaining vesting one-third on September 19, 2015, and one-third on September 19, 2016, each with a five-year life.

 

Outstanding Equity Awards Granted to Executive Officers at September 30, 2014
   Options Awards (1)   Stock Awards 
Name  Number of Securities Underlying Unexercised Options (#) Exercisable   Number of Securities Underlying Unexercised Options (#) Unexercisable   Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)   Option Exercise Price ($)   Option Expiration Date  Number of Shares or Units of Stock That Have Not Vested (#)   Market Value of Shares or Units of Stock That Have Not Vested ($)   Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)   Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) 
Portwest Investments Ltd. (1)   1,000,000           $0.05   06/20/2018                
Portwest Investments Ltd. (2)   600,000    600,000       $0.38   09/19/2019                
Concorde Consulting (3)   500,000           $0.05   06/20/2018                
Concorde Consulting (4)   600,000    600,000       $0.38   09/19/2019                

 

(1) On June 20, 2013, Portwest, a company owned 100% by Dr. Horst A. Schmid, was granted options to purchase 1,000,000 shares of common stock for providing consulting services as President and Chief Executive Officer of our Company, half vesting immediately and the other half vesting on June 20, 2013. See the Executive Compensation table for more disclosure. As of the date of this report Portwest had not exercised any of these stock options.

  

(2) On September 19, 2014, our Board granted Portwest, options to purchase 1,200,000 shares of common stock at an exercise price of $0.38 per share of common stock, with one-half vesting immediately and one-half vesting on September 19, 2015. See the Executive Compensation table for more disclosure. As of the date of this report Portwest had not exercised any of these stock options.

  

(3) On June 20, 2013, Concorde Consulting, a company owned 100% by Mr. Curtis James Sparrow, was granted options to purchase 1,000,000 shares of common stock for providing consulting services as Chief Financial Officer of our Company, half vesting immediately and the other half vesting on June 20, 2013. See the Executive Compensation table for more disclosure. On August 12, 2013, Concorde Consulting acquired 500,000 common shares, upon exercising stock options, at an exercise price of $0.05 per share of common stock.

 

(4) On September 19, 2014, our Board granted Concorde Consulting, options to purchase 1,200,000 shares of common stock at an exercise price of $0.38 per share of common stock, with one-half vesting immediately and one-half vesting on September 19, 2015. See the Executive Compensation table for more disclosure. As of the date of this report Concorde Consulting had not exercised any of these stock options. 

 
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Compensation of Directors

 

On November 28, 2005 and as amended on December 4, 2013, our Board adopted the Deep Well Oil & Gas, Inc. Stock Option Plan. The Stock Option Plan was approved by the majority of shareholders at the February 24, 2010 general meeting of shareholders. The Stock Option Plan is administered by our Board and permits options to acquire shares of Deep Well’s common stock to be granted to directors of our Company. The vesting of such director options will occur only if the holder of the options continues to provide services to us during the immediate annual period preceding the relevant vesting date. The options will terminate at the close of business five years from the date of grant.

 

On March 23, 2011, our Board granted each of its directors, Dr. Horst A. Schmid, Mr. Said Arrata, Mr. Satya Das, Mr. David Roff, Mr. Curtis James Sparrow and Mr. Malik Youyou, options to purchase 450,000 shares each of common stock at an exercise price of $0.14 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on March 23, 2012, and one-third on March 23, 2013, with such options expiring on March 23, 2016.

 

On June 20, 2013, our Board granted each of its directors, Dr. Horst A. Schmid, Mr. Said Arrata, Mr. Satya Das, Mr. David Roff, Mr. Curtis James Sparrow and Mr. Malik Youyou, options to purchase 450,000 shares each of common stock at an exercise price of $0.05 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on June 20, 2014, and one-third on June 20, 2015, with such options expiring on June 20, 2018.

 

Between August 12 and August 15, 2013, six directors and two consultants of our Company acquired a combined total of 3,768,096 common shares, upon exercising stock options and warrants, at exercise prices ranging from $0.05 to $0.14 per common share for total combined gross proceeds to our Company of $372,000. The common shares were issued pursuant to Section 4(2) of the Securities Act.

 

On December 4, 2013, the Board appointed Mr. Pascal Nodé-Langlois as a director and in connection with the appointment our Board granted Mr. Nodé-Langlois an option to purchase 450,000 shares of common stock at an exercise price of $0.34 per share of common stock, 150,000 vesting immediately and the remaining vesting one-third on December 4, 2014, and one-third on December 4, 2015, with such options expiring on December 4, 2018.

 

On September 19, 2014, the Board granted each of its directors, Dr. Horst A. Schmid, Mr. Said Arrata, Mr. Satya Das, Mr. Pascal Nodé-Langlois, Mr. David Roff, Mr. Curtis James Sparrow and Mr. Malik Youyou, options to purchase 600,000 shares each of common stock at an exercise price of $0.38 per share of common stock, 200,000 vesting immediately and the remaining vesting one-third on September 19, 2015, and one-third on September 19, 2016, with such options expiring on September 19, 2019.

 

For the fiscal year ended September 30, 2014, our Company recorded share based compensation expense related to stock options in the amount of $1,087,356 (September 30, 2013 - $125,099) on the stock options that vested during the year and the stock options that were granted during the year. As of September 30, 2014, there was remaining unrecognized compensation cost of $1,251,266 related to the non-vested portion of these unit option awards. Compensation expense is based upon straight-line depreciation of the grant-date fair value over the vesting period of the underlying unit option.

 

Director Compensation at September 30, 2014
Name  Fees Earned or Paid in Cash ($)   Stock Awards ($)  

Option Awards

($)(6)

   Non-Equity Incentive Plan Compensation ($)   Nonqualified Deferred Compensation Earnings ($)   All Other Compensation ($)   Total ($) 
Dr. Horst A. Schmid  Disclosed in the Summary Compensation Table above. 
Mr. Said Arrata(1)            69,205                69,205 
Mr. Satya Brata Das(2)           69,205                69,205 
Mr. Pascal Nodé-Langlois(3)           181,613                181,613 
Mr. David Roff(4)           69,205                69,205 
Mr. Curtis James Sparrow   Disclosed in the Summary Compensation Table above.         
Mr. Malik Youyou(5)           69,205                69,205 

 

(1) Mr. Said Arrata has served our Company as director since March 8, 2011. Disclosed herein is the estimated valuation for Mr. Arrata’s stock options that vested on June 20, 2014 and September 19, 2014.
 
(2) Mr. Satya Brata Das has served our Company as director since March 8, 2011. Disclosed herein is the estimated valuation for Mr. Das’ stock options that vested on June 20, 2014 and September 19, 2014.
 
(3) Mr. Pascal Nodé-Langlois has served our Company as director since December 4, 2013. Disclosed herein is the estimated valuation for Mr. Nodé-Langlois’ stock options that vested on December 4, 2013 and September 19, 2014.
 
(4) Mr. David Roff has served our Company as director since April 3, 2006. Disclosed herein is the estimated valuation for Mr. Roff’s stock options that vested on June 20, 2014 and September 19, 2014.
 
(5) Mr. Malik Youyou has served our Company as director since August 20, 2008. Disclosed herein is the estimated valuation for Mr. Youyou’s stock options that vested on June 20, 2014 and September 19, 2014.
 

(6) For the assumptions used in these valuations of these stock option awards see Note 12 in the notes to our consolidated financial statements contained herein.

 

 

 
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Securities Authorized for Issuance under Equity Compensation Plans

 

As of September 30, 2014, with respect to shares of Deep Well common stock that may be issued under our existing equity compensation plan, see Item 5 “Equity Compensation Plan Information” of this Annual Report.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth the number and percentage of the beneficial ownership of shares of Deep Well’s outstanding common stock as of October 31, 2014 by each person or group known by us to be the beneficial owner of more than 5%, and all of our directors and executive officers individually and as a group.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of October 31, 2014
Name and Address of Beneficial Owner  Title of Class   Number of Shares Beneficially Owned (1) (2)   Percentage of Class Beneficially Owned   Nature of Beneficial Ownership 
                 
Malik Youyou (†)
Director
Sadovnicheskeya nab 69
Moscow 115035, Russia
   Common    184,800,964    61.37%(3)   Direct and Indirect 
                     
MP West Canada SAS
Beneficial Owner of 5% or more
51, Rue D’Anjou, Paris, 75008, France
   Common    45,111,778    19.67(4)   Direct 
                     
Dr. Horst A. Schmid (†)
Director and Chairman of the Board, President
and Chief Executive Officer
Suite 700, 10150 - 100 Street
Edmonton, Alberta  T5J 0P6 Canada
   Common    6,200,000    2.67%(5)   Direct and Indirect 
                     
Mr. Curtis James Sparrow (†)
Director, Chief Financial Officer, Corporate
Secretary and Treasurer
Suite 700, 10150 - 100 Street
Edmonton, Alberta  T5J 0P6 Canada
   Common    3,100,000    1.34(6)   Direct and Indirect 
                     
Mr. Satya Brata Das (†)
Director
Suite 710, 10150 - 100 Street
Edmonton, Alberta  T5J 0P6 Canada
   Common    2,570,952    1.12(7)   Direct and Indirect 
                     
Mr. Said Arrata (†)
Director
Suite 2320, 255 – 5 Avenue S.W.
Calgary, Alberta  T2P 3G6 Canada
   Common    1,450,000    *(8)   Direct 
                     
Mr. David Roff (†)
Director  
27 Chicora Avenue
Toronto, Ontario  M5R 1W7 Canada
   Common    1,112,441    *(9)   Direct 
                     
Mr. Pascal Nodé-Langlois (†)
Director  
Rue d'Esch 412FLuxembourg L-2086
   Common    750,000    *(10)   Direct 
                     
(†) All Officers and Directors as a Group   Common    199,984,357    64.98%   Direct and Indirect 

 

* Less than 1% 

 
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(1) Under the rules of the SEC, a person or entity beneficially owns stock of a company if such person or entity directly or indirectly has, or shares the power to, vote or direct the voting, or the power to dispose or direct the disposition of such stock, whether through any contract, arrangement, understanding, relationship or otherwise. A person or entity is also deemed to be the beneficial owner of stock if such person or entity has the right to acquire either of such powers at any time within 60 days through the exercise of any option, warrant, right or conversion privilege or pursuant to the power to revoke a trust, a discretionary account or similar arrangement or pursuant to the automatic termination of a trust, discretionary account or similar arrangement.

 

(2) Based on 229,326,987 of our common shares issued and outstanding on October 31, 2014. For calculating the percentage of beneficial ownership separately for each person, his or her options, warrants or both that can be acquired within 60 days are included in both the numerator and the denominator. For the directors as a group, their collective options and warrants that can be acquired within 60 days are included in both the numerator and the denominator when calculating their group percentage ownership.

 

(3) Mr. Malik Youyou has served our Company as director since August 20, 2008. Mr. Youyou has also served as our Company's Vice Chairman since January 01, 2014. As of October 31, 2014, Mr. Youyou beneficially owns 184,800,964 shares of our common stock, of which (i) 105,175,042 shares are held directly; (ii) 7,847,352 shares are held indirectly by Westline Enterprises Limited, a corporation 100% owned by Mr. Youyou; (iii) Mr. Youyou presently holds directly exercisable warrants to acquire 71,428,570 shares of our common stock; and (iv) Mr. Youyou presently directly holds exercisable options to acquire 350,000 shares of our common stock. Assuming the issuance of 71,778,570 shares of our common stock, pursuant to the exercise of Mr. Youyou’s presently exercisable warrants and options, Mr. Youyou would beneficially own 61.37% of our Company’s outstanding common stock. As October 31, 2014, Mr. Youyou has not exercised any of these currently outstanding warrants or options and without the exercise of Mr. Youyou’s outstanding warrants and options, Mr. Youyou has a 49.28% ownership of our issued and outstanding common stock.

 

(4) Based solely on our statement of security holder listing report received from our transfer agent on October 31, 2014, MP West Canada SAS owns 45,111,778 shares of our common stock and based on this report MP West Canada SAS owns 19.67% of our Company’s issued and outstanding common stock.

 

(5) Dr. Horst A. Schmid has served our Company as director and Chairman of the Board since February 6, 2004. Dr. Schmid has also served our Company as President and Chief Executive Officer since June 29, 2005. Dr. Schmid beneficially owns 6,200,000 shares of our common stock, of which (i) 150,000 shares are held directly; (ii) 3,130,000 shares are held indirectly by Portwest Investments Ltd., a private corporation 100% owned by Dr. Schmid; (iii) Dr. Schmid presently holds indirectly through Portwest Investments Ltd., exercisable warrants to acquire 520,000 shares of our common stock; (iv) Dr. Schmid presently indirectly holds exercisable options through Portwest Investments Ltd., to acquire 1,600,000 shares of our common stock; and (v) Dr. Schmid presently holds directly exercisable options to acquire an additional 800,000 shares of our common stock. Assuming the issuance of 2,920,000 shares of common stock, pursuant to the exercise of Dr. Schmid’s presently exercisable warrants and options, Dr. Schmid would beneficially own 2.67% of our Company’s outstanding common stock. As October 31, 2014, Dr. Schmid has not exercised any of these currently outstanding warrants and options and without the exercise of Dr. Schmid’s outstanding warrants and options, Dr. Schmid has a 1.43% ownership of our issued and outstanding common stock.

 

(6) Mr. Sparrow has served our Company as director and Chief Financial Officer since February 9, 2004. Mr. Sparrow beneficially owns 3,100,000 shares of our common stock, of which (i) 600,000 shares are held directly; (ii) 1,050,000 shares are held indirectly by Concorde Consulting, a private corporation owned 100% by Mr. Sparrow; (iii) Mr. Sparrow presently indirectly holds exercisable options through Concorde Consulting, to acquire 1,100,000 shares of our common stock; and (v) Mr. Sparrow also presently holds directly exercisable options to acquire an additional 350,000 shares of our common stock. Assuming the issuance of 1,450,000 shares of common stock, pursuant to the exercise of Mr. Sparrow’s presently exercisable warrants and options, Mr. Sparrow would beneficially own 1.34% of our Company’s outstanding common stock. As October 31, 2014, Mr. Sparrow has not exercised any of these currently outstanding options and without the exercise of Mr. Sparrow’s outstanding options. Mr. Sparrow has a 0.72% ownership of our issued and outstanding common stock.

 

(7) Mr. Satya Brata Das has served our Company as director since March 8, 2011. Mr. Das beneficially owns 2,570,952 shares of our common stock, of which (i) 390,000 shares are held directly; (ii) 952,381 are held indirectly by Cambridge Strategies Inc., a company 50% owned by Mr. Satya Brata Das and 50% owned by his wife; (iii) Mr. Das presently holds indirectly through Cambridge Strategies Inc., exercisable warrants to acquire 428,571 shares of our common stock; (iv) Mr. Das presently holds directly exercisable options to acquire an additional 600,000 shares of our common stock; and (v) Mr. Das also presently holds indirectly through Cambridge Strategies Inc., exercisable options to acquire an additional 200,000 shares of our common stock. Assuming the issuance of 1,228,571 shares of our common stock, pursuant to the exercise of Mr. Das’ presently exercisable warrants and options, Mr. Das would beneficially own 1.12% of our Company’s outstanding common stock. As October 31, 2014, Mr. Das has not exercised any of these currently outstanding warrants and options and without the exercise of Mr. Das’ outstanding warrants and options, Mr. Das has a 0.59% ownership of our issued and outstanding common stock.

 

(8) Mr. Said Arrata has served our Company as director since March 8, 2011. Mr. Arrata beneficially owns 1,450,000 shares of our common stock of which (i) 1,100,000 shares are held directly; and (ii) Mr. Arrata presently holds directly exercisable options to acquire an additional 350,000 shares of our common stock. Assuming the issuance of 350,000 shares of our common stock, pursuant to the exercise of Mr. Arrata’s presently exercisable options, Mr. Arrata would beneficially own 0.63% of our Company’s outstanding common stock. As October 31, 2014, Mr. Arrata has not exercised any of these currently outstanding options and without the exercise of Mr. Arrata’s outstanding options, Mr. Arrata has a 0.48% ownership of our issued and outstanding common stock.

 

(9) Mr. David Roff has served our Company as director since April 3, 2006. Mr. Roff beneficially owns 1,112,441 shares of our common stock of which (i) 762,441 shares are held directly; and (ii) Mr. Roff presently holds directly exercisable options to acquire an additional 350,000 shares of our common stock. Assuming the issuance of 350,000 shares of our common stock, pursuant to the exercise of Mr. Roff’s presently exercisable options, Mr. Roff would beneficially own 0.48% of our Company’s outstanding common stock. As October 31, 2014, Mr. Roff has not exercised any of these currently outstanding options and without the exercise of Mr. Roff’s outstanding options, Mr. Roff has a 0.33% ownership of our issued and outstanding common stock. 

 
66

 

(10) Mr. Pascal Nodé-Langlois has served our Company as director since December 4, 2013. Mr. Nodé-Langlois beneficially owns 400,000 shares of our common stock of which (i) 400,000 shares are held indirectly through Voltaire Group SA, a company 100% owned by Mr. Nodé-Langlois; and (ii) Mr. Nodé-Langlois presently holds indirectly through Voltaire Group SA, exercisable options to acquire an additional 350,000 shares of our common stock. Assuming the issuance of 350,000 shares of our common stock, pursuant to the exercise of Mr. Nodé-Langlois’ presently exercisable options, Mr. Nodé-Langlois would beneficially own 0.33% of our Company’s outstanding common stock. As October 31, 2014, Mr. Nodé-Langlois has not exercised any of these currently outstanding options and without the exercise of Mr. Nodé-Langlois’ outstanding options, Mr. Nodé-Langlois has a 0.17% ownership of our issued and outstanding common stock.

 

Changes in Control

 

Except as described below, Deep Well is not aware of any arrangement that may result in a change in control of Deep Well or its subsidiary companies.

