NOTES TO THE FINANCIAL STATEMENTS
October 31, 2016
NOTE 1 – NATURE OF OPERATIONS AND BASIS
OF PRESENTATION
Texas South Energy, Inc. (the “Company”)
was incorporated pursuant to the laws of the State of Nevada on March 15, 2010. The Company is engaged in the oil and gas business.
The Company has limited operating history and has earned nominal revenues to date. The Company has devoted its activities to the
acquisition of oil and gas assets. The Company has incurred losses since inception of $8,602,570 as of October 31, 2016.
The Company has established a fiscal year end of
October 31.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The financial statements of the Company have been
prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
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.
Use of Estimates and Assumptions
The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. While management believes that such estimates are reasonable when considered in conjunction
with the financial position and results of operations taken as a whole, actual results could differ from those estimates, and such
differences may be material to the financial statements.
Basic and Diluted Net Loss per Share
The Company computes loss per share in accordance
with ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the
face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders by
the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive
potential common shares outstanding during the period. Dilutive loss per share excludes all potential common shares if their effect
is anti-dilutive. The Company has no potential dilutive instruments and accordingly basic loss and diluted loss per share are the
same.
Fair Value
In accordance with the requirements of ASC 825
and ASC 820, the Company has determined the estimated fair value of financial instruments using available market information and
appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate
their carrying value due to the short-term maturity of the instruments.
Income Taxes
The Company has adopted ASC 740 for reporting purposes.
As of October 31, 2016, the Company had net operating loss carryforwards of approximately $5,576,000 that may be available to reduce
future years’ taxable income and will expire beginning in 2028. Availability of loss usage is subject to change of ownership
limitations under Internal Revenue Code 382. Future tax benefits which may arise as a result of these losses have not been recognized
in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded
a valuation allowance for the future tax loss carryforwards. The Company believes that its income tax filing positions and deductions
will more-likely-than-not be sustained on audit and does not anticipate any adjustments that will result in a material adverse
effect on the Company’s financial condition, results of operations or cash flows. Therefore, no reserves for uncertain income
tax positions have been recorded. The Company is subject to income tax examinations by the U.S federal, state, or local tax authorities
for years since inception to date.
Stock-based Compensation
The Company has not adopted a stock option plan
and has not granted any stock options. Common stock has been granted to third parties for services rendered (see Note 5 –
Common Stock).
In December 2004, the Financial Accounting Standards
Board (“FASB”) issued ASC 718 “Compensation - Stock Compensation” and 505-50 “Equity-Based Payments
to Non-Employees.” This statement requires a public entity to expense the cost of services received in exchange for an award
of equity instruments. This statement also provides guidance on valuing and expensing these awards, as well as disclosure requirements
of these equity arrangements. The Company adopted ASC 718 and 505-50 upon creation of the Company and expenses share based costs
in the period incurred.
Accounting for Oil and Gas Properties
The Company utilizes the full cost method to account
for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of
oil and gas reserves, including such costs as leasehold acquisition costs, professional fees incurred for the lease acquisitions,
capitalized interest costs relating to properties, geological expenditures, and tangible and intangible development costs (including
direct internal costs), are capitalized into the full cost pool. When the Company commences production from established proven
oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs,
will be depleted on the units-of-production method using estimates of proven reserves. Investments in unproved properties and major
development projects, including capitalized interest if any, are not depleted until proven reserves associated with the projects
can be determined. If the future exploration of unproven properties is determined to be uneconomical, the amount of such properties
is added to the capital costs to be depleted. As of October 31, 2016, the Company’s oil and gas properties consisted of capitalized
acquisition costs for unproved mineral rights.
Investment Securities
Investment securities are composed of 5 million
shares of GulfSlope common stock, and are classified as “available-for-sale”. Available-for-sale securities are adjusted
to their fair market value with unrealized gains and losses, net of tax, recorded as a component of accumulated other comprehensive
income. Upon disposition of these investments, the specific identification method is used to determine the cost basis in computing
realized gains or losses, which are reported in other income and expense. Declines in value that are judged to be other than temporary
are reported in other comprehensive income and expense. During the year ended October 31, 2016, the Company recorded a realized
loss of $218,000 to adjust the investment securities to fair market value. In February 2016, the GulfSlope shares were sold to
a third party for $50,000.