 

As of October 31, 2014, and based solely on Mr. Malik Youyou’s filed Form 4s and most recent Schedule 13D, Mr. Youyou, a director of our Company, beneficially owns 184,800,964 common shares of Deep Well, representing 61.37% of Deep Well’s outstanding shares of common stock (assuming the exercise of all outstanding warrants and options held by Mr. Youyou). 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with Related Persons

 

Effective November 23, 2012, pursuant to a subscription agreement, our Company completed a private placement with Mr. Malik Youyou of an aggregate of 42,857,142 units at a price of $0.07 per unit, for total gross proceeds of $3,000,000. Each unit is comprised of one share of common stock and one common share purchase warrant. Each warrant entitles the holder to purchase one share of common stock at a price of $0.105 for a period of three years from the date of closing, provided that if the closing price of the common shares of our Company on the principal market on which our common shares trade is equal to or exceeds $1.00 for thirty consecutive trading days, the warrant term will automatically accelerate to the date that is thirty calendar days following the date that written notice has been given to the warrant holder. No commission or finder’s fees were payable in connection with this private placement. The units were issued pursuant to Regulation S. The warrants will expire on November 23, 2015 unless the warrant term is automatically accelerated.

 

In our Company’s third fiscal quarter of 2013, our Company received a loan for $260,000 as a note payable from Mr. Malik Youyou, a director and majority shareholder of the Company. In November 2013, this note payable was paid in full to Mr. Youyou.

 

We paid Concorde Consulting, a company 100% owned by Mr. Curtis James Sparrow, $198,703 for consulting services provided to our Company for professional fees provided to our Company as Chief Financial Officer, Corporate Secretary and Treasurer, during the fiscal year ended September 30, 2014. Mr. Sparrow is also a director of our Company.

 

On June 27, 2014, our Company, through Northern, entered into and subsequently closed an Acquisition of Royalty Interest Agreement (the “Acquisition Agreement”), with Mr. Malik Youyou, a director and majority shareholder of the Company, whereby we acquired and cancelled 2.5% of the disputed Purported 6.5% Royalty on certain lands owned us. Although we continue todeny the validity of the Purported 6.5% Royalty, the Company determined that it was in the best interests of our shareholders to come to an arrangement to acquire and cancel most of the Purported 6.5% Royalty to prevent a potential encumbrance over our land or the possibility of future litigation resulting from these alleged royalty claims. Pursuant to the terms and conditions of the Acquisition Agreement to acquire the purported overriding royalty interest claim, we paid US$1,007,000 to Mr. Malik Youyou, for the purchase and transfer of an undivided 2.5% interest out of the Purported 6.5% Royalty. The consideration paid was for the reimbursement of the original cost (in US dollars) that Mr. Youyou paid to acquire this 2.5% interest in the Purported 6.5% Royalty from an arm’s length third party.

 

Mr. Malik Youyou has served our Company as director since August 20, 2008. As of October 31, 2014, 2014, Mr. Youyou beneficially owns 184,800,964 shares of our common stock, of which; (i) 105,175,042 shares are held directly; (ii) 7,847,352 shares are held indirectly by Westline Enterprises Limited, a corporation 100% owned by Mr. Youyou; (iii) Mr. Youyou presently holds directly exercisable warrants to acquire 71,428,570 shares of our common stock; and (iv) Mr. Youyou presently directly holds exercisable options to acquire 350,000 shares of our common stock. Assuming the issuance of 71,778,570 shares of our common stock, pursuant to the exercise of Mr. Youyou’s presently exercisable warrants and options, Mr. Youyou would beneficially own 61.37% of our Company’s outstanding common stock. As October 31, 2014, Mr. Youyou has not exercised any of these currently outstanding warrants or options and without the exercise of Mr. Youyou’s outstanding warrants and options, Mr. Youyou has a 49.28% ownership of our issued and outstanding common stock

 

Director Independence

 

See the disclosure under Item 10 “Directors, Executive Officers and Corporate Governance” of this Annual Report.

 

 
67

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

In the fiscal year ended September 30, 2014, we estimate that we will have paid Collins Barrow, an independent third party, PCAOB registered, chartered accounting firm fees of Cdn$10,500 relating to the preparation of our Company’s tax returns. In the fiscal year ended September 30, 2013, we paid Collins Barrow, an independent third party, PCAOB registered, chartered accounting firm fees of Cdn$13,531 relating to the preparation of our Company’s tax returns. All of our quarterly financial statements for the fiscal years ended September 30, 2014 and 2013 were reviewed by Sadler Gibb and our September 30, 2014 and 2013 fiscal year ends were also audited by Sadler Gibb In the fiscal year ended September 30, 2013, we paid Collins Barrow, an independent third party, PCAOB registered, chartered accounting firm fees of Cdn$10,500, relating to the preparation of our Company’s tax returns and first quarter financial statements.

 

The following table is a summary of the fees billed to us by Sadler Gibb for professional services for the fiscal years ended September 30, 2014 and September 30, 2013:

 

Fee Category  Fiscal 2014 Fees   Fiscal 2013 Fees 
         
Audit Fees  $30,500   $29,500 
Audit Related Fees        
Tax Fees        
All Other Fees        
Total Fees  $30,500   $29,500 

 

Audit Fees

 

Audit fees consist of fees for services provided by Sadler Gibb for the audit of our annual consolidated financial statements included in our this Annual Report for the fiscal years ended September 30, 2014 and 2013. Audit fees also include fees for services provided by Sadler Gibb for the review of our quarterly consolidated financial statements included in our quarterly filings on Form 10-Q for the periods ending December 31, 2013, March 31, 2014 and June 30, 2014. Audit fees also include fees for services provided by Sadler Gibb for the review of our quarterly consolidated financial statements included in our quarterly filings on Form 10-Q for the periods ending December 31, 2012, March 31, 2013 and June 30, 2013.

 

Audit Committee Pre-Approval Policies and Procedures

 

Our recently appointed audit committee is responsible for appointing, setting the compensation and overseeing the work of the independent auditor. Our audit committee pre-approves all audit and non-audit services provided by our independent auditor.

 

Because our Board only recently appointed an audit committee and adopted an audit committee charter, our Board as a whole pre-approved all audit and non-audit services provided by Sadler Gibb for the fiscal year ended September 30, 2104. Further our Board considered the nature and amount of the fees billed by Sadler Gibb, and believes that the provision of the services for activities unrelated to the audit of our September 30, 2014 financial statements is compatible with maintaining the independence of Sadler Gibb.

  

 
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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Financial Statements filed with this Annual Report

 

The following listed financial statements and report of independent registered public accounting firm are filed as part of this Annual Report (see disclosure under Item 8 “Financial Statements and Supplementary Data” of this Annual Report for further information)

 

1.Consolidated Balance Sheets for September 30, 2014 and 2013.
2.Consolidated Statements of Operations for the years ended September 30, 2014 and 2013.
3.Consolidated Statements of Shareholders’ Equity for the period from September 30, 2012 to September 30, 2014.
4.Consolidated Statements of Cash Flows for the years ended September 30, 2014 and 2013.
5.Notes to the Consolidated Financial Statements.
6.Sadler, Gibb & Associates, LLC Report of Independent Registered Public Accounting Firm.

 

Financial Statement Schedules filed with this Annual Report

 

None.

 

Exhibits

 

The following Exhibits have been or are being filed herewith and are numbered in accordance with Item 601 of Regulation S-K:

 

Exhibit No.   Description
2.1   Liquidating Plan of Reorganization of Allied Devices Corporation, now known as Deep Well Oil & Gas, Inc. (incorporated by reference to Exhibit 2.1 to our Form 10-K/A filed on January 28, 2004).
2.2   Order and Plan of Reorganization of the U.S. Bankruptcy Court in and for the Eastern District of New York, In re: Allied Devices Corporation, Chapter 11, Case No. 03-80962-511, dated September 10, 2003 (incorporated by reference to Exhibit 2.2 to our Form 10-K/A filed on January 28, 2004).
3.1   Restated and Amended Articles of Incorporation filed with and accepted by the Secretary of State of Nevada on October 22, 2003, changing the name to “Deep Well Oil and Gas, Inc.” and otherwise implementing the Plan (incorporated by reference to Exhibit 3.1 to our Form 10-K/A filed on January 28, 2004).
3.2   Amended Articles of Incorporation filed with the State of Nevada on February 27, 2004, reflecting our two (2) shares for one (1) share forward stock split (incorporated by reference to Exhibit 3.1 to our Form 8-K filed on March 5, 2004).
3.3   Amended Articles of Incorporation filed with the State of Nevada on May 5, 2004, reflecting our three (3) shares for one (1) share forward stock split (incorporated by reference to Exhibit 3.2 to our Form 8-K filed on May 7, 2004).
3.4   Registrant’s By-laws, filed with Form 10-KSB on February 23, 2007 (incorporated by reference to Exhibit 3.4 to our Form 10-KSB filed on February 23, 2007).
3.5   Registrant’s Amended and Restated By-laws, filed with Form 8-K on September 3, 2009 (incorporated by reference to Exhibit 3.1 to our Form 8-K filed on September 3, 2009).
3.6   Amended Articles of Incorporation filed with the State of Nevada on May 15, 2013 and effective on May 24, 2013, increasing the aggregate number of shares which the Company has authority to issue from 300,000,000 common shares, with $0.001 par value per share, to 600,000,000 shares of common stock, with $0.001 par value per share (incorporated by reference to Exhibit 3.1 to our Form 8-K filed on May 17, 2013).
4.1   Form of Warrant issued pursuant to a Subscription Agreement dated effective November 23, 2012 by and among our Company with one investor related to one Private Placement offering (incorporated by reference to Exhibit 4.2 to our Form 8-K filed on December 12, 2012).
4.2*   Form of Warrant issued pursuant to a Subscription Agreement dated July 10, 2013 by and among our Company with a consultant of our Company related to an Amending Agreement by and between Northern Alberta Oil Ltd. and Portwest Investments Ltd., dated July 10, 2013 (incorporated by reference to Exhibit 4.2 to our Form 8-K filed on July 16, 2013).
10.1*   Consulting agreement by and between Northern Alberta Oil Ltd. and Portwest Investments Ltd., dated July 1, 2005 (incorporated by reference to Exhibit 10.16 to our Form 10-KSB filed on February 23, 2007).
10.2*   Consulting agreement by and between Northern Alberta Oil Ltd. and Concorde Consulting, dated July 1, 2005 (incorporated by reference to Exhibit 10.17 to our Form 10-KSB filed on February 23, 2007).
10.3*   Deep Well Oil & Gas, Inc. Stock Option Plan, effective November 28, 2005 and amended December 4, 2013.
10.4   Sample Stock Option Agreement issued on March 23, 2011, to six directors (Mr. Said Arrata, Mr. Satya Brata Das, Mr. David Roff, Dr. Horst A. Schmid, Mr. Curtis James Sparrow and Mr. Malik Youyou) of the Company.

 

 
69

  

Exhibit No.   Description
     
10.5   Form of Subscription Agreement dated effective November 23, 2012 by and among our Company with one investor (incorporated by reference to Exhibit 4.1 to our Form 8-K filed on December 12, 2012).
10.6   Form of Purchase and Sale Agreement effective December 3, 2012 by and among our Company and 1132559 Alberta Ltd. (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on December 17, 2012).
10.7   Sample Stock Option Agreement issued on June 20, 2013, to six directors (Mr. Said Arrata, Mr. Satya Brata Das, Mr. David Roff, Dr. Horst A. Schmid, Mr. Curtis James Sparrow and Mr. Malik Youyou) of the Company.
10.8*   Stock Option Agreement issued on June 20, 2013, to Concorde Consulting.
10.9*   Stock Option Agreement issued on June 20, 2013, to Portwest Investments Ltd.
10.10   Sample Stock Option Agreement issued on June 20, 2013, to one employee of the Company.
10.11*   Form of Subscription Agreement dated July 10, 2013 by and among our Company with a consultant of our Company, related to an Amending Agreement by and between Northern Alberta Oil Ltd. and Portwest Investments Ltd., dated July 10, 2013 (incorporated by reference to Exhibit 4.1 to our Form 8-K filed on July 16, 2013).
10.12*   Amended Consulting Agreement by and between Northern Alberta Oil Ltd. and Portwest Investments Ltd., dated July 10, 2013 (incorporated by reference to Exhibit 10.3 to our Form 8-K filed on July 16, 2013).
10.13   Form of Subscription Agreement dated effective July 31, 2013 by and among our Company with one investor (incorporated by reference to Exhibit 4.1 to our Form 8-K filed on August 5, 2013 and Exhibit 4.1 to our Form 8-K/A filed on October 15, 2013).
10.14   Farmout Agreement between the Company and Farmee dated July 31, 2013 (incorporated by reference to Exhibit 10.1 to our Form 8-K/A filed on October 15, 2013).
10.15   SAGD Demonstration Project Agreement dated July 30, 2013 between the Company and its joint venture partner (incorporated by reference to Exhibit 4.1 to our Form 8-K filed on August 21, 2013).
10.16   Stock Option Agreement issued on October 28, 2013, to a contractor of the Company.
10.17   Stock Option Agreement issued on December 4, 2013, to a director (Mr. Pascal Node-Langlois) of the Company.
10.18   Acquisition of Royalty Interest Agreement dated March 18, 2014 between Northern Alberta Oil Ltd. and JV Partner (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on July 3, 2014).
10.19   General Indenture of Conveyance, Assignment and Transfer Agreement dated March 18, 2014 between Northern Alberta Oil Ltd. and JV Partner (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on July 3, 2014).
10.20   Acquisition of Royalty Interest Agreement dated June 16, 2014 between Northern Alberta Oil Ltd. and Mr. Malik Youyou (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on July 3, 2014).
10.21   General Indenture of Conveyance, Assignment and Transfer Agreement dated June16, 2014 between Northern Alberta Oil Ltd. and Mr. Malik Youyou (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on July 3, 2014).
10.22   Sample Stock Option Agreement issued on September 19, 2014, to seven directors (Mr. Said Arrata, Mr. Satya Brata Das, Mr. Pascal Node-Langlois, Mr. David Roff, Dr. Horst A. Schmid, Mr. Curtis James Sparrow and Mr. Malik Youyou) of the Company.
10.23*   Sample Stock Option Agreement issued on September 19, 2014, to Concorde Consulting.
10.24*   Sample Stock Option Agreement issued on September 19, 2014, to Portwest Investments Ltd.
10.25   Sample Stock Option Agreement issued on September 19, 2014, to one employee of the Company.
10.26   Sample Indemnity Agreement with all directors of the Company (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on September 25, 2014).
10.27   Stock Option Agreement issued on November 17, 2014, to a director (Mr. Colin Outtrim) of the Company.
10.28   Farmout Amending Agreement dated November 17, 2014 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on November 21, 2014).
14.1   Code of Business Conduct and Ethics.
16.1   Changes in registrant’s certifying accountant, Letter of Madsen & Associates, CPA’s Inc. dated November 16, 2012 (incorporated by reference to Exhibit 16.1 to our Form 8-K filed on December 17, 2012).
21.1   Subsidiaries of Registrant.
23.1   Consent of DeGolyer and MacNaughton Canada Limited, independent petroleum engineers.
31.1   Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a).
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a.
32.1   Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
99.1   Insider Trading Policy.
99.2   Audit Committee Whistle-Blower Policy.
99.3   Audit Committee Charter.
99.4   Compensation Committee Charter.
99.5   Corporate Governance and Nominating Committee Charter.
99.6   Reserves and Resources Committee Charter.
101   Interactive Data Files

 

* Management contract or compensatory plan or arrangement.

 

 
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SIGNATURES 

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  DEEP WELL OIL & GAS, INC.
       
  By /s/ Horst A. Schmid
      Dr. Horst A. Schmid
      Chairman of the Board
       
  Date January 13, 2015

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

  By /s/ Horst A. Schmid
      Dr. Horst A. Schmid
      Chief Executive Officer and President
      (Principal Executive Officer)
       
  Date January 13, 2015
       
  By /s/ Curtis James Sparrow
      Mr. Curtis James Sparrow
      Chief Financial Officer
      (Principal Financial Officer)
       
  Date January 13, 2015

 

 

 

 


Exhibit 10.3

 

 

STOCK OPTION PLAN

 

SECTION 1. GENERAL PROVISION

 

1.1 Purpose

 

The purpose of the Stock Option Plan (the Plan") of Deep Well Oil & Gas, Inc. (herein called the "Corporation") is to advance the interests of the Corporation by:

 

(A) providing Eligible Persons with additional incentive;

(B) encouraging stock ownership by such Eligible Persons;

(C) increasing their proprietary interest in the success of the Corporation;

(D) encouraging them to remain with the Corporation or its Subsidiaries; and

(E) attracting new employees, officers and directors.

 

Options issued under this Plan will not be Incentive Stock Options under Internal Revenue Code Section 422.

 

1.2 Administration

 

(A) The Plan shall be administered by the Board of Directors of the Corporation (the “Board”)

 

(B) Subject to the limitations of the Plan, the Board shall have the authority:

 

(i)to grant Options to acquire shares of common stock of the Corporation (the "Common Shares") to Eligible Persons;

 

(ii)to determine the terms, limitations, restrictions and conditions upon such grants;

 

(iii)to interpret the Plan and to adopt, amend and rescind such administrative guidelines and other rules and regulations relating to the Plan as it shall from time to time deem advisable; and

 

(iv)to make all other determinations and to take all other actions in connection with the implementation and administration of the Plan as it may deem necessary or advisable. The Board's guidelines, rules, regulations, interpretations and determinations shall be conclusive and binding upon the Corporation and all other persons.

 

(C) No Option shall be granted under the Plan unless recommended and approved by the Board.

 

 Page 1 of 8
 

 

1.3 Interpretation

 

For the purposes of the Plan, the following terms shall have the following meanings:

 

(A)"Code" means the United States Internal Revenue Code of 1986, as amended;

 

(B)"Eligible Person" means a director, senior officer or employee of, or a consultant (or their corporation) or any other person or corporation providing services to, the Corporation or of any Subsidiary pursuant to a written contract;

 

(C)"Fair Market Value" means, subject to applicable exchange requirements, the last closing price for Common Shares on the date of reference on wherever the Corporation is listed, (presently the “OTCQB Marketplace”), or if the Common Shares are not listed or admitted to trading on any exchange, as determined by any other appropriate method selected by the Board.

 

(D)“Insider” if used in relation to the Corporation, means:

 

(i)a director or senior officer of the Corporation,

 

(ii)a director or senior officer of of a company that is an Insider or subsidiary of the Corproation,

 

(iii)a person that beneficially owns or controls, directly or indirectly, voting shares carrying more than 10% of the voting rights attached to all outstanding voting shares of the Corporation, or

 

(iv)the Corporation itself if it holds any of its own securities.

 

(E)"Option" means an option to acquire Common Shares granted under the Plan;

 

(F)"Participant" means an Eligible Person to whom Options have been granted;

 

(G)"Subsidiary" means any company that is a subsidiary of the Corporation as defined in section 424(f) of the Code;

 

(H)"Underlying Share" means a Common Share issuable upon the exercise of an Option; and

 

  (I)"Year" with respect to any Option granted under the Plan means the period of 12 months commencing on the date of the granting of such Option or on any anniversary thereof.

 

 Page 2 of 8
 

 

Words importing the singular number only shall include the plural and vice versa and words importing the masculine shall include the feminine.

 

The Plan and all matters to which reference is made herein shall be governed by and interpreted in accordance with the laws of the State of Nevada.

 

1.4 Shares Reserved

 

All shares of the Corporation issued under the Plan shall be Common Shares in the capital stock of the Corporation. Options may be granted in respect of authorized and unissued Common Shares.

 

The maximum number of Common Shares which may be reserved for issuance under the Plan shall be no more than 10% of the Company’s issued and outstanding Common Shares, which number is subject to adjustment in accordance with the provisions of the Plan.

 

The aggregate number of Common Shares with respect to which Options may be vested to any one person (together with their associates) under this Plan, together with all other incentive plans of the Corporation in:

 

(A)any one Year shall not exceed 2% of the total number of common shares outstanding, and

 

(B)in total shall not exceed 6% of the total number of common shares outstanding.

 

Any Common Shares subject to an Option that for any reason expires without having been exercised, shall again be available for grants under the Plan. No fractional shares shall be issued, and the Board may determine the manner in which fractional share value shall be treated.

 

In the event of any change in the outstanding Common Shares by reason of any stock dividend or split, recapitalization, merger, arrangement, consolidation, combination or exchange of shares, or other corporate change, or in the event of any issue of rights pursuant to a shareholder rights plan or other similar plan, the Board shall make, subject to the prior approval of any relevant stock exchange, appropriate substitution or adjustment in:

 

(A)the number or kind of shares or other securities reserved for issuance pursuant to the Plan; and

 

(B)the number and kind of shares subject to unexercised Options theretofore granted and in the Exercise Price of such Options; provided, however, that no substitution or adjustment shall obligate the Corporation to issue or sell fractional shares. In the event of the reorganization of the Corporation or the amalgamation, merger or consolidation of the Corporation with another corporation, or the payment of a special or extraordinary dividend, the Board may make such provision for the protection of the rights of Participants as the Board in its sole discretion deems appropriate.

 

 Page 3 of 8
 

 

1.5 Non-Exclusivity

 

Nothing contained herein shall prevent the Corporation from adopting other or additional compensation arrangements, subject to any required approval.

 

1.6 Amendment and Termination

 

No Option shall be granted hereunder after October 31, 2019; provided, however, that the Board of Directors may at any time prior to that date amend, suspend or terminate the Plan or any portion thereof. No such amendments, suspension or termination shall alter or impair any Options or any rights pursuant thereto granted previously to any Participant without the consent of such Participant. Any reduction in the exercise price of Options held by Insiders at the time of the proposed amendment requires disinterested shareholder approval. In the event of termination of the Plan, the provisions of the Plan and any administrative guidelines, and other rules and regulations adopted by the Board and in force at the time of the Plan termination shall continue in effect during such time as an Option or any rights pursuant thereto remain outstanding.

 

1.7 Compliance with Legislation

 

The Board may postpone the exercise of any Option or the issue of any Underlying Shares pursuant to the Plan for such time as the Board in its discretion may deem necessary in order to permit the Corporation to effect or maintain registration of the Plan or the Common Shares issuable pursuant thereto under the securities laws of any applicable jurisdiction, or to determine that such shares and the Plan are exempt from such registration. The Corporation shall not be obligated by any provision of the Plan or grant thereunder to sell or issue Common Shares in violation of the law of any government or exchange having jurisdiction therein. In addition, the Corporation shall have no obligation to issue any Common Shares pursuant to the Plan unless such Common Shares shall have been duly listed, upon official notice of issuance, with a stock exchange on which such Common Shares are listed for trading.

 

 Page 4 of 8
 

 

1.8 Acceleration of Exercisability of Options Upon Occurrence of Certain Events.

 

The Board may, in its discretion, provide in the case of any Option granted under the Plan that, in connection with any merger, arrangment or consolidation which results in the holders of the outstanding voting securities of the Corporation (determined immediately prior to such merger or consolidation) owning, directly or indirectly, less than a majority of the outstanding voting securities of the surviving corporation (determined immediately following such merger or consolidation), or any sale or transfer by the Corporation of all or substantially all its assets or any tender offer or exchange offer for or the acquisition, directly or indirectly, by any person or group of all or a majority of the then outstanding voting securities of the Corporation, such Option shall become exercisable in full or part, notwithstanding any other provision of the Plan or of any outstanding Options granted thereunder, on and after

 

(A) the fifteenth day prior to the effective date of such merger, arrangement, consolidation, sale, transfer or acquisition or

 

(B) the date of commencement of such tender offer or exchange offer, as the case may be.

 

SECTION 2. OPTIONS

 

2.1 Grants

 

Subject to the provisions of the Plan, the Board shall have the authority to determine the limitations, restrictions and conditions, if any, in addition to those set forth in Section 2.3 hereof, applicable to the exercise of an Option, including, without limitation, the nature and duration of the restrictions, if any, to be imposed upon the sale or other disposition of the Underlying Shares, and the nature of the events, if any, and the duration of the period in which any Participant's rights in respect of the Underlying Shares may be forfeited. An Eligible Person may receive Options on more than one occasion under the Plan and may receive separate Options on any one occasion. At the date of grant of any option hereunder, the Eligible Person must be a bona fide director, officer, employee, consultant (or other person providing services) of the Corporation or its Subsidaries.

 

2.2 Option Exercise Price

 

The Board shall establish the exercise price ("Exercise Price") of each Option at the time such Option is granted, which shall not be less than the Fair Market Value of a Common Share on the date of grant of such Option.

 

The Exercise Price shall be subject to adjustment in accordance with the provisions of Section 1.4 hereof.

 

 Page 5 of 8
 

 

2.3 Exercise of Options

 

(A) The Board shall determine the time or times at which an Option may be exercised in whole or in part, and the method or methods by which, and the form or forms (including, without limitation, cash, Common Shares, or other property, or any combination thereof, having a value on the exercise date equal to the relevant Exercise Price) in which payment of the Exercise Price may be made or deemed to have been made. The Board may provide for the receipt, without payment by the Participant, of an amount per Option (the "Growth Amount") equal to the difference between the Exercise Price of the Option and the Fair Market Value of the Common Shares, which Growth Amount, at the election of the Participant, will be payable either in cash or by the issuance by the Corporation to the Participant of that number of Common Shares calculated by dividing the Growth Amount by the Fair Market Value of a Common Share.

 

(B) Options shall not be exercisable later than 5 years after the date of grant.

 

(C) The Board may determine when any Option shall become exercisable and may determine that the Option can be exercisable in installments.

 

(D) Except as otherwise determined by the Board:

 

  (i) If a Participant ceases to be an Eligible Person as a result of termination for cause (as such term is defined at common law), no Option held by such Participant may be exercised following the date on which such Participant ceased to be an Eligible Person;

 

  (ii) If a Participant ceases to be an Eligible Person for any reason other than termination for cause or death, any vested Option held by such Participant may continue be exercised by the Participant to and until the earlier of:

 

  (a) the applicable expiration of the Option Period in respect of such Option; and

 

  (b) the period after the date on which such Participant ceases to be an Eligible Person that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading.; and

 

(iii) in the event of death, the heirs, administrators or legal representatives of a Participant may exercise the Participant's Options within twelve months after the date of the Participant's death to the extent such Options were by their terms exercisable prior to his death or within the period of twelve months following his death; but for greater certainty no Option shall be exercisable after its stated termination date. In the event that the heirs, administrators or legal representatives of a Participant who has died exercises the Participant's Option in accordance with the terms of the Plan, the Corporation shall have no obligation to issue the Common Shares until evidence satisfactory to the Corporation has been provided by such heirs, administrators or legal representatives that such heirs, administrators or legal representatives are entitled to acquire the Common Shares under the Plan.

 

 Page 6 of 8
 

 

(E) Except as provided in Section 2.3(d), or as otherwise provided in the applicable Option Agreement, during the lifetime of a Participant, Options held by such Participant shall be exercisable only by him and no Option shall be transferable other than by will or the laws of descent and distribution.

 

(F) Each Option shall be confirmed by an agreement (an "Option Agreement") executed by the Corporation and by the Participant.

 

(G) If, as and when any Common Shares have been duly issued upon the exercise of an Option and in accordance with the terms of such Option and the Plan, such Underlying Shares shall be conclusively deemed allotted as fully paid and non-assessable shares of the Corporation.

 

(H) Options may not be exercised for fewer than 1000 Common Shares at any one time, unless the Participant holds Options for less than 1000 Underlying Shares.

 

SECTION 3. APPROVAL

 

3.1 Approval

 

The Plan was approved by the Board of Directors on November 28, 2005, and was approved by the stockholders of the Corporation at its February 24, 2010 Meeting. The Plan was subsequently amended in accordance with provisions in the Plan by the Board on December 4, 2013.

 

SECTION 4. MISCELLANEOUS

 

4.1 Withholding

 

It shall be a condition to the obligation of the Corporation to issue Common Shares upon exercise of an Option that the Participant (or any beneficiary, transferee or person entitled to act under Sections 2.3(d) or 2.3(e) hereof) pay to the Corporation, upon its demand, such amount as may be requested by the Corporation for the purpose of satisfying any liability to withhold federal, state or local income or other taxes. If the amount requested is not paid, the Corporation may refuse to issue such Common Shares.

 

 Page 7 of 8
 

 

4.2 Issuance of Certificates; Legends

 

Common Shares duly acquired under the terms of an Option shall be registered in the name of the Participant and a share certificate representing the number of such Common Shares shall be issued in the name of the Participant, his or her legal representatives or as he, she or they may direct. The Corporation may endorse such legend or legends upon the certificates for Common Shares issued upon the exercise of an Option granted hereunder and may issue such "stop transfer" instructions to its transfer agent in respect of such shares as, in its absolute discretion, it determines to be necessary or appropriate.

 

4.3 Correction of Defects, Omissions, and Inconsistencies

 

The Board may correct any defect, supply any omission, or reconcile any inconsistency in this Plan in the manner and to the extent it shall deem desirable to carry this Plan into effect, subject to applicable regulatory approval if any.

 

4.4 Other Actions

 

Nothing contained in this Plan shall be construed to limit the authority of the Corporation to exercise its corporate rights and powers, including but not by way of limitation, the right of the Corporation to grant Options for proper corporate purposes other than under the Plan with respect to any other person, firm, corporation or association.

 

The Plan was adopted by the Board on November 28, 2005 and then amended on December 4, 2013.

 

 

Page 8 of 8

 

 



Exhibit 10.4

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 23rd day of March, 2011, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and ________________________, an individual resident of ________________________a (“Optionee”).

 

1. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 450,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.14 US per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

2. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i) 150,000 Shares immediately,

 

(ii) 150,000 Shares on March 23, 2012,

 

(iii) 150,000 Shares on March 23, 2013,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, during the immediate annual period preceding such dates.

 

Page 1 of 6
 

 

(B) During the lifetime of Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, until such time as the Corporation inter-lists on an exchange in Canada, and with the prior written consent of the Corporation, Optionee may transfer the Option to a member of the immediate family of such Optionee or to a trust, partnership, limited partnership, limited liability company or other entity formed exclusively for the benefit of such Optionee or members of the immediate family of such Optionee (“Family Member”), provided, however, that

 

(i) Optionee may not receive any consideration for such transfer,

 

(ii) the Family Member must agree in writing not to make any subsequent transfers of the Option other than by will or the laws of the descent and distribution and

 

(iii) the Corporation receives prior written notice of such transfer.

 

3. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined at common law), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of employment or services as a director or consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause or death, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i) the applicable expiration of the Option Period in respect of such Option; and

 

(ii) the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) In the event of death, the heirs, administrators or legal representatives of a Optionee, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, may exercise the Optionee's Options within twelve months after the date of the Optionee's death to the extent such Options were by their terms exercisable prior to his death or within the period of twelve months following his death; but for greater certainty no Option shall be exercisable after its stated termination date. In the event that the heirs, administrators or legal representative of an Optionee who has died, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, exercises the Optionee's Option in accordance with the terms of the Plan, the Corporation shall have no obligation to issue the Common Shares until evidence satisfactory to the Corporation has been provided by such persons that persons are entitled to acquire the Common Shares under the Plan.

 

(D) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

Page 2 of 6
 

 

4. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i) to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

5. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

Page 3 of 6
 

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i) to the Corporation;

 

(ii) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

(iii) within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

6. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

Page 4 of 6
 

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

Page 5 of 6
 

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

 

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Title:  
  Address:  

 

 

Page 6 of 6

 

 

 



Exhibit 10.7

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 20th day of June, 2013, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and Mr. ________________________, an individual resident of _______________________ (“Optionee”).

 

1. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 450,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.05 US per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

2. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i) 150,000 Shares immediately,

 

(ii) 150,000 Shares on June 20, 2014,

 

(iii) 150,000 Shares on June 20, 2015,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, during the immediate annual period preceding such dates.

 

 Page 1 of 6
 

 

(B) During the lifetime of Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, until such time as the Corporation inter-lists on an exchange in Canada, and with the prior written consent of the Corporation, Optionee may transfer the Option to a member of the immediate family of such Optionee or to a trust, partnership, limited partnership, limited liability company or other entity formed exclusively for the benefit of such Optionee or members of the immediate family of such Optionee (“Family Member”), provided, however, that

 

(i) Optionee may not receive any consideration for such transfer,

 

(ii) the Family Member must agree in writing not to make any subsequent transfers of the Option other than by will or the laws of the descent and distribution and

 

(iii) the Corporation receives prior written notice of such transfer.

 

3. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined at common law), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of employment or services as a director or consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause or death, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i) the applicable expiration of the Option Period in respect of such Option; and

 

(ii) the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) In the event of death, the heirs, administrators or legal representatives of a Optionee, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, may exercise the Optionee's Options within twelve months after the date of the Optionee's death to the extent such Options were by their terms exercisable prior to his death or within the period of twelve months following his death; but for greater certainty no Option shall be exercisable after its stated termination date. In the event that the heirs, administrators or legal representative of an Optionee who has died, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, exercises the Optionee's Option in accordance with the terms of the Plan, the Corporation shall have no obligation to issue the Common Shares until evidence satisfactory to the Corporation has been provided by such persons that persons are entitled to acquire the Common Shares under the Plan.

 

(D) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

 Page 2 of 6
 

 

4. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i) to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

5. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

 Page 3 of 6
 

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i) to the Corporation;

 

(ii) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

(iii) within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

6. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

 Page 4 of 6
 

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

 Page 5 of 6
 

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

 

 

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Title:  
  Address:  

 

 

Page 6 of 6

 

 

 



Exhibit 10.8

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 20th day of June, 2013, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and __________________________, an Alberta Company (“Optionee”).

 

Whereas the Optionee has entered in to a consulting services agreement with a subsidiary of the Corporation dated July 1, 2005 (“Consulting Agreement”)

 

1. Amendment to Existing Agreement

 

This Agreement shall replace clause 5.0 in the Consulting Agreement and amend it accordingly.

 

2. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 1,000,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.05 per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

3. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i) 500,000 Shares immediately,

 

(ii) 500,000 Shares on June 20, 2014,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, provided that the Optionee continues to provide services on such anniversary date.

 

 Page 1 of 6
 

 

(iii) During the lifetime of the consulting contract with the Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee.

 

4. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined in clause 22.3 of the Consulting Agreement), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of services as a consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i) the applicable expiration of the Option Period in respect of such Option; and

 

(ii) the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

5. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

 Page 2 of 6
 

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i) to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

6. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i) to the Corporation;

 

(ii) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

 Page 3 of 6
 

 

(iii) within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

7. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

 Page 4 of 6
 

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

 Page 5 of 6
 

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

 

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Address:  

 

 

Page 6 of 6

 

 



Exhibit 10.9

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 20th day of June, 2013, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and __________________________, an Alberta Company (“Optionee”).

 

Whereas the Optionee has entered in to a consulting services agreement with a subsidiary of the Corporation dated July 1, 2005 and whereas the Corporation entered into an Amending Agreement dated July 10, 2013 with the Optionee to amend the Consulting Agreement dated July 1, 2005 between the Corporation and the Optionee (the “Amended Consulting Agreement”).

 

1. Amendment to Existing Agreement

 

This Agreement shall replace clause 2.0 in the Amended Consultant Agreement dated July 10, 2013 and amend it accordingly.

 

2. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 1,000,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.05 per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

3. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i) 500,000 Shares immediately,

 

(ii) 500,000 Shares on June 20, 2014,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, provided that the Optionee continues to provide services on such anniversary date.

 

 Page 1 of 6
 

 

(iii) During the lifetime of the consulting contract with the Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee.

 

4. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined in clause 22.3 of the Consulting Agreement), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of services as a consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i) the applicable expiration of the Option Period in respect of such Option; and

 

(ii) the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

5. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

 Page 2 of 6
 

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i) to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

6. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i) to the Corporation;

 

(ii) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

 Page 3 of 6
 

 

(iii) within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

7. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

 Page 4 of 6
 

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

 Page 5 of 6
 

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

 

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Address:  

 

 

Page 6 of 6

 

 



Exhibit 10.10

 

Deep Well Oil & Gas, Inc.

NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made as of June 20, 2013, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and ____________________, an _____________ (“Optionee”).

 

Whereas the Optionee has entered in to an employment agreement and an amendment to the original employment agreement with a subsidiary of the Corporation effective November 7, 2005 (“Employment Agreement and Amendment”).

 

1. Amendment to Existing Agreement

 

This Agreement shall replace clause 6.0 in the Employment Agreement and Amendment and amend it accordingly.

 

2. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 150,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.05 USD per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

3. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

i.50,000 Shares immediately,

 

ii.50,000 Shares on June 20, 2014

 

iii.50,000 Shares on June 20, 2015

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, provided that the Optionee continues to provide services on such vesting date.

 

 
 

 

(B) During the lifetime of the employee agreement with the Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee.

 

4. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined in clause 7(a)(ii) of the Employment Agreement), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of services as a consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i)  the applicable expiration of the Option Period in respect of such Option; and

 

(ii) the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

5. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

2
 

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i)  to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

6. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Securities Representations. The Optionee represents that it is resident in Canada, was offered the Options in Canada and executed this Agreement in Canada.