Recent Accounting Pronouncements
In May 2014, the FASB issued its final standard
on revenue from contracts with customers. The standard, issued as ASU No. 2014-09:
Revenue from Contracts with Customers (Topic
606)
by the FASB, outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle
of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.”
ASU 2014-09 becomes effective for reporting periods (including interim periods) beginning after December 15, 2017. Early application
is permitted for reporting periods (including interim periods) beginning after December 15, 2016. This new standard permits the
use of either the retrospective or cumulative effect transition method. Because the Company has no revenues, the new guidance is
not expected to have a material impact on its financial statements and related disclosures.
In August 2014, the FASB issued Accounting Standard
Update No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) which requires management to assess an
entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently
in U.S. auditing standards. Specifically, this standard provides a definition of the term substantial doubt and requires an assessment
for a period of one year after the date that the financial statements are issued (or available to be issued). It also requires
certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans and requires
an express statement and other disclosures when substantial doubt is not alleviated. The standard is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2016, and early application is permitted. The Company is currently
evaluating the accounting impact that this pronouncement will have on its financial statements.
Other new pronouncements issued but not effective until after October
31, 2016 are not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.
NOTE 3 – GOING CONCERN
The Company’s financial statements are prepared
in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of
assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have sufficient cash,
nor does it have operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going
concern. The Company has accumulated losses as of October 31, 2016, of $8,602,570. The Company will be dependent upon the raising
of additional capital through the best- efforts placement of its equity and/or debt securities in order to implement its business
plan. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern.
These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements
do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification
of liabilities that might result from this uncertainty.
NOTE 4 – OIL & GAS PROPERTIES
On January 22, 2014, the Company entered into a
contract for sale with the owner of mineral interests in 86.69 acres in Lavaca County, Texas (the “Acreage”) pursuant
to which the Company acquired a 37.5% interest in the Acreage’s mineral rights, including the oil and gas rights (the “Acquired
Interest”). In exchange for the Acquired Interest, the Company paid the seller $270,000 in cash and issued the seller 2,000,000
shares of the Company’s common stock, valued at $100,000. In June 2016, the Company sold the Acreage and Acquired Interest
to Mr. Askew, former director and chief executive officer, for $170,000, paid through the reduction of $170,000 owed to Mr. Askew
by the Company.
On March 10, 2014, the Company entered into a farm
out letter agreement with GulfSlope, relating to certain prospects (the “Prospects”) located within 2.2 million acres
of 3D seismic licensed and interpreted by GulfSlope. At the time the farm out agreement was entered into, the Company’s chief
executive officer and sole director, Mr. Askew, was also a director of GulfSlope. Mr. Askew resigned as a director of GulfSlope
effective March 27, 2014. Under the terms of the farm-out letter agreement as amended in September 2015, the Company acquired contractual
rights to a 20% working interest in six prospects for aggregate consideration of $10,000,000, of which the last installment of
$1,800,000 was paid in September 2015. During the year ended October 31, 2015, the Company had advanced $8,200,000 towards the
acquisition of the mineral interests. The Company agreed to pay its proportionate share of the net rental costs related to the
Prospects. GulfSlope will be the operator of record and shall have the right to negotiate all future joint operating agreements.
The mineral interests are unproved as of October 31, 2016.
In May 2016, we entered into a letter of intent
with GulfSlope that sets out the terms and conditions of a farm-out arrangement to develop certain shallow-depth oil and gas prospects
located on offshore Gulf of Mexico blocks currently leased by GulfSlope. The shallow prospects are located above 5,100 feet vertical
depth on the Vermilion Area, South Addition Block 378 (“Canoe Shallow”) and Vermilion Area, South Addition Block 375
(“Selectron Shallow”, and collectively with Canoe Shallow, “Shallow Prospects”). We own a 70.7% working
interest in the Shallow Prospects (with a third party owning a 16.8% working interest and GulfSlope owning a 12.5% working interest)
which we acquired in exchange for (i) cash payments of $400,000, (ii) the payment of annual rental obligations of $63,147, and
(iii) the agreement to fund, or cause to be funded, the costs for the drilling of two shallow wells to be commenced no later than
December 31, 2017. GulfSlope is currently the Operator of the first two wells. Consummation of the transactions is subject to further
negotiation, the execution and delivery by the parties of mutually acceptable definitive agreements to include a participation
agreement and the joint operating agreement, and the satisfaction of certain additional conditions.