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i)  to the Corporation;

 

(ii) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

(iii) within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

3
 

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

7. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

4
 

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

5
 

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

  

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Address:  

 

 

6

 



Exhibit 10.16

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 28th day of October, 2013, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and ________________________, an individual resident of ________________ (“Optionee”). 

 

1. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 250,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.30 US per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee. 

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

2. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i) 250,000 Shares vesting immediately,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, during the immediate annual period preceding such dates.

 

(B) During the lifetime of Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, until such time as the Corporation inter-lists on an exchange in Canada, and with the prior written consent of the Corporation, Optionee may transfer the Option to a member of the immediate family of such Optionee or to a trust, partnership, limited partnership, limited liability company or other entity formed exclusively for the benefit of such Optionee or members of the immediate family of such Optionee (“Family Member”), provided, however, that

 

(i) Optionee may not receive any consideration for such transfer,

 

 Page 1 of 6
 

  

(ii) the Family Member must agree in writing not to make any subsequent transfers of the Option other than by will or the laws of the descent and distribution and

 

(iii) the Corporation receives prior written notice of such transfer.

 

3. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined at common law), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of employment or services as a director or consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause or death, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i) the applicable expiration of the Option Period in respect of such Option; and

 

(ii) the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) In the event of death, the heirs, administrators or legal representatives of a Optionee, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, may exercise the Optionee's Options within twelve months after the date of the Optionee's death to the extent such Options were by their terms exercisable prior to his death or within the period of twelve months following his death; but for greater certainty no Option shall be exercisable after its stated termination date. In the event that the heirs, administrators or legal representative of an Optionee who has died, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, exercises the Optionee's Option in accordance with the terms of the Plan, the Corporation shall have no obligation to issue the Common Shares until evidence satisfactory to the Corporation has been provided by such persons that persons are entitled to acquire the Common Shares under the Plan.

 

(D) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

 Page 2 of 6
 

 

4. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i) to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

5. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

 Page 3 of 6
 

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i) to the Corporation;

 

(ii) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

(iii) within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

6. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

 Page 4 of 6
 

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

 Page 5 of 6
 

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

 

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Address:  
     
  Tel:  
  Fax:  
     

 

 

Page 6 of 6

 

 

 



Exhibit 10.17

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 4th day of December, 2013, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and ______________________, an individual resident of ______________________ (“Optionee”). 

 

1. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 450,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.34 US per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

2. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i)   150,000 Shares immediately,

 

(ii)  150,000 Shares on December 4, 2014,

 

(iii) 150,000 Shares on December 4, 2015,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, during the immediate annual period preceding such dates.

 

 Page 1 of 6
 

 

(B) During the lifetime of Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, until such time as the Corporation inter-lists on an exchange in Canada, and with the prior written consent of the Corporation, Optionee may transfer the Option to a member of the immediate family of such Optionee or to a trust, partnership, limited partnership, limited liability company or other entity formed exclusively for the benefit of such Optionee or members of the immediate family of such Optionee (“Family Member”), provided, however, that

 

(i)  Optionee may not receive any consideration for such transfer,

 

(ii) the Family Member must agree in writing not to make any subsequent transfers of the Option other than by will or the laws of the descent and distribution and

 

(iii) the Corporation receives prior written notice of such transfer.

 

3. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined at common law), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of employment or services as a director or consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause or death, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i) the applicable expiration of the Option Period in respect of such Option; and

 

(ii) the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) In the event of death, the heirs, administrators or legal representatives of a Optionee, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, may exercise the Optionee's Options within twelve months after the date of the Optionee's death to the extent such Options were by their terms exercisable prior to his death or within the period of twelve months following his death; but for greater certainty no Option shall be exercisable after its stated termination date. In the event that the heirs, administrators or legal representative of an Optionee who has died, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, exercises the Optionee's Option in accordance with the terms of the Plan, the Corporation shall have no obligation to issue the Common Shares until evidence satisfactory to the Corporation has been provided by such persons that persons are entitled to acquire the Common Shares under the Plan.

 

(D) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

 Page 2 of 6
 

 

4. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i) to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

5. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

 Page 3 of 6
 

 

(C)   Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D)   Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i)    to the Corporation;

 

(ii)   outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

(iii)  within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

6. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

 Page 4 of 6
 

 

(C)    No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D)    Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

(E)     Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F)     No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G)     Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H)    Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

 Page 5 of 6
 

 

(I)       Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J)      Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K)     Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

(L)     Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

 

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Title:  
  Address:  

 

 

Page 6 of 6

 

 

 



Exhibit 10.22

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 19th day of September, 2014, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and _______________________, an individual resident of _________________ (“Optionee”).

 

1. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 600,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.38 US per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

2. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i)     200,000 Shares immediately,

 

(ii)     200,000 Shares on September 19, 2015,

 

(iii)    200,000 Shares on September 19, 2016,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, during the immediate annual period preceding such dates.

 

 Page 1 of 6
 

 

(B) During the lifetime of Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, until such time as the Corporation inter-lists on an exchange in Canada, and with the prior written consent of the Corporation, Optionee may transfer the Option to a member of the immediate family of such Optionee or to a trust, partnership, limited partnership, limited liability company or other entity formed exclusively for the benefit of such Optionee or members of the immediate family of such Optionee (“Family Member”), provided, however, that

 

(i)      Optionee may not receive any consideration for such transfer,

 

(ii)     the Family Member must agree in writing not to make any subsequent transfers of the Option other than by will or the laws of the descent and distribution and

 

(iii)    the Corporation receives prior written notice of such transfer.

 

3. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined at common law), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of employment or services as a director or consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause or death, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i)     the applicable expiration of the Option Period in respect of such Option; and

 

(ii)    the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) In the event of death, the heirs, administrators or legal representatives of a Optionee, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, may exercise the Optionee's Options within twelve months after the date of the Optionee's death to the extent such Options were by their terms exercisable prior to his death or within the period of twelve months following his death; but for greater certainty no Option shall be exercisable after its stated termination date. In the event that the heirs, administrators or legal representative of an Optionee who has died, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, exercises the Optionee's Option in accordance with the terms of the Plan, the Corporation shall have no obligation to issue the Common Shares until evidence satisfactory to the Corporation has been provided by such persons that persons are entitled to acquire the Common Shares under the Plan.

 

(D) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

 Page 2 of 6
 

 

4. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i) to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

5. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

 Page 3 of 6
 

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i)      to the Corporation;

 

(ii)     outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

(iii)    within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

6. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

 Page 4 of 6
 

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

 Page 5 of 6
 

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

  

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Title:  
  Address:  

 

 

Page 6 of 6

 

 

 



Exhibit 10.23

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 19th day of September, 2014, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and __________________________, an Alberta Company (“Optionee”).

 

Whereas the Optionee has entered in to a consulting services agreement with a subsidiary of the Corporation dated July 1, 2005 (“Consulting Agreement”)

 

1. Amendment to Existing Agreement

 

This Agreement shall replace clause 5.0 in the Consulting Agreement and amend it accordingly.

 

2. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 1,200,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.38 per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

3. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i)      600,000 Shares immediately,

 

(ii)     600,000 Shares on September 19, 2015,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, provided that the Optionee continues to provide services on such anniversary date.

 

 Page 1 of 6
 

 

(iii) During the lifetime of the consulting contract with the Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee.

 

4. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined in clause 22.3 of the Consulting Agreement), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of services as a consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i)     the applicable expiration of the Option Period in respect of such Option; and

 

(ii)    the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

5. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

 Page 2 of 6
 

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i)    to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii)   to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

6. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i)     to the Corporation;

 

(ii)    outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

 Page 3 of 6
 

 

(iii) within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

7. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

 Page 4 of 6
 

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

 Page 5 of 6
 

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

  

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Address:  

 

 

Page 6 of 6

 

 



Exhibit 10.24

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 19th day of September, 2014, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and____________________, an Alberta Company (“Optionee”). 

 

Whereas the Optionee has entered in to a consulting services agreement with a subsidiary of the Corporation dated July 1, 2005 and whereas the Corporation entered into an Amending Agreement dated July 10, 2013 with the Optionee to amend the Consulting Agreement dated July 1, 2005 between the Corporation and the Optionee (the “Amended Consulting Agreement”).

 

1. Amendment to Existing Agreement

 

This Agreement shall replace clause 2.0 in the Amended Consultant Agreement dated July 10, 2013 and amend it accordingly.

 

2. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 1,200,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.38 per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

3. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i)    600,000 Shares immediately,

 

(ii)   600,000 Shares on September 19, 2015,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, provided that the Optionee continues to provide services on such anniversary date.

 

 Page 1 of 6
 

 

(iii) During the lifetime of the consulting contract with the Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee.

 

4. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined in clause 22.3 of the Consulting Agreement), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of services as a consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i)    the applicable expiration of the Option Period in respect of such Option; and

 

(ii)   the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

5. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

 Page 2 of 6
 

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i) to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

6. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i)    to the Corporation;

 

(ii)   outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

 Page 3 of 6
 

 

(iii) within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

7. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

 Page 4 of 6
 

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

 Page 5 of 6
 

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

  

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Address:  

 

 

Page 6 of 6

 

 



Exhibit 10.25

 

Deep Well Oil & Gas, Inc.

NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 19th day of September, 2014, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and __________________, an individual resident of _________________ (“Optionee”).

 

Whereas the Optionee has entered in to an employment agreement and an amendment to the original employment agreement with a subsidiary of the Corporation effective November 7, 2005 (“Employment Agreement and Amendment”).

 

1. Amendment to Existing Agreement

 

This Agreement shall replace clause 6.0 in the Employment Agreement and Amendment and amend it accordingly.

 

2. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 180,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.38 USD per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee.

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

3. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

i.60,000 Shares immediately,

 

ii.60,000 Shares on September 19, 2015

 

iii.60,000 Shares on September 19, 2016

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, provided that the Optionee continues to provide services on such vesting date.

 

 Page 1 of 6
 

 

(B) During the lifetime of the Employee Agreement with the Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee.

 

4. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined in clause 7(a)(ii) of the Employment Agreement), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of services as a consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i)    the applicable expiration of the Option Period in respect of such Option; and

 

(ii)   the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

5. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

 Page 2 of 6
 

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i)    to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii)   to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

6. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Securities Representations. The Optionee represents that it is resident in Canada, was offered the Options in Canada and executed this Agreement in Canada.

 

(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i)    to the Corporation;

 

(ii)   outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

 Page 3 of 6
 

 

(iii) within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

7. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

 Page 4 of 6
 

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

 Page 5 of 6
 

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

  

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Address:  

 

 

Page 6 of 6 

 

 



Exhibit 10.27

 

Deep Well Oil & Gas, Inc.
NON-Qualified STOCK OPTION AGREEMENT

 

This NON-QUALIFIED STOCK OPTION AGREEMENT (the “Agreement”) is made this 17th day of November, 2014, by and between Deep Well Oil & Gas, Inc., a Nevada corporation (the “Corporation”) and _____________________, an individual resident of __________________ (“Optionee”). 

 

1. Grant of Option

 

The Corporation hereby grants Optionee the option (the “Option”) to purchase all or any part of an aggregate of 600,000 shares (the “Shares”) of Common Stock of the Corporation at the exercise price of $0.23 US per share according to the terms and conditions set forth in this Agreement and in the Deep Well Oil & Gas, Inc. November 28, 2005 Stock Option Plan (the “Plan”). The Option will not be treated as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The Option is issued under the Plan and is subject to its terms and conditions. A copy of the Plan will be furnished upon request of Optionee. 

 

The Option shall terminate at the close of business five years from the date hereof (the “Option Termination Date”).

 

2. Vesting of Option Rights; Transferability

 

(A) This Option shall be exercisable, in whole or in part, according to the following vesting schedule:

 

(i)   200,000 Shares immediately,

 

(ii)  200,000 Shares on November 17, 2015,

 

(iii) 200,000 Shares on November 17, 2016,

 

subject to Optionee’s continuing to provide services to the Corporation or any Subsidiary as an employee, director or consultant, as the case may be, during the immediate annual period preceding such dates.

 

(B) During the lifetime of Optionee, the Option shall be exercisable only by Optionee and shall not be assignable or transferable by Optionee, other than by will or the laws of descent and distribution. Notwithstanding the foregoing, until such time as the Corporation inter-lists on an exchange in Canada, and with the prior written consent of the Corporation, Optionee may transfer the Option to a member of the immediate family of such Optionee or to a trust, partnership, limited partnership, limited liability company or other entity formed exclusively for the benefit of such Optionee or members of the immediate family of such Optionee (“Family Member”), provided, however, that

 

(i)    Optionee may not receive any consideration for such transfer,

 

Stock Option Agreement - Colin P. Outtrim - November 17, 2014

 

 

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(ii)   the Family Member must agree in writing not to make any subsequent transfers of the Option other than by will or the laws of the descent and distribution and

 

(iii)  the Corporation receives prior written notice of such transfer.

 

3. Exercise of Option after Death or Termination of Services or Employment

 

Except as otherwise determined by the Board:

 

(A) In the event that an Optionee ceases to provide services to the Corporation as a result of termination for cause (as such term is defined at common law), each of the Options held by the Optionee shall cease to be exercisable after the date of termination of employment or services as a director or consultant.

 

(B) In the event that an Optionee ceases to provide services to the Corporation for any reason other than termination for cause or death, any vested Option held by Optionee may continue to be exercised by the Optionee to and until the earlier of:

 

(i)    the applicable expiration of the Option Period in respect of such Option; and

 

(ii)   the period after the date on which Optionee ceases to provide services to the Corporation that is permitted by the applicable laws, policies, rules and regulations of any stock exchange upon which the Underlying Shares are then listed, posted and/or quoted for trading;

 

(C) In the event of death, the heirs, administrators or legal representatives of a Optionee, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, may exercise the Optionee's Options within twelve months after the date of the Optionee's death to the extent such Options were by their terms exercisable prior to his death or within the period of twelve months following his death; but for greater certainty no Option shall be exercisable after its stated termination date. In the event that the heirs, administrators or legal representative of an Optionee who has died, or any person or persons to whom the Option is transferred by will or the applicable laws of descent, exercises the Optionee's Option in accordance with the terms of the Plan, the Corporation shall have no obligation to issue the Common Shares until evidence satisfactory to the Corporation has been provided by such persons that persons are entitled to acquire the Common Shares under the Plan.

 

(D) Notwithstanding the above, in no case may the Option be exercised to any extent by anyone after the Option Termination Date.

 

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4. Method of Exercise of Option

 

Subject to the foregoing, the Option may be exercised in whole or in part from time to time by serving written notice of exercise on the Corporation at its principal office within the Option period. The notice shall state the number of Shares as to which the Option is being exercised and shall be accompanied by payment of the exercise price. Payment of the exercise price shall be made;

 

(A) in cash (including bank check, personal check or money order payable to the Corporation),

 

(B) with the approval of the Corporation (which may be given in its sole discretion), by delivering to the Corporation for cancellation shares of the Corporation’s Common Stock already owned by Optionee having a Fair Market Value (as defined in the Plan) equal to the full exercise price of the Shares being acquired,

 

(C) with the approval of the Corporation (which may be given in its sole discretion), by electing to have the Corporation retain from the number of Shares to be issued to the Optionee upon the exercise of such Option Shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price payable upon exercise of such Option;

 

(D) through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons permitted to exercise the option) shall concurrently provide irrevocable instructions

 

(i) to a Corporation designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and

 

(ii) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or

 

(E) by any combination of the methods of payment described above.

 

5. Securities Law Matters.

 

(A) Restricted Securities. The Optionee understands and acknowledges that neither the Option nor the Shares have been registered under the United States Securities Act of 1933, as amended (the “Securities Act”), that the Option has been issued to it in reliance on an exemption from the registration requirements of the Securities Act, and that the Option and the Shares are, or will be, as applicable, “restricted securities” as defined in Rule 144 under the Securities Act.

 

(B) Accredited Investor. The Optionee represents that it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act.

 

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(C) Restrictions on Exercise. The Optionee understands and acknowledges that the Option may be exercised only pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, and that at the time of any proposed exercise, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the Shares may be issued pursuant to such exercise without registration under the Securities Act or applicable state securities laws.

 

(D) Resale Restrictions. The Optionee understands and acknowledges that notwithstanding anything to the contrary contained in this Agreement, the Option and the Shares may be offered, sold, pledged or otherwise transferred only

 

(i)     to the Corporation;

 

(ii)    outside the United States in accordance with Rule 904 of Regulation S under the Securities Act and in compliance with applicable Canadian local laws and regulations; or

 

(iii)   within the United States, in a transaction that does not require registration under the Securities Act or any applicable state securities laws. In connection with any proposed sale, pledge or other transfer of the Option or the Shares, the Corporation may require an opinion of counsel or other evidence satisfactory to it to the effect that the proposed sale, pledge or other transfer may be effected without registration under the Securities Act or applicable state securities laws.

 

(E) Legend. The Optionee understands and acknowledges that upon the original issuance of the Shares, as applicable, and until such time as the same is no longer required under applicable requirements of the Securities Act or state securities laws, the certificates representing the Shares, and all certificates issued in exchange therefor or in substitution thereof, shall bear a legend with respect to the transfer restrictions set forth above.

 

6. Miscellaneous

 

(A) Plan Provisions Control. In the event that any provision of the Agreement conflicts with or is inconsistent in any respect with the terms of the Plan, the terms of the Plan shall control.

 

(B) No Rights of Stockholders. Neither Optionee, Optionee’s legal representative nor a permissible assignee of this Option shall have any of the rights and privileges of a stockholder of the Corporation with respect to the Shares, unless and until such Shares have been issued in the name of Optionee, Optionee’s legal representative or permissible assignee, as applicable.

 

Stock Option Agreement - Colin P. Outtrim - November 17, 2014

 

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(C) No Right to Employment. The grant of the Option shall not be construed as giving Optionee the right to be retained in the employ of, or as giving a director of the Corporation or a Subsidiary (as defined in the Plan) the right to continue as a director of the Corporation or a Subsidiary, nor will it affect in any way the right of the Corporation or a Subsidiary to terminate such employment or position at any time, with or without cause. In addition, the Corporation or Subsidiary may at any time dismiss Optionee from employment, or terminate the term of a director of the Corporation or a Subsidiary, free from any liability or any claim under the Plan or the Agreement. Nothing in the Agreement shall confer on any person any legal or equitable right against the Corporation or any Subsidiary, directly or indirectly, or give rise to any cause of action at law or in equity against the Corporation or a Subsidiary. The Option granted hereunder shall not form any part of the wages or salary of Optionee for purposes of severance pay or termination indemnities, irrespective of the reason for termination of employment. Under no circumstances shall any person ceasing to be an employee of the Corporation or any Subsidiary be entitled to any compensation for any loss of any right or benefit under the Agreement or Plan which such optionee might otherwise have enjoyed but for termination of employment, whether such compensation is claimed by way of damages for wrongful or unfair dismissal, breach of contract or otherwise. By participating in the Plan, Optionee shall be deemed to have accepted all the conditions of the Plan and the Agreement and the terms and conditions of any rules and regulations adopted by the Committee and shall be fully bound thereby.

 

(D) Governing Law. The validity, construction and effect of the Plan and the Agreement, and any rules and regulations relating to the Plan and the Agreement, shall be determined in accordance with the internal laws, and not the law of conflicts, of the State of Nevada.

 

(E) Severability. If any provision of the Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Agreement under any law deemed applicable by the Committee (as defined in the Plan), such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Agreement, such provision shall be stricken as to such jurisdiction or the Agreement, and the remainder of the Agreement shall remain in full force and effect.

 

(F) No Trust or Fund Created. Neither the Plan nor the Agreement shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Corporation or any Subsidiary and Optionee or any other person.

 

(G) Headings. Headings are given to the Sections and subsections of the Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Agreement or any provision thereof.

 

(H) Conditions Precedent to Issuance of Shares; Repurchase Rights. Shares shall not be issued pursuant to the exercise of the Option unless such exercise and the issuance and delivery of the applicable Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, the requirements of any applicable Stock Exchange or the Nasdaq National Market and the corporate laws of the state of Nevada. As a condition to the exercise of the purchase price relating to the Option, the Corporation may require that the person exercising or paying the purchase price represent and warrant that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation and warranty is required by law.

 

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(I) Withholding. In order to comply with all applicable federal, state or provincial income tax laws or regulations, the Corporation may take such action as it deems appropriate to assure that all applicable federal, state or provincial payroll, withholding, income or other taxes are withheld or collected from Optionee.

 

(J) Adjustment to Number of Shares and Exercise Price. Subject to approval if necessary of any relevant stock exchange, the Board will adjust the number of Shares subject to an Option, and the exercise price per Share payable upon exercise of an Option, upon the occurrence of any stock dividend, stock split, reverse stock split, combination of shares, reclassification of shares, recapitalization or other similar corporate transaction with respect to the Shares. Notwithstanding the preceding sentence to the contrary, no such adjustment will be made upon the conversion of any debt instrument, share of preferred stock or other convertible security of the Corporation into Shares.

 

(K) Review of Plan. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan or this Option.

 

(L) Change of Address. Optionee further agrees to notify the Corporation upon any change in the residence address indicated below.

 

IN WITNESS WHEREOF, the Corporation and Optionee have executed this Agreement as of the date set forth in the first paragraph.

 

  DEEP WELL OIL & GAS, INC.
     
  By:  
  Name:  
  Title:  
     
  OPTIONEE
     
  By:  
  Name:  
  Title:  
  Address:  

 

 

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Exhibit 14.1

 

 

 

 

 

Deep Well Oil & Gas, Inc.

 

 

 

 

 

CODE of BUSINESS 

CONDUCT and ETHICS

for Directors, Officers, Employees, Consultants and Contractors

 

 

 

 

 

 

 

Adopted: December 17, 2014

 

 

 

 

 

 
 

 

 

Acknowledgement of Company Code of Conduct

 

I have read and am familiar with the Deep Well Oil & Gas, Inc.’s (the “Company”) Code of Business Conduct & Ethics.

 

As a director, officer, employee, consultant or contractor (the “Code Supporters”) of the Company, I understand that I am expected to comply with and enforce this policy in its entirety. I understand that it is my responsibility to create an atmosphere free of misconduct.

 

I further understand that it is also my responsibility to promptly report any incident of misconduct or perceived misconduct that I may experience or witness. I also understand that I may make confidential and anonymous submissions of reports, of misconduct that I may experience or witness, to the CFO, Chairman of the Board or the Chairman of the Audit Committee.

 

Violations of this policy will result in disciplinary action, up to and including termination of employment.

 

By signing this acknowledgement I am indicating I have read, (initialed each page) and will abide by the Code of Business Conduct & Ethics for Deep well Oil and Gas, Inc.

 

 

    Name (Print)
     
     
    Position
     
     
    Signature
     
     
    Date

 

Adopted: December 17, 2014DWOG Code of ConductPage: 2 of 10
 

 

 

CODE OF BUSINESS CONDUCT and ETHICS

for DIRECTORS, OFFICERS and EMPLOYEES

 

  1.0 General Policy Statement

 

It is the policy of Deep Well Oil and Gas, Inc. (the “Company”) and its affiliated companies that the conduct of every director, officer (hereinafter the term “officer” includes the principal executive officer, principal financial officer and any contractor appointed as a principal executive officer or principal financial officer), employee, consultant and contractor (hereinafter defined together as a group and defined as “Code Supporters”) while acting on behalf of the Company be based upon the highest ethical standards and compliance with the law. This Code of Business Conduct and Ethics (the “Code”) affirms the policy of the Company and is a guideline to deter wrongdoing and to promote:

 

  1.1 Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

  1.2 Full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the U.S. Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company;

 

  1.3 Maintain a corporate culture in which the integrity and dignity of each individual is valued.

 

  1.4 Compliance with applicable laws, rules and regulations that govern the Company's business activities;

 

  1.5 The prompt internal reporting of violations of the Code to the CFO, or alternatively the Chairman of the Board, or the Chairman of the Audit Committee; and

 

  1.6 Accountability for adherence to the Code.

 

  1.7 Ensure the proper use of the Company’s assets.

 

This Code does not specifically address every potential form of unacceptable conduct, and it is expected that the Code Supporters will exercise good judgment in compliance with the principles set out in this Code. Each Code Supporter has a duty to avoid any circumstance that would violate the letter or spirit of this Code.

 

Adopted: December 17, 2014DWOG Code of ConductPage: 3 of 10
 

 

 

  2.0 Fair Dealing

 

Each Code Supporter should endeavor to deal honestly and ethically with the Company’s directors, officers, employees, consultants, contractors, auditors, advisors, customers, suppliers and competitors while engaged in business on behalf of the Company. Non-compliance with this Code or the law or other unethical or dishonest business practices while acting on behalf of the Company are forbidden and may result in disciplinary action, including termination of employment.

 

  3.0 Appropriate Use of Corporate Assets

 

Company assets should be used only for the legitimate business purposes of the Company. All Code Supporters are prohibited from using Company assets, confidential or proprietary information or position for personal gain. Unauthorized use or distribution of this information would violate Company Policy.

 

  4.0 Compliance with Laws, Rules and Regulations

 

Any transaction undertaken in the name of the Company that would violate the laws, rules or regulations of any country or its political subdivisions in which this Company conducts business is prohibited. In case of conflict between U.S. laws and foreign laws, the Chief Financial Officer (“CFO”), or his designee, must be consulted. Particular attention is directed to the laws, rules and regulations relating to discrimination, securities, anti-trust, civil rights, transactions with foreign officials, safety and the environment. If any uncertainty arises as to whether a course of action is within the letter and spirit of the law, advice should be obtained from the appropriate Company’s Counsel or his designee as coordinated by the Company’s CFO.

 

Observing the law is a minimum requirement. The Company’s Code envisions a level of ethical business conduct well above the minimum required by law.

 

  4.1 Discrimination and Harassment

 

The Company is committed to providing a workplace free of discrimination and harassment based on race, color, religion, age, gender, national origin, disability, veteran status, or any other basis prohibited by applicable law. Similarly, offensive or hostile working conditions created by such harassment or discrimination will not be tolerated. Each Code Supporter has a duty while acting on behalf of the Company to refrain from engaging in conduct that constitutes discrimination or harassment. Code Supporters should promptly report any discrimination or harassment or any complaint of discrimination or harassment to the Company’s CFO or alternatively the Chairman of the Board.

 

Adopted: December 17, 2014DWOG Code of ConductPage: 4 of 10
 

 

 

  4.2 Insider Trading

 

Code Supporters in possession of material information about the Company must abstain from trading in its securities until such information is generally and publicly available by means of a press release or other public filing. Such material "inside information" might include earnings estimates, stock and dividend activity, changes of control or management, pending mergers, sales, acquisitions, reserves numbers or other significant business information or developments. Providing such inside information to others ("tipping") who then trade on that information is also strictly prohibited. Trading on inside information is also a violation of applicable securities law. This policy is more fully described in the Company’s Insider Trading Policy.

 

  5.0 Political Contributions

 

Corporate funds, credit, property or services may not be used (directly or indirectly) to support any political party or candidate for public office, or to support or oppose any ballot measure, without the prior approval of the Company’s President or Chief Executive Officer (“CEO”). Although Code Supporters are encouraged to support political parties and candidates with their personal efforts and money, the Company will not reimburse or subsidize them in any way for such political participation.

 

  6.0 Confidential Information

 

Our Code Supporters will often come into contact with, or have possession of, non-public confidential information about the Company or our operating or non-operating interest owners, suppliers, customers or affiliates, and they must take all appropriate steps to assure that the confidentiality of such information is maintained. Confidential information includes all material non-public information that might be of use to competitors or harmful to the Company if disclosed. It also includes material non-public information that our operating or non-operating interest owners, suppliers, customers or affiliates have entrusted to us in accordance with the confidentiality clauses in the Company’s joint operating agreements. It is the policy of the Company that all information related to the Company is confidential unless its Code Supporter is notified that certain information is not confidential.

 

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  7.0 Conflicts of Interests and Unduly Influencing Relationships

 

  7.1 General

 

Generally, a conflict exists when the personal interests or activities of a Code Supporter (or immediate family members) may influence the exercise of his or her independent judgment in the performance of one or more duties to the Company. Even the appearance of a conflict of interest may be as damaging as an actual conflict and should be avoided. Code Supporters should not enter into any transaction or engage in any practice (directly or indirectly) that would tend to influence him or her to act in any manner other than in the best interests of the Company. Code Supporters (or members of their immediate family) also should not exercise discretionary authority or make or influence any recommendation or decision on behalf of the Company that would result in an undisclosed financial benefit to such Code Supporter or to members of his or her immediate family.

 

A Code Supporter or members of their immediate family may obtain services from persons or entities who also provide services to the Company, including legal, accounting or brokerage services, loans from banks or insurance from insurance companies, at rates customary for similarly situated customers.

 

  7.2 Gifts, Gratuities and Other Benefits

 

No Code Supporter shall (directly or indirectly) offer or give any gift, “kickback” or other improper payment or consideration to any customer, supplier, government official or employee, or any other person in consideration for assistance or influence concerning any transaction or potential transaction involving the Company. No Code Supporter, or member of his or her immediate family, shall (directly or indirectly) solicit, accept or retain any gift, entertainment, trip, discount, service, or other benefit from any organization or person doing business or competing with the Company, other than (i) gifts or entertainment with a value no greater than $250 as part of normal business courtesy and hospitality that would not influence, and would not reasonably appear to be capable of influencing, such Code Supporter to act in any manner not in the best interest of the Company or (ii) acceptance of a nominal benefit that has been disclosed to and approved by the Code Supporters superior. Please discuss with the CFO of the Company any entertainment or modest gift that you are not certain is appropriate.

 

Adopted: December 17, 2014DWOG Code of ConductPage: 6 of 10
 

 

 

  7.3 Business Dealings in Foreign Countries

 

Various laws prohibit the Company and those acting on its behalf, from bribing foreign officials to obtain or retain business. Foreign officials include officers and employees of a foreign government, department or agency. Indirect payments, including those to agents or third parties with the knowledge that at least a portion of the payment will be given to a foreign official for an illegal purpose, are prohibited. The Company will not tolerate any conduct that violates any such law or applicable regulation, US or foreign.

 

  7.4 Related Party Transactions

 

Any related party transactions over $120,000 or such other amount as revised under Regulation S-K Item 404(a), are to be reviewed and approved by the Company’s independent audit committee and Board of Directors. All related party transactions under the above amount are reviewed and approved by the Code Supporter’s superior.

 

In each case the standard applied in approving the related party transaction will be in the best interests of the Company without regard to the interests of the related party involved in the transaction.

 

  8.0 Corporate Opportunities

 

Code Supporters are prohibited from taking for themselves personally (or for members of their immediate family) any opportunity that may be of interest to the Company that is discovered through the use of corporate property, information or position unless such opportunity is first offered to the Company and the Company determines not to pursue the offer.

 

  9.0 Other Organizations

 

Each officer and employee is expected to devote his or her full time and efforts during normal working hours to the service of the Company. No officer or employee shall engage in any business or secondary employment that interferes with his or her obligations and responsibilities to the Company.

 

Unless disclosed to and approved by the CEO, President or CFO of the Company, no officer or employee or any member of their immediate families may directly or indirectly have a financial interest (whether as an investor, lender, employee or other service provider) in any company that is selling supplies, furnishing services or otherwise doing business or competing with the Company. This provision does not apply to an officer or employee or members of their immediate family owning the securities of a publicly traded entity as long as such ownership represents less than five percent (5%) of the outstanding securities.

 

Adopted: December 17, 2014DWOG Code of ConductPage: 7 of 10
 

 

 

  10.0 Employment of Family Members and Employee Relationships

 

The Company does not prohibit spouses, parents, children, and other persons related by blood or marriage from working for the Company simultaneously, directly or indirectly. However, all such employees, officers, consultants or contractors must be hired by disinterested personnel strictly on the basis of merit and without regard to family relationships. Reporting relationships between family members are to be avoided to the maximum extent possible, to eliminate even the appearance of possible favoritism based on family ties. For these reasons, employees should disclose to the Company the names and current job titles of all family members who work directly or indirectly for the Company.

 

The Company continually strives to promote positive and productive working relationships between its employees and to fully comply with the letter and spirit of all laws prohibiting discrimination and sexual harassment. While the Company does not wish to unduly interfere with the private lives of its employees, some limitations on personal relationships in the workplace are necessary in order to prevent actual or perceived favoritism, problems with supervision, security and morale and possible claims of discrimination or harassment. For these reasons, an employee may not engage in romantic or sexual encounters or relationships with any other employee with whom he or she is in a supervisory or reporting relationship. This includes the immediate supervisor, any upper level supervisor (that is, anyone up the supervisory chain), any person to whom the employee directly or indirectly reports, anyone who evaluates the employee and any person whose input is regularly sought for the evaluation of an employee.

 

The Company recognizes the importance of developing close working relationships among employees and this policy is not intended to prohibit friendships that naturally develop in a work setting or social interaction among employees.

 

If two employees become subject to the restrictions of this policy after they are hired, one or both of the employees must seek a transfer or reassignment that eliminates the reporting or supervisory relationship. The decision as to which of the individuals will remain within the department and/or with the Company must be made by the two employees within three (3) months. If no decision has been made during this time, the Company may take whatever action it determines to be appropriate, including transfers, reassignments or termination of one or both of the employees.

 

Adopted: December 17, 2014DWOG Code of ConductPage: 8 of 10
 

 

 

  11.0 Accounting and Reporting

 

Every officer and employee is required to follow the Company’s Internal Control over Financial Reporting (“Accounting Policies”). All accounting records should accurately reflect and describe corporate transactions. The recording of such data must not be falsified or altered in any way to conceal or distort assets, liabilities, revenues, expenses or the nature of the activity. The Company’s Accounting Policies may be obtained from the Company’s CFO. All public disclosures made by the Company, including disclosures in reports and documents filed with or submitted to the U.S. Securities and Exchange Commission, shall be accurate and complete in all material respects. Each Code Supporter is expected to carefully consider all inquiries from the Company related to the Company’s public disclosure requirements and promptly supply complete and accurate responses.

 

If any Code Supporter has any questions or concerns about any of the Company’s public disclosures, he or she should immediately contact the CEO, President or CFO.

 

  12.0 Compliance and Enforcement

 

Questions of interpretation or application of this Code with respect to a particular situation should be addressed to the CEO, or the President, or the CFO or their designee. Such requests may be made in writing or orally and will be handled discretely.

 

Compliance with this Code is a condition of employment for each officer and employee. Conduct contrary to this Code is outside of the scope of employment. Employees are encouraged to talk to supervisors, or an officer of the Company when in doubt about the best course of action in a particular situation.

 

Any suspected violation of applicable laws, rules or regulations or this Code, including any transaction or relationship that reasonably could be expected to give rise to a conflict of interest, should be reported promptly to the Company’s CFO, or his designee, without regard to the usual lines of reporting. Alternatively, any suspected violations of applicable laws, rules or regulations or this Code or unethical business practices may be reported anonymously and confidentially by written report in a sealed envelope marked “Private and Strictly Confidential – Attention: Chairman of the Audit Committee of Deep Well Oil & Gas, Inc.”.

 

No adverse action will be taken against any employee for making a complaint or disclosing information in good faith, and any officer or employee who retaliates in any way against an employee who in good faith reports any violation or suspected violation of the Code of Conduct will be subject to disciplinary action, including termination.

 

Any violation of this Code of Conduct will be grounds for immediate disciplinary action including, termination of employment.

  

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  13.0 Amendment, Modification and Waiver

 

Any amendment or modification of this Code must be approved by the Company’s Board of Directors. Any waiver of this Code for non-executive officers or employees may be granted by the President or CEO. Any waiver of this Code for directors or principal executive officers may be granted only by the Board of Directors or a duly authorized board committee of the Company, subject to the disclosure and other provisions of the SEC and stock exchange rules.

 

 

 

Adopted: December 17, 2014 DWOG Code of Conduct Page: 10 of 10

 

 



Exhibit 21.1

 

Subsidiaries of Registrant

 

Deep Well Oil & Gas (Alberta) Ltd., was incorporated in the province of Alberta, Canada on September 15, 2005.

 

Northern Alberta Oil Ltd., (formerly known as Mikwec Energy Canada Ltd.) was incorporated in the province of Alberta, Canada on September 18, 2003.

 



Exhibit 23.1

  

DEGOLYER AND MACNAUGHTON

Canada Limited

311 – 6th Avenue SW, Suite 1430

Intact Place, East Tower

Calgary, Alberta, Canada T2P 3H2

 

TELEPHONE

(403) 266-8680

FAX

(403) 266-1887

 

January 9, 2015

 

Deep Well Oil & Gas, Inc.

Suite 700, 10150 – 100 Street

Edmonton, AB T5J 0P6

Canada

 

Re: Form 10-K for the Year Ending September 30, 2014

 

Dear Sir,

 

We hereby consent to the reference to our firm name and to the use of our report entitled, “Appraisal Report as of September 30, 2014 on the Sawn Lake Property owned by Deep Well Oil & Gas, Inc. in Canada”, dated January 9, 2015, evaluating the Proven and Probable reserves and the present worth values of those reserves attributable to the properties of the Corporation (the “Report”) in the above-referenced Form 10-K.

 

We have read the Form 10-K and have no reason to believe that there is any misrepresentation in the information contained therein derived from our Report or that is within our knowledge as a result of the services we provided in preparing the Report.

 

  Very truly yours,
   
 

/s/ Douglas S. Christie

 

Douglas S. Christe, P.Geol

  Vice President
  DeGolyer and MacNaughton
  Canada Limited

 

DSC

 



Exhibit 31.1

 

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act

And Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

 

I, Dr. Horst A. Schmid, President and Chief Executive Officer of Deep Well Oil & Gas, Inc. certifies that:

 

1. I have reviewed this Annual Report on Form 10-K of Deep Well Oil & Gas, Inc. for the year ended September 30, 2014;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: January 13, 2015  
     
By: /s/ Horst A. Schmid  
  Dr. Horst A. Schmid  
  President and Chief Executive Officer  

 



Exhibit 31.2

 

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act

And Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934

 

I, Mr. Curtis James Sparrow, Chief Financial Officer of Deep Well Oil & Gas, Inc. certifies that:

 

1. I have reviewed this Annual Report on Form 10-K of Deep Well Oil & Gas, Inc. for the year ended September 30, 2014;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: January 13, 2015
   
By: /s/ Curtis James Sparrow
  Mr. Curtis James Sparrow
  Chief Financial Officer



Exhibit 32.1

 

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of Deep Well Oil & Gas, Inc. (“the Company”) on Form 10-K for the year ended September 30, 2014 filed with the Securities and Exchange Commission on the date hereof (“the Report”), I, Dr. Horst A. Schmid, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

Date: January 13, 2015
   
By: /s/ Horst A. Schmid
  Dr. Horst A. Schmid
  President and Chief Executive Officer

 



Exhibit 32.2

 

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Annual Report of Deep Well Oil & Gas, Inc. (“the Company”) on Form 10-K for the year ended September 30, 2014 filed with the Securities and Exchange Commission on the date hereof (“the Report”), I, Mr. Curtis James Sparrow, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

Date: January 13, 2015  
     
By: /s/ Curtis James Sparrow  
  Curtis James Sparrow  
  Chief Financial Officer  



+

 

Exhibit 99.1

 

 

 

 

 

Deep Well Oil & Gas, Inc.

 

 

 

INSIDER TRADING POLICY

  

 

  

 

 

 

 

 

 

 

 

Adopted: December 17, 2014

 

 

 

 

 

 

 

 

INSIDER TRADING POLICY

 

1.           Purpose

 

The Board of Directors (the “Board”) of Deep Well Oil & Gas, Inc. (the “Company”) has adopted this policy on insider trading to prevent improper insider trading of the Company’s securities. This policy was adopted by the Company’s Board to restrict officers, directors, certain employees and consultants of the Company from trading directly or indirectly in the Company’s securities during prescribed Blackout Periods disclosed in this policy or when material information concerning the Company exists that has not been disclosed to the investing public. For clarification a Trading Day is defined as a day on which the Stock Market or listing service where the Company’s common stock trades on is open for trading and starts at the time trading begins on such a day.

 

2.           Legal Prohibition Against Insider Trading

 

The antifraud provisions of U.S. federal securities laws (Rule 10b-5 under the 1934 Act) prohibit directors, officers, employees and consultants of the Company who possess material nonpublic information from trading, indirectly or directly, on the basis of that information. It is also a violation for such persons to give material nonpublic information to others who then trade on the basis of that information (commonly referred to as “tipping”). Transactions will be considered “on the basis of” material nonpublic information if the person engaged in the transaction was aware of the material nonpublic information at the time of the transaction. These illegal activities are commonly referred to as “insider trading.”

 

3.           Material Nonpublic Information

 

Information is considered nonpublic if the information has not been broadly disseminated to the public for a sufficient period to be reflected in the price of the Company’s security. As a general rule, information should be considered nonpublic until at least two full days have elapsed after the information is distributed to the public in a press release or publicly disclosed under the U.S. Securities and Exchange Commission (“SEC”) disclosure regulations.

 

Adopted: December 17, 2014 DWOG Insider Trading Policy

 

Page 2 of 6
 

 

 

Information should be considered as material if there is a significant likelihood that a reasonable investor would consider it influential in deciding whether to buy, hold or sell securities of the Company. In general, any information that could reasonably be expected to affect the market price of the Company’s is likely to be considered material. Either positive or negative information may be considered material. While it is not possible to identify all information that would be deemed “material,” the following are examples of potentially “material information” that ordinarily would be considered material to the Company:

 

Unpublished quarterly and yearly financial results or operational results;
Projections of future earnings, losses or capital budgets;
News of pending or proposed mergers, acquisitions or joint ventures;
News of significant acquisition or a sale of significant assets;
Increase, decrease or reclassification of oil sands reserves or resources;
Actual or threatened major litigation or resolution of such litigation;
Changes in control of the Company;
Impending announcements of bankruptcy or financial liquidity difficulties;
Splits, reverse splits, offering of additional securities or other changes in the Company’s capital structure;
Proposed new equity or debt financings;
Changes in independent auditors;
Changes in Company management;
Drilling results; and
Initiation of a dividend, distribution, or other shareholder benefit.

 

4.           Blackout Periods

 

No trading, buying or selling, in the Company’s securities directly or indirectly by the Company’s directors, officers, certain employees and consultants during the period beginning approximately two weeks prior to the anticipated date of the filing of the Company’s quarterly report on Form 10-Q or annual report on Form 10-K and ending after the second full trading day following the filing of the Company’s Form 10-Q or 10-K. For example the following are the Blackout Periods the Company has imposed for the release of the Company’s 2014 and 2015 fiscal year end financial results:

 

  SEC FILINGS FOR THE
COMPANY
 

BLACKOUT PERIODS

(No Trading in Company’s Stock)

  2014 Fiscal Year Reports:    
  Annual Report on Form 10-K   From December 15, 2014 to January 2, 2015
  2015 Fiscal Year Reports:    
  1st Quarter Report on Form 10-Q   From February 2, 2015 to February 19, 2015
  2nd Quarter Report on Form 10-Q   From May 1, 2015 to May 18, 2015
  3rd Quarter Report on Form 10-Q   From July 1, 2015 to August 17, 2015
  Annual Report on Form 10-K   From December 15, 2015 to January 2, 2016

 

The above Blackout periods may be amended by the Board if the Company plans to file its Form 10-Q or 10-K earlier or later than the anticipated SEC filing date. Trading in the Company’s securities outside these Blackout periods should not be considered a “safe harbor,” and all insiders should use their good judgment at all times.

 

Adopted: December 17, 2014 DWOG Insider Trading Policy

 

Page 3 of 6
 

 

 

No trading, buying or selling, in the Company’s securities directly or indirectly by the Company’s directors, officers, certain employees and consultants during the assembly of a known press release. Or when information is known to the insider and that a press release is most likely to be issued and ending after the second full trading day following the filing of a Form 8-K or public dissemination of a press release.

 

  OTHER SEC FILINGS FOR
THE COMPANY
 

BLACKOUT PERIOD

(No Trading in Company’s Stock)

  Current Report on Form 8-K   Until after the second full trading day following the filing date of a Form 8-K with the SEC.

 

No trading, buying or selling, in the Company’s securities directly or indirectly by the Company’s directors, officers, certain employees and consultants starting five trading days prior to, and continuing until two full trading days after, any scheduled meeting of the Board of Directors, including any scheduled committee meetings of the Board of Directors that the insider has attended or any scheduled joint venture partner operations meetings that the insider has attended.

 

Blackout periods may also be imposed from time to time as a result of special circumstances relating to the Company. All directors, officers, certain employees and consultants of the Company with knowledge of such special circumstances will be subject to the Blackout period.

 

5.           Insider Reporting Requirements

 

Every person who is directly or indirectly the beneficial owner of more than 10 percent of the Company’s securities or who is a director or an officer of the Company, is personally responsible to file with the SEC an initial insider trading report on Form 3 disclosing if any their beneficial ownership in the Company’s securities. Form 3s must be filed with the SEC within 10 days after he or she becomes such beneficial owner, director, or officer of the Company. Each such person is also required to file with the SEC an insider trading report on Form 4 any time their beneficial ownership in the Company’s securities change. Form 4s must be filed with the SEC before the end of the second business day following the day on which the subject transaction has been executed. Each such person is also required to file with the SEC a Form 5 which serves as an annual reconciliation of your Section 16 reports, and includes disclosures of certain small acquisitions, gifts, and disclosure of transactions that should have been (but were not) reported on an earlier Form 4. Form 5s are due to be filed with the SEC no later than 45 days after the Company's fiscal year end, or within six months after an insider ends his or her affiliation with the Company. If you have not had any reportable transactions during the fiscal year or you have already reported all of your transactions on Form 4, then you need not file a Form 5. In those cases where no Form 5 is required, you must provide the Company with a written notice of this fact to the Company. The Company is available to assist its directors and officers in completing and filing their required insider trading reports with the SEC. Directors and officers are reminded that according to the regulations that each director is personally responsible for the timely disclosure of their trading activities in the Company’s securities and the assistance offered by the Company in preparing their insider trading reports in no way reduces the obligation imposed on them be applicable insider trading laws.

 

Adopted: December 17, 2014 DWOG Insider Trading Policy

 

Page 4 of 6
 

 

 

6.           Limited Exemptions

 

The following are certain limited exceptions to the restrictions imposed by the Company under this policy. Please be aware that even if a transaction is subject to an exception to this policy, you will need to separately assess whether the transaction complies with applicable law. You are responsible for complying with applicable law at all times.

 

  6.1 Receipt and vesting of stock options:

 

  6.1.1

The Blackout periods and or trading restrictions under this policy do not apply to the acceptance or granting of stock options by the Company.

     
  6.1.2 The Blackout periods and or trading restrictions under this policy do not apply to the vesting, cancellation or forfeiture of stock options received from the Company.

 

  6.2 Exercise of stock options:

 

  6.2.1 The Blackout periods and or trading restrictions under this policy do not apply to the exercise of stock options of the Company’s shares. However, the Blackout periods and trading restrictions under this policy do apply to the sale of any of the Company’s securities issued upon the exercise of a stock option.

 

  6.3 Stock splits and similar transactions:

  

  6.3.1 The Blackout periods and or trading restrictions under this policy do not apply to a change in the number of securities held as a result of a stock split or similar transaction applying equally to all securities of the Company of a certain class.

 

7.           Standing or Limit Orders

 

Standing or limit orders (except standing or limit orders under approved Rule 10b5-1 Plans, see “Planned Trading Programs” below) may create risks for insider trading violations. There is no control over the timing of purchases or sales that result from standing instructions to a broker, and as a result the broker could execute a transaction when an insider is in possession of material non¬public information. If an insider of the Company using a standing or limit order to place trades on the Company’s securities, the insider must make their bank or broker aware of the Company’s insider trading policy so that standing or limit orders comply with the Company’s insider trading restrictions. Note that a standing or limit order does not, by itself, qualify as a Rule 10b5-1 plan, unless it is approved under a Planned Trading Program as described below.

 

Adopted: December 17, 2014 DWOG Insider Trading Policy

 

Page 5 of 6
 

 

 

8.           Planned Trading Programs

 

Trades by insiders of the Company’s securities that are executed pursuant to an approved trading plan, as defined by Rule 10b5-1 of the U.S. Securities and Exchange Act of 1934, would not be subject to the restrictions set forth under the blackout periods of this Policy, provided that the trades in the Company’s securities were made pursuant to a written contract, letter of instruction, Standing or Limit Orders or plan that:

 

a)complies with the requirements of SEC Rule 10b5-1 (a "Rule 10b5-1 Plan"); and
   
b)has been approved, in writing, by the Company’s Chief Financial Officer in advance of the first trade thereunder; and
   
c)with respect to which the Company's Chief Financial Officer has received certification from such insider that:

 

i.such insider was not in possession of material nonpublic information about the Company at the time the Rule 10b5-1 Plan was adopted and that all trades made under the Rule 10b5-1 Plan will comply with Rule 10b5-1 Plan and applicable securities laws; and
   
ii.the Rule 10b5-1 Plan complies with the requirements of Rule 10b5-1.

 

No such approval by the Chief Financial Officer shall be considered the Chief Financial Officer's or the Company's determination that the Rule 10b5-1 Plan satisfies the requirements of Rule 10b5-1. It shall be the sole responsibility of the person establishing the Rule 10b5-1 Plan to ensure that such plan complies with the requirements of Rule 10b5-1.

 

9.           Amendments or Modifications

 

The Board will review and evaluate this policy on an annual basis. Any amendment or modification to this policy must be approved by the Company’s Board.

 

Adopted: December 17, 2014 DWOG Insider Trading Policy

 

 

Page 6 of 6

 



 

 

Exhibit 99.2

 

 

 

 

 

Deep Well Oil & Gas, Inc.

 

 

 

 

AUDIT COMMITTEE WHISTLE-BLOWER

POLICY & PROCEDURES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adopted: December 17, 2014

 

 
 

 

 

AUDIT COMMITTEE WHISTLE-BLOWER POLICY & PROCEDURES

 

1.           Purpose

 

As mandated by the Sarbanes-Oxley Act, it is the Audit Committee’s responsibility to ensure that Deep Well Oil & Gas, Inc. (the “Company”) has procedures in place for the receipt, retention, and treatment of complaints and concerns about the Company’s accounting, internal accounting controls, and auditing matters. In addition, the Audit Committee must provide for confidential, anonymous submission by the Company’s employees of concerns about questionable accounting or auditing matters. The Procedures below are intended to fulfill these responsibilities and to ensure that any such complaints and concerns are promptly and effectively addressed.

 

The Audit Committee hereby adopts the following policy and procedures pursuant to the Company’s Audit Committee Charter, applicable U.S. securities laws, the rules and regulations of stock market the Company’s common shares trade on and the U.S. Securities and Exchange Commission (the "SEC").

 

2.           Procedures

 

For the submission and receipt of complaints and concerns from employees of the Company and non-employees:

 

2.1Employee Complaints and Concerns

 

  2.1.1 Employees are free to bring complaints or concerns to the attention of their supervisors as they would any other workplace concern. The recipients of such complaints or concerns shall forward them promptly to the Chairman of the Audit Committee.

 

  2.1.2 To ensure confidentially or anonymous submission of a complaint or concern, employees should submit their complaint or concern by regular mail (or other means of delivery), by submitting their complaint or concern to the Company’s head office address at Suite 700, 10150 -100 Street, Edmonton, Alberta, T5J 0P6, in a sealed envelope marked “Private and Strictly Confidential – Attention: Chairman of the Audit Committee of Deep Well Oil & Gas, Inc.”. All mail marked and addressed in this manner which shall be forwarded.

 

Adopted: December 17, 2014 DWOG Audit Committee Whistle-Blower PolicyPage: 2 of 5
 

 

 

  2.2 Non-Employee Complaints and Concerns

 

  2.2.1 Non-employees may submit complaints and concerns by mail (or other means of delivery) to the Company’s head office address at Suite 700, 10150 -100 Street, Edmonton, Alberta, T5J 0P6, and addressed to the attention of the President, Chief Financial Officer or the Chairman of the Audit Committee.

 

  2.3 Reporting a Complaint or Concern

 

  2.3.1 The Company encourages that all complaints or concerns be in a written format. Any person making a complaint is encouraged to provide specific details which should include names, dates, places, the violation they perceive has been committed and as much factual information as possible rather than speculation or guessing.

 

  2.4 Retention of records of complaints and concerns submitted to the Company:

  

  2.4.1 All complaints and concerns received will be logged  immediately.

 

  2.4.2 Records pertaining to a complaint or concern are the property of the Company and shall be retained in compliance with the applicable laws and document retention policies; subject to safeguards that ensure their confidentiality, and when applicable, the anonymity of the person making the complaint or concern.

 

  2.4.3 The President, Chief Financial Officer or Chairman of the Audit Committee shall report to the Audit Committee periodically about the process for receiving complaints and concerns so that the Audit Committee can ensure that the process for receiving and responding to complaints and concerns is satisfactory in its efficiency, accuracy, timeliness, protection of confidentiality or anonymity, and effectiveness.

 

  2.5 Treatment, investigation and evaluation of complaints and  concerns submitted to the Company:

 

Adopted: December 17, 2014 DWOG Audit Committee Whistle-Blower PolicyPage: 3 of 5
 

 

 

  2.5.1 All complaints and concerns shall be treated as confidential.

 

  2.5.2 Though a person making an anonymous complaint or concern may be advised that maintaining anonymity could hinder an effective investigation, the anonymity of the person making the complaint shall be maintained where legally appropriate until the person indicates that he or she no longer wishes to remain anonymous.

 

  2.5.3 Upon receiving a complaint or concern the President, Chief Financial Officer or Chairman of the Audit Committee will determine whether the complaint pertains to accounting or auditing matters, and when possible acknowledge receipt of the complaint to the sender.

 

  2.5.4 The President, Chief Financial Officer or Chairman of the Audit Committee shall inform the Audit Committee of all complaints and concerns received and determined to involve accounting or auditing matters, along with an initial assessment as to the appropriate treatment of each complaint or concern. Assessment, investigation, and evaluation of complaints or concerns shall be conducted by, or at the direction of, the Audit Committee. If the Audit Committee deems it appropriate, the Audit Committee may engage at the Company’s expense independent advisors, such as outside counsel and accountants unaffiliated with the Company’s independent auditor.

 

  2.5.5 Following investigation and evaluation of a complaint or concern, the Chairman of the Audit Committee shall report to the Audit Committee regarding the recommended disciplinary or remedial action, if any. The action determined by the Audit Committee to be appropriate under the circumstances shall then be brought to the Board or to the appropriate members of Senior Management for authorization or implementation, respectively. If the action taken to resolve a complaint or concern is deemed by the Audit Committee to be material or otherwise appropriate for inclusion in the minutes of the meetings of the Audit Committee, it shall be so noted in the minutes.

 

Adopted: December 17, 2014 DWOG Audit Committee Whistle-Blower PolicyPage: 4 of 5
 

 

 

3           Retaliation not Permitted

 

Any effort to retaliate against any person making a complaint or concern in good faith is strictly prohibited and shall be reported immediately to the Chairman of the Audit Committee, or the Board.

 

4           Amendments or Modifications

 

The Audit Committee will review and evaluate this policy and its procedures on at least an annual basis to determine whether the policy is effective in providing a confidential and anonymous procedure to report complaints or concerns regarding accounting, internal accounting controls, and auditing matters. Any amendment or modification to this policy or its procedures must be approved by the Company’s Audit Committee and submitted to the Board for their approval.

 

5           Publication of Policy

 

This policy will be posted on the Company’s website at www.deepwelloil.com.

 

 

Adopted: December 17, 2014 DWOG Audit Committee Whistle-Blower Policy Page:5 of 5

 

 



Exhibit 99.3

 

 

 

 

Deep Well Oil & Gas, Inc.

 

 

 

 

Audit Committee Charter 

 

 

 

 

 

Adopted: December 17, 2014

 

 
 

 

 

AUDIT COMMITTEE CHARTER

 

  1. Purpose

 

This Charter governs the operations of the Audit Committee. The primary purpose of the Audit Committee is to assist the Board of Directors’ in fulfilling its oversight responsibilities of:

 

  1.1 the integrity of the Company’s consolidated financial statements;
     
  1.2 the Company's accounting and financial reporting processes and consolidated financial statement audits1;
     
  1.3 the Company’s compliance with legal and regulatory requirements;
     
  1.4 the registered public accounting firm's (independent auditor’s) qualifications and independence2;
     
  1.5 the performance of the Company’s independent auditors3; and

 

  1.6 the Company's systems of disclosure controls and procedures, internal controls over financial reporting, and compliance with ethical standards adopted by the Company.

 

The Audit Committee shall prepare the report (Audit Committee Report) required by the rules of the U.S. Securities and Exchange Commission (the “SEC”) to be included in the Company’s annual proxy statement.

 

While the Audit Committee recognizes the importance of its role, it is not the responsibility of the Audit Committee to plan or conduct audits, to determine that the Company’s consolidated financial statements are in all material respects complete and accurate and in accordance with U.S. generally accepted accounting principles (“GAAP”), or to certify the Company’s consolidated financial statements. These are the responsibilities of management and the independent auditor. It is also not the responsibility of the Audit Committee to guarantee the independent auditor’s report. The Audit Committee shall assist the Board of Directors in overseeing management and the independent auditors in fulfilling their responsibilities in the financial reporting process of the Company.

 

 

 

1 NASDAQ Corporate Governance Rule 5605(c)(1)(c)

2 NASDAQ Corporate Governance Rule 5605(c)(1)(b)

3 NASDAQ Corporate Governance Rule 5605(c)(1)(b)

 

Adopted: December 17, 2014DWOG Audit Committee CharterPage: 2 of 9
 

 

 

  2. Organization and Composition

 

The Board of Directors shall designate annually an Audit Committee comprised of three or more independent Directors, who may be removed by the Board of Directors in its discretion. The members of the Audit Committee shall:

 

2.1 Be “independent” as determined in accordance with the laws, rules and regulations of the SEC4;

 

2.2 Not accept any consulting, advisory, or other compensation fee from the Company other than for service on the Company’s Board or its Committees;

 

2.3 Not be an affiliated person of the Company ("Affiliated Person" means an executive officer of the Company or a beneficial owner of more than 10% of the Company's issued and outstanding voting shares.)

 

2.4 Be able to read and understand fundamental financial statements;

 

2.5 Not have participated in the preparation of the financial statements of the Company or any current subsidiary of the Company at any time during the past three years; and

 

At least one member of the Audit Committee shall have past employment experience in finance or accounting with a professional certification in accounting or any other comparable experience or background which results in the individual's financial expertise, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities or who meets the requirements of an "Audit Committee Financial Expert" as defined in Item 407(d)(5) of Regulation S-K of the Securities Act of 1933.

 

The Board of Directors shall elect a Chairman of the Audit Committee annually. The Chairman may be removed by the Board of Directors in its discretion.

 

In addition, if an Audit Committee member ceases to be independent for reasons outside the member’s reasonable control, his or her membership on the Audit Committee may continue until the earlier of the Company’s next annual shareholder meeting or one year from the occurrence of the event that caused the failure to qualify as independent. If the Company is not already relying on this provision, and falls out of compliance with the requirements regarding Audit Committee composition due to a single vacancy on the Audit Committee, then the Company will have until the earlier of the next annual shareholders’ meeting or one year from the occurrence of the event that caused the failure to comply with this requirement. The Audit Committee shall cause the Company to provide notice to the stock exchange where the Company is listed upon learning of the event or circumstance that caused the non-compliance, if it expects to rely on either of these provisions for a cure period.

 

 

 

4 NASDAQ Corporate Governance Rule 5605(a)(2)

 

Adopted: December 17, 2014DWOG Audit Committee CharterPage: 3 of 9
 

 

 

  3. Meetings

 

The Audit Committee shall meet no less than four times each year, or more frequently as it deems necessary or appropriate to carry out its responsibilities and may, in its sole discretion, form and delegate authority to subcommittees (comprised only of Audit Committee members) in furtherance of such responsibilities. Meetings of the Audit Committee shall be called by the Chairman of the Audit Committee, the Chairman of the Board or the President of the Company. The Audit Committee Chairman will approve the agenda for the committee meetings and any member of the committee may suggest items for consideration.

 

All such meetings shall be held pursuant to the Amended By-Laws of the Company with regard to notice and waiver thereof, and written minutes of each such meeting shall be duly filed in the Company’s records. In order to foster open communications, the Audit Committee shall have unrestricted access to and meet separately and regularly with senior management of the Company and the independent auditor to discuss any matters that the Audit Committee or any such persons believe appropriate. In addition, the Audit Committee or its Chairman should meet with the independent auditors and management quarterly to review the Company’s consolidated financial statements. A majority of the members of the Audit Committee present in person or by telephone shall constitute a quorum. The Audit Committee shall report regularly to the full Board of Directors with respect to its activities.

 

  4. Relationship with Independent Auditors

 

The Audit Committee shall be directly responsible for the appointment, compensation (including as to fees and terms), retention and oversight of the work of the Company’s independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company. The Company’s independent auditor shall report directly to the Audit Committee. All auditing services and permitted non-audit services performed for the Company by the independent auditor shall be preapproved by the Audit Committee subject to applicable laws, rules and regulations. The Audit Committee may form and delegate to a subcommittee the authority to grant preapprovals with respect to auditing services and permitted non-auditing services, provided that any such grant of preapproval shall be reported to the full Audit Committee at its next meeting.

 

Adopted: December 17, 2014DWOG Audit Committee CharterPage: 4 of 9
 

 

 

  5. Powers and Responsibilities

 

Oversight of the Company’ Consolidated Financial Reporting and Disclosure Matters

 

To fulfill its responsibilities and duties the Audit Committee shall:

 

5.1 Meet to review and discuss with management and the independent auditor the Company’s annual audited consolidated financial statements, including the Company’s disclosures made under “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” prior to the filing of the Company’s Annual Report on Form 10-K and recommend to the Board of Directors whether such audited consolidated financial statements should be included in the Company’s annual report on Form 10-K.

 

5.2 Meet to review and discuss with management and the independent auditor the Company’s quarterly consolidated financial statements, including the disclosures made under “Management’s Discussion and Analysis of Financial Conditions and Results of Operations,” prior to the filing of the Company’s Quarterly Report on Form 10-Q.

 

5.3 Review the Company’s consolidated financial statements which shall include:

 

5.3.1 Major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles, and major issues as to the adequacy and effectiveness of the Company’s internal controls over financial reporting and any special remedial actions adopted in light of significant deficiencies or material weaknesses;

 

5.3.2 Discussion with management and the independent auditor regarding significant financial reporting issues and judgments made in connection with the preparation of the Company’s consolidated financial statements and the reasonableness of those judgments, including analyses of the effects of alternative GAAP methods on the Company’s consolidated financial statements;

 

5.3.3 Discuss with management and the independent auditor the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Company’s consolidated financial statements; and

 

5.3.4 The completeness and clarity of the disclosures in the Company’s consolidated financial statements.

 

Adopted: December 17, 2014DWOG Audit Committee CharterPage: 5 of 9
 

 

 

5.4 Review and discuss with the independent auditor, before the filing of the Company’s Annual Report on Form 10-K:

 

5.4.1 all critical accounting practices and policies to be used;

 

5.4.2. all alternative treatments of financial information within GAAP that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and

 

5.4.3. other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.

 

5.5 Review and approve with the Board of Directors any related-party transactions over $120,000 or such other amount as revised under Regulation S-K Item 404(a) to be disclosed and recommend to the Board of Directors its determination with respect to the related-party transactions. The standard applied in approving any related party transaction will be to confirm that the transaction is in the best interests of the Company without regard to the interests of the related party involved in the transaction.

 

5.6 Review and discuss earnings press releases, as well as review any financial information and earnings guidance provided to analysts and rating agencies.

 

5.7 Discuss with management its process for performing its required quarterly and annual certifications required to be made under Section 302 of the Sarbanes-Oxley Act, including the evaluation of the effectiveness of its disclosure controls by the Chief Executive Officer and Chief Financial Officer.

 

5.8 Discuss, with management, management’s process for assessing the effectiveness of internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, including any material weaknesses or significant deficiencies identified.

 

5.9 When the Company becomes subject to the SEC filing requirement with respect to the independent auditor’s attestation of the Company’s internal control over financial reporting, review and discuss with management and the independent auditor such report and the independent auditor’s attestation of the Company’s internal control over financial reporting prior to the filing of the Company’s Annual Report on Form 10-K.

 

5.10 Discuss with the independent auditor certain matters required to be discussed under auditing standards established from time to time by the Public Company Accounting Oversight Board (“PCAOB”) and by the SEC rules relating to the conduct of the audit, including any problems or difficulties encountered by the independent auditor in the course of the audit work, any restrictions on the scope of the independent auditor’s activities or access to information, and any significant disagreements with management.

 

Adopted: December 17, 2014DWOG Audit Committee CharterPage: 6 of 9
 

 

 

  6. Oversight of the Company’s Independent Auditor

 

The Audit Committee shall:

 

6.1 Obtain and review the report from the independent auditor on at least an annual basis describing:

 

6.1.1 The internal quality-control procedures of such independent auditor;

 

6.1.2 Any material issues raised by the independent auditor’s most recent internal quality-control review or peer review and any steps taken to deal with such issues;

 

6.1.3 Any material issues raised by any inquiry or investigation by governmental or professional authorities, within the preceding five years, with respect to one or more independent audits carried out by the independent auditor and any steps taken to deal with such issues; and

 

6.1.4 To assess the auditor’s independence, all relationships between the independent auditor and the Company and its subsidiaries.

 

6.2 Evaluate the qualifications, performance and independence of the independent auditor, taking into account the foregoing report, the independent auditor’s work throughout the year and the opinions of management, and report such conclusions to the Board of Directors.

 

6.3 Evaluate the lead (or coordinating) audit partner having primary responsibility for the audit, taking into account the opinions of management.

 

6.4 Ensure the required rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the independent audit, and consider whether it is appropriate or necessary, in order to assure continuing independence, to rotate the Company’s independent auditor in accordance with the applicable rules and regulations.

 

6.5 Set Company hiring policies with respect to the employment of current and former employees of the independent auditor.

 

Adopted: December 17, 2014DWOG Audit Committee CharterPage: 7 of 9
 

  

 

  7. Oversight of the Company’s Compliance with Legal and Regulatory Requirements

 

The Audit Committee shall:

 

7.1 Obtain assurance from the independent auditor that the Company is in compliance with the provisions of Section 10A(b) of the Securities Exchange Act of 1934, as amended.

 

7.2 Review with management the Company’s Code of Business Conduct and Ethics (“Code”), which prohibits unethical or illegal activities by the Company’s directors, officers and employees, as well as review the actions taken to monitor compliance with the Code.

 

7.3 Review and approve any proposed waivers for directors or executive officers and review any material waivers for non-executive officers or employees granted by the Company’s CEO, CFO or General Counsel pursuant to the Company’s Code of Conduct.

 

7.4 Discuss with management the Company’s policies on risk assessment and risk management, including the risk of fraud and the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.

 

7.5 Review with management and the Company’s counsel any legal, regulatory and environmental compliance matters that may have a material impact on the Company’s consolidated financial statements or accounting policies.

 

7.6 Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding the Company’s accounting, internal accounting controls or auditing matters, and confidential, anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters.

 

7.7 Review and assess compliance with all applicable laws, rules and regulations, including those of the Securities and Exchange Commission, specifically applicable to the composition and responsibilities of the Audit Committee.

 

Adopted: December 17, 2014DWOG Audit Committee CharterPage: 8 of 9
 

  

 

  8. Additional Powers & Responsibilities

 

The Audit Committee shall have the authority to engage and obtain advice and assistance from advisors, including independent or outside legal counsel and accountants, as it determines necessary or appropriate to carry out its duties and responsibilities. All related fees and costs of such advisors shall be paid promptly by the Company in accordance with its normal business practices. In carrying out its duties and responsibilities, the Audit Committee shall also have the authority to meet with and seek any information it requires from employees, officers, directors, or external parties.

 

The Audit Committee shall, on an annual basis, review and reassess the adequacy of this Charter and conduct an evaluation of the Audit Committee’s own performance during such past year.

 

The Audit Committee shall report its activities to the full Board on a regular basis, including without limitation, any issues that arise with respect to the quality or integrity of the Company’s consolidated financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditors, and shall perform such other activities or make such recommendations with respect to the above and other matters as the Audit Committee or the Board of Directors may from time to time deem necessary or appropriate.

 

  

 

Adopted: December 17, 2014 DWOG Audit Committee Charter Page: 9 of 9

 



 

 

Exhibit 99.4

 

 

 

Deep Well Oil & Gas, Inc.

 

 

 

Compensation Committee Charter

 

 

 

Adopted: December 17, 2014

 

 

 

 

 

 

 

 

COMPENSATION COMMITEE CHARTER

 

1.           Purpose

 

The Compensation Committee of the Board of Directors (the “Committee”) of Deep Well Oil and Gas, Inc. (the “Company”), on behalf of the Board of Directors (the “Board”), discharges the Board’s responsibilities relating to compensation of the Company’s directors and executives. The Committee shall have the authority to determine, review and approve, or recommend to the Board, the compensation of the Company’s executive officers, directors, committee members and other key employees, as the Board may designate to the Committee for determination as well as oversee the adoption of policies that govern the Company’s compensation programs. The Committee shall also establish all components of compensation for Directors and committee members of the Company, if any. The Committee shall have the authority and membership and shall operate according to the procedures provided in this Charter.

 

The term “compensation” shall include salary, long-term incentives, bonuses, equity incentives, severance arrangements, retirement benefits and other related benefits and benefit plans.

 

2.           Composition

 

The Committee shall consist of three or more members of the Board and shall satisfy the laws governing the independence requirements of applicable securities law, stock exchange and any other regulatory requirements and any exemptions thereto.

 

The members of the Committee shall be appointed annually by the Board and may be replaced or removed by the Board at any time with or without cause. Resignation or removal of a Director from the Board, for whatever reason, shall automatically constitute resignation or removal, as applicable, from this committee. Vacancies occurring, for whatever reason, may be filled by the Board. The Board shall designate one member of the Committee to serve as Chairman of the Committee.

 

3.            Meetings

 

The Committee shall hold such regular or special meetings in person or by telephone conference as its members shall deem necessary or appropriate, but not less frequently than once each year. A majority of the members of the Committee shall constitute a quorum for purposes of holding a meeting and the Committee may act by a vote of a majority of members present at such meeting. In lieu of a meeting, the Committee may act by unanimous written consent. Minutes of each meeting of the Committee shall be prepared and distributed to each Director of the Company and the Secretary of the Company after each meeting. The Chairman of the Committee shall report to the Board from time to time, or whenever so requested by the Board.

  

Adopted: December 17, 2014 DWOG Compensation Committee Charter

 

Page 2 of 5
 

  

 

4.            Compensation Committee Activities

 

The Committee’s purpose and responsibilities shall be to:

 

  4.1 ANNUAL REPORT on EXECUTIVE COMPENSATION: If and when applicable, produce or assist management of the Company with the preparation of any disclosure and reports that may from time to time be required by the rules of the stock exchange where the Company is listed, the U.S. Securities and Exchange Commission (the “SEC”), or another regulator the Company reports to, to be included in the Company’s proxy statement on Schedule 14A for the annual meeting of shareholders or Annual Report on Form 10-K or other filings.
     
  4.2 ANNUAL PERFORMANCE EVALUATION of the COMPENSATION COMMITTEE and CHARTER: Evaluate the performance of the Committee, including a review of the Committee’s compliance with this Charter, and review and reassess this Charter and submit any recommended changes to the Board of its consideration.

 

4.3RECOMMENDATIONS REGARDING INCENTIVE-COMPENSATION PLANS and EQUITY-BASED PLANS: Review and make such recommendations to the Board as the Committee deems advisable with regard to all incentive-based compensation plans and equity-based plans.

 

4.4MATTERS RELATED to COMPENSATION of the COMPANY’s CHIEF EXECUTIVE OFFICER:

 

4.4.1The Committee shall review and approve the corporate goals and objectives that may be relevant to the compensation of the Company’s Chief Executive Officer (“CEO”).
   
4.4.2The Committee shall evaluate the CEO’s performance in light of the goals and objectives that were set for the CEO and determine and approve or recommend to the Board for approval, the CEO’s compensation level (including salary, bonus, incentive compensation and equity-based awards) based on such evaluation. In connection with determining the long-term incentive component of the CEO’s compensation, the Committee shall consider the Company’s performance and relative shareholder return, the value of similar incentive awards to chief executive officers at comparable companies, and the awards given to the Company’s management in past years, and such other factors as the Committee may determine necessary or desirable. The CEO may not be present during voting or deliberations related to his or her compensation. In evaluating and determining the CEO’s compensation, the Committee shall consider the results of the most recent shareholder advisory vote on executive compensation ("Say on Pay Vote") required by Section 14A of the Exchange Act.

 

Adopted: December 17, 2014 DWOG Compensation Committee Charter

 

Page 3 of 5
 

 

 

4.5MATTERS RELATED to COMPENSATION of the OFFICERS OTHER THAN the CHIEF EXECUTIVE OFFICER: The Committee shall periodically review and shall have the authority to determine and approve or review and recommend to the Board for approval the compensation (including salary, bonus, incentive compensation and equity-based awards) of all officers of the Company other than the CEO; for the purposes hereof the term “officer” means any President, Treasurer, Chief Operating Officer, Senior Vice President, Vice President, Chief Financial Officer or Corporate Secretary of the Company. In evaluating and determining any officer’s compensation, the Committee shall consider the results of the most recent shareholder advisory vote on executive compensation ("Say on Pay Vote") required by Section 14A of the Exchange Act.

 

4.6SAY on PAY and FREQUENCY ADVISORY VOTE: Oversee all matters relating to shareholder approval on a non-binding basis of executive compensation (“say-on- pay” votes), including the frequency of such votes and the appropriate Committee response to a say- on-pay vote.

 

5.          Additional Compensation Committee Authority

 

The Committee is authorized, on behalf of the Board, to do any of the following, as the Committee deems necessary or appropriate in its discretion:

 

5.1MATTERS RELATED to COMPENSATION of the COMPANY’s DIRECTORS: to the extent that the Company compensates its Directors, the Committee shall annually review and make recommendations to the Board with respect to the compensation of Directors, including with respect to any incentive-compensation plans and equity-based plans.

 

5.2MATTERS RELATED to COMPENSATION of the COMPANY’S VARIOUS COMMITTEE MEMBERS: to the extent that the Company compensates its various committee members, the Committee shall annually review and make recommendations to the Board with respect to the compensation of its various committee members, including with respect to any incentive-compensation plans and equity-based plans.

 

Adopted: December 17, 2014 DWOG Compensation Committee Charter

 

Page 4 of 5
 

 

 

6.          Outside Advisors

 

The Committee has the authority, in its sole discretion, to retain or obtain the advice of an outside compensation consultant, independent legal counsel or other outside advisor on compensation matters to be used by the Committee to assist in the evaluation of Director, CEO or the Company’s officers compensation only after assessing the independence of such person(s) in accordance with the stock exchange listing rules and Item 407(e)(3)(iv) of Regulation S-K regarding conflict of interest. The Committee shall also have sole authority to approve the consultant’s fees and other retention terms.

 

7.            General Items

 

The Committee may establish and delegate authority to one or more subcommittees consisting of one or more of its members, when the Committee deems it appropriate to do so in order to carry out its responsibilities.

 

7.1In carrying out its responsibilities, the Committee shall be entitled to rely upon advice and information that it receives in its discussions and communications with management and such experts, advisors and professionals with whom the Committee may consult. The Committee shall have the authority to request that any officer or employee of the Company, the Company’s outside legal counsel, the Company’s independent auditor or any other professional retained by the Company to render advice to the Company attend a meeting of the Committee or meet with any members of or advisors to the Committee. The Committee shall also have the authority to engage legal, compensation or other advisors to provide it with advice and information in connection with carrying out its responsibilities and shall have sole authority to approve any such advisor’s fees and other retention terms.

 

7.2The Committee may perform such other functions as may be requested by the Board from time to time

 

Adopted: December 17, 2014 DWOG Compensation Committee Charter

 

 

Page 5 of 5

 



Exhibit 99.5

 

 

  

 

Deep Well Oil & Gas, Inc.

 

 

 

 

 

 

 

Corporate Governance and

Nominating Committee

Charter

 

 

 

 

 

 

 

Adopted: December 17, 2014

 

 
 

 

 

CORPORATE GOVERNANCE AND

NOMINATING COMMITTEE CHARTER

 

  1. Purpose

 

The Nominating and Corporate Governance Committee (the “Committee”) is appointed by the Board of Directors (the “Board”) of Deep Well Oil & Gas, Inc. (the “Company”) for the purposes of (a) assisting the Board in identifying individuals qualified to serve as members of the Board, (b) developing and recommending to the Board corporate governance guidelines for the Company, and (c) overseeing the evaluation of the Board.

 

To facilitate the goals of the Committee this Corporate Governance and Nominating Committee Charter governs the operations of this Committee of the Board. This Charter is intended as a component of the flexible governance framework within which the Board, assisted by its committees, directs the affairs of the Company. On behalf of the Board, the Committee is responsible for those duties set out more fully in point 4 below but generally:

 

  1.1 Identifying, screening and reviewing individuals qualified to serve as directors and recommending to the Board:

 

  1.1.1 director nominees for election, including nominees to be elected or re-elected as directors at each annual meeting of shareholders; and
     
  1.1.2 candidates to fill any vacancies on the Board;
     
  1.1.3 oversee the evaluation of the Board and management of the Company;
     
  1.1.4 periodically review the criteria for the selection of new directors to serve on the Board and recommend any proposed changes to the Board for approval;
     
  1.1.5 annually recommend to the Board the chairpersons and members of each of the Board’s committees.

 

  1.2 Overseeing the implementation and monitoring the effectiveness of, interpreting and reviewing, the Company’s Corporate Governance Guidelines and recommending to the Board modifications and/or additions to the Corporate Governance Guidelines.
     
  1.3 Reviewing, on a regular basis, the overall corporate governance of the Company and recommending improvements as appropriate.

 

Adopted: December 17, 2014DWOG Corporate Governance & Nominating Committee CharterPage:2 of 6
 

 

 

In addition to the powers and responsibilities expressly delegated to the Committee in this Charter, the Committee may exercise any other powers and carry out any other responsibilities delegated to it by the Board from time to time consistent with the Company’s Bylaws, the listing requirements of the stock exchange where the Company is listed and applicable laws and regulations.

 

  2. Member Composition

 

The Committee shall consist of three or more members of the Board and shall satisfy the laws governing the independence requirements of applicable securities law, stock exchange and any other regulatory requirements and any exemptions thereto.. The members of the Committee shall be appointed by the Board and continue to be members until their successors are elected and qualified or until their earlier resignation or removal from the Committee. Any member of the Committee may be removed, with or without cause, by the Board at any time.

 

The Board may appoint one member to serve as Chairman of the Committee, to convene and chair all regular and special sessions of the Committee, to set agendas for Committee meetings, to determine and communicate to management and the full Board the information needs of the Committee, and to report Committee determinations and actions on behalf of the Committee to the Board.

 

  3. Committee Meetings

 

The Chairman shall preside at each meeting of the Committee and set the agendas for Committee meetings. The Committee shall have the authority to establish its own rules and procedures for notice and conduct of its meetings as long as they are not inconsistent with any provisions of the Company’s Bylaws or applicable laws or regulations.

 

The Committee shall meet as frequently as the Committee may determine to carry out its duties and responsibilities under this Charter, but in no event less than once each year. Meetings of the Committee may be held by telephone conference call. A majority of the members of the Committee shall constitute a quorum sufficient for the taking of any action by the Committee.

 

The Committee may, at its discretion and at the invitation of the Chairman, include in its meetings members of the Company’s management, representatives of the Company’s outside advisors; any other personnel employed or retained by the Company or any other persons whose presence the Committee believes to be necessary or appropriate. However; only independent directors of the Committee may vote on matters.

 

The Chairman shall report to the Board regularly regarding the Committee’s activities and actions and any matter of material concern to the Company, including at the first Board meeting following any Committee meeting. The Committee shall keep regular minutes of its meetings and report the same to the Board from time to time and upon request.

 

Adopted: December 17, 2014DWOG Corporate Governance & Nominating Committee CharterPage:3 of 6
 

 

 

  4. Duties and Responsibilities

 

The Committee shall have the following authority and responsibilities:

 

  4.1 To review and report to the Board annually on the size, composition and profile of the Board (age, geographical representation, disciplines, independence).
     
  4.2 To lead the search for selecting director nominees for election to the Board and for filling vacancies on the Board and newly created directorships that may occur between annual meetings of shareholders. The Committee is responsible for identifying individuals qualified to serve on the Board and recommending that the Board select director nominees for election to the Board and to fill vacancies and newly created directorships. In fulfilling its responsibilities to identify individuals qualified to become director nominees, the Committee will consider, but not limited to:

 

  4.2.1 The independence of each director nominee;
     
  4.2.2 The skills, experience, knowledge and background of each director nominee;
     
  4.2.3 The past performance of directors being considered for re-election;
     
  4.2.4 Applicable regulatory and stock exchange requirements;
     
  4.2.5 Director nominees with the highest personal and professional integrity; and
     
  4.2.6 Director nominees who demonstrate exceptional ability and judgment.

 

  4.3 To review the Board committee structure and to recommend to the Board for its approval directors to serve as members of each committee of the Board. The Committee shall review and recommend committee positions annually and shall recommend additional committee members to fill vacancies or to augment the strength of those committees.
     
  4.4 Review planning for succession to the position of Chairman of the Board and Chief Executive Officer and other senior management positions. To assist the Committee with this responsibility, if requested by the Committee, the Chief Executive Officer will provide the Committee with recommendations and evaluations of potential successors to succeed him or her and other members of senior management.

 

Adopted: December 17, 2014DWOG Corporate Governance & Nominating Committee CharterPage:4 of 6
 

 

 

  4.5 To review proposals received from shareholders for persons to be considered for nomination to the Board, and to designate a member of the Nominating Committee or the Corporate Secretary of the Company to receive such communications directly from shareholders in compliance with the Company’s By-Laws.
     
  4.6 To assist management in the development and recommend to the Board for its approval a set of corporate governance guidelines. The Committee shall review the guidelines from time to time, as it deems appropriate, and recommend changes as necessary.
     
  4.7 To develop and recommend to the Board for its approval an annual self-evaluation process of the Board and its committees. The Committee shall oversee the annual self-evaluations.
     
  4.8 To review and recommend changes to procedures whereby shareholders may communicate with the Board.
     
  4.9 To review and assess the adequacy of this Committee Charter annually, requesting Board approval for proposed changes, and ensure appropriate disclosure as may be required by law, regulation, the stock exchange rules where the Company is listed, or consistent with the Company’s By-Laws.

 

  5. Access to Independent and Outside Advisors

 

The Committee shall have the authority, at the expense of the Company, to retain and determine compensation for search firms and other outside legal, accounting or other advisors or consultants including independent third-party experts, as it shall deem necessary or appropriate in its sole discretion in performance of its duties.

 

  6. Compensation

 

Members of the Committee shall receive such fees, if any, for their service as Committee members as may be determined by the Board of the Company.

 

Adopted: December 17, 2014DWOG Corporate Governance & Nominating Committee CharterPage:5 of 6
 

 

 

  7. Shareholder Proposals

 

The Committee will consider all recommendations from any person (or group) who has (or collectively if a group has) held more than 5% of the Company’s voting securities for longer than one year. Shareholders desiring to submit proposals or recommendations for director nominations to the Committee should submit the following information in writing addressed to the following person:

 

DEEP WELL OIL & GAS, INC.
Suite 700, 10150 – 100 Street
Edmonton, Alberta
T5J 0P6 Canada
Attention: Corporate Secretary

 

Any such proposals or recommendations for director nominations considered by the committee must comply with the rules pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended and in accordance with the Company’s By-Laws as previously filed with the U.S. Securities and Exchange Commission or by requested a copy of the By-Laws from the Company at the above noted address.

  

 

Adopted: December 17, 2014 DWOG Corporate Governance & Nominating Committee Charter Page: 6 of 6

 



 

 

Exhibit 99.6

 

 

 

 

 

Deep Well Oil & Gas, Inc.

 

  

 

Reserves and Resources
Committee Charter

 

 

 

 

 

 

 

 

 

Adopted: December 17, 2014

 

 

 

 

 

 

 

RESERVES and RESOURCES COMMITTEE CHARTER

 

1.           Purpose

 

The Board of Directors (the “Board”) of Deep Well Oil & Gas, Inc. (the “Company”) has established the Reserves and Resources Committee of the Board (the ‘Committee”) with authority, responsibility and specific duties as described in this Charter (the “Charter”).

 

The Committee has been adopted by the Board to assist the Board in monitoring:

 

1.1the integrity of the independent reserve and resources estimates and related U.S. and Canadian regulatory disclosures of the Company; and
   
1.2the qualifications and independence of the independent reservoir engineers, geologists and geophysicists.

 

2.           Organization and Composition

 

The Committee shall be comprised of not less than three directors of the Board. The majority of the members of the Committee:

 

2.1Shall be free from any relationship that could, in the view of the Board, reasonably be seen to interfere with the exercise of a member’s independent judgment.
   
2.2Shall have a majority of “independent” members as determined in accordance with the laws, rules and regulations as defined by the stock exchange listing standards and the independence standards as set out by the U.S. Securities and Exchange Commission rules and regulations. The Chair of the Committee shall be designated by the Board.
   
2.3Any member of the Committee may be removed or replaced at any time by the Board. If a vacancy exists on the Committee, the remaining members may exercise all of the powers of the Committee so long as a quorum is present at the applicable meeting or the applicable written resolution is signed by all current members.

 

Adopted: December 17, 2014 DWOG Reservers and Resurces Committee Charter

 

Page 2 of 5
 

 

 

3.            Meetings

 

The Committee shall meet, either in person or by conference call, as often as it determines is necessary or advisable, but not less frequently than once a year and at such places as determined by the Chairman of the Committee, and may act by unanimous written consent. The Committee will meet at least once a year with the Company’s independent reservoir engineering firm.

 

A majority of the members of the Committee, but in no event less than two members, shall constitute a quorum for the meetings of the Committee.

 

Agendas shall be circulated to Committee members along with background information on a timely basis prior to the Committee meetings.

 

Minutes of each meeting of the Committee shall be prepared and distributed to each Director of the Company and the Secretary of the Company after each meeting. The Chairman of the Committee shall report to the Board from time to time, or whenever so requested by the Board.

 

4.            Powers and Responsibilities

 

To fulfill its responsibilities and duties the Reserves and Resources Committee shall:

 

  4.1 Approve the appointment of, and any proposed change in the independent reservoir engineering firm retained to assist the Company in the annual review of the Company’s reserves and resources.
     
  4.2 Approve the scope of and oversee an annual assessment and evaluation of the Company’s reserves and resources by the independent reservoir engineering firm, having regard to U.S. and or Canadian industry practices and all applicable laws and regulations.
     
  4.3 Review the qualifications and independence of the Company’s independent reservoir engineering firm.
     
  4.4 Approve the independent engineering firms’ engagement fees and terms of service.
     
  4.5 Monitor the performance of the Company’s independent reservoir engineering firm.
     
  4.6 Review the integrity of the Company’s reserves and resources evaluation process and reporting system.
     
  4.7 Oversee and evaluate the Company’s compliance with U.S. and or Canadian legal and regulatory requirements related to its reserves and resources.

 

Adopted: December 17, 2014 DWOG Reservers and Resurces Committee Charter

 

Page 3 of 5
 

 

 

  4.10 Review and approve any statement of reserves and or resources data, and any report of the independent reservoir engineering firm regarding the reserves and or resources to be filed with any securities regulatory authority in the U.S. and or Canada or to be disseminated to the public.
     
  4.11 Advise the Board as to whether the Company’s public reserves and or resources disclosure is consistent with all required U.S. and or Canadian legal and regulatory requirements.
     
  4.12 Review with the independent reservoir engineering firm any reserves and or resources reporting problems or difficulties and management’s response, including difficulties encountered in the course of the reserves and or resources engineering report preparation; any restrictions placed on the scope of the independent reservoir engineering consultants’ activities or access to requested information, and any significant disagreements with management.
     
  4.13 Review the Company’s significant reserves and resources engineering principles and policies and any significant changes thereto and any proposed changes in reserves and resources engineering standards and principles which have, or may have, a material impact on the Company’s U.S. and Canadian reserves and resources disclosure.
     
  4.14 Review any material reserves and resources adjustments.
     
  4.15 Resolve any material disagreements or difficulties between the independent engineering reservoir firm and management.
     
  4.16 Initiate, when appropriate, investigations of matters within the scope of its responsibilities.
     
  4.17 Perform such other duties and responsibilities as the Board shall approve and assign to the Committee.
     
  4.18 To review and make recommendations to the Board with respect to:

 

  4.18.1 the Annual Evaluation Assessment of Reserves and or Resources Report prepared in accordance to the Petroleum Resources Management System (PRMS) standards.
     
  4.18.2 the annual signed Report of Independent Qualified Reserves Evaluator or Auditor respecting the applicable Reserves and or Resources Report prepared in accordance with PRMS standards.

 

Adopted: December 17, 2014 DWOG Reservers and Resurces Committee Charter

 

Page 4 of 5
 

 

 

  4.18.3 If required by Canadian regulations the Annual Evaluation Assessment or Appraisal of Reserves and or Resources Report prepared in accordance to COGEH standards.
     
  4.18.4 If required by Canadian regulations the Company’s annual Statement of Reserves and Resources Data and Other Information prepared on Form 51-101F1 in accordance with the Canadian Oil and Gas Evaluation Handbook (COGEH);
     
  4.18.5 If required by Canadian regulations the annual signed Report of Independent Qualified Reserves Evaluator or Auditor respecting the applicable Reserves and Resources Statement on Form 51-101F2 prepared in accordance with COGEH standards;
     
  4.18.6 If required by Canadian regulations the annual Report of Management and Directors, on Form 51-101F3 (the “Management Report”), respecting the applicable Reserves and Resources Statement prepared in accordance COGEH standards;

 

  4.19 to coordinate meetings with the Audit Committee of the Board, senior reserve and/or resources personnel, engineers and independent reserve evaluators, as required, to address areas of mutual interest or concern in respect of the Company’s evaluation of its oil sands reserves and/or resources.

 

5.           Reporting

 

The Committee will report to the Board not less than once each year, and review any issues that arise with respect to:

 

  5.1 The quality or integrity of the Company’s reserves and resources evaluations and reports.
     
  5.2 The Company’s compliance with U.S. and Canadian legal or regulatory requirements related to the Company’s reserves and resources.
     
  5.3 The qualifications, performance and independence of the Company’s independent reservoir engineering firm.

 

Adopted: December 17, 2014 DWOG Reservers and Resurces Committee Charter

 

 

Page 5 of 5

 

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