NOTE 5 – COMMON STOCK
During September and October 2015, the Company
received cash of $1,297,000 for the issuance of 64,850,000 shares at $0.02 per share. The shares were issued in December 2015.
In December 2015, the Company received cash of
$105,000 for the issuance of 5,250,000 shares at $0.02 per share. The shares were issued in December 2015. In the same month, the
Company issued 550,000 shares of common stock to a third party for services rendered. The stock was valued at $11,000.
In June 2016, (i) John B. Connally III forgave
$170,000 in accrued consulting fees for 8.5 million shares of Company common stock, valued at $.02 per share, (ii) James M. Askew
forgave $280,000 owed to him by the Company for 14.0 million shares of Company common stock, valued at $.02 per share, and (iii)
the Company issued a third party 10.0 million shares of Company common stock in connection with a short-term line of credit.
In July 2016, the Company issued 11,500,000 shares
of common stock, of which 6,000,000 was issued for services rendered valued at $0.02 per share, and 5,500,000 was issued for cash
of $110,000 which proceeds from the private placement will be used for general corporate purposes.
In August 2016, the Company issued an aggregate
of 50 million shares of its common stock at a purchase price of $0.02 per share receiving gross proceeds of $1 million. The Company
used the proceeds from the private placement for general corporate purposes.
On June 17, 2016, the Company issued 625,000 shares
of its common stock at a purchase price of $0.02 per share receiving gross proceeds of $12,500, which proceeds were used for general
corporate purposes.
Effective July 29, 2016, the Company issued 7,000,000
shares of common stock at a purchase price of $0.02 per share receiving gross proceeds of $140,000, which proceeds were used for
general corporate purposes.
Effective July 29, 2016, the Company issued 5,000,000
shares of common stock upon conversion of $100,000 principal amount of outstanding indebtedness at a conversion price of $0.02
per share.
On August 24, 2016, the Company issued 2,500,000
shares of common stock at a purchase price of $0.02 per share receiving gross proceeds of $50,000, which proceeds were used for
general corporate purposes.
As of October 31, 2016, the Company has not granted
any stock options.
NOTE 6 – RELATED PARTY TRANSACTIONS
See Note 4 for a description of the sale of Acreage
and Acquired Interest by the Company in June 2016 to Mr. Askew.
In October 2015, the Company entered into related
party promissory note payable agreement with its director and chief executive officer James Askew for $82,918. The principal and
related accrued interest is payable on demand and bears interest at a fixed rate of 5% per annum. As of October 31, 2015, the outstanding
principal balance was $17,918 and is included in ‘Due to related party’ on the Company’s balance sheet. This
amount was paid in full in fiscal 2016.
As of October 31, 2016 and 2015, the Company had
received advances from a prior director in the amount of $52,152. The amounts due to the related party remain outstanding, unsecured
due on demand and non-interest bearing with no set terms of repayment. These advances are recorded within the ‘Due to related
party’ line on the balance sheet.
In September 2013, the Company entered into an
employment agreement with its chief executive officer James Askew that was amended to extend the term of the agreement to September
30, 2018. As of October 31, 2015, the Company had not paid Jim Askew $385,000 in accordance with his employment agreement and this
amount is accrued within ‘Accrued expenses – related party’ on the balance sheet. During the year ended October
31, 2016, the Company made cash payments and issued Mr. Askew 14 million shares of common stock in exchange for $280,000 of the
accrued compensation. Additionally, in accordance with the employment agreement, the Company paid Mr. Askew $420,000 for compensation
and a $50,000 bonus for the fiscal year ended October 31, 2016,
During the years-ended October 31, 2015 and 2016,
the Company’s chief executive officer and sole director paid numerous vendors on behalf of the Company. As of October 31,
2015 and 2016, the Company had $90,125 and $15,906, respectively, accrued within the ‘Accrued expenses – related party’
line on the balance sheet. This amount was paid in full in November 2016.
NOTE 7 – NOTES PAYABLE
Effective June 2014, we borrowed a principal amount
of $1,000,000 from a third party, which promissory note bears interest at a fixed rate of 10% per annum. In June 2015, the maturity
date was extended from June 30, 2015 to June 30, 2016 and the principal amount of the note was increased to $1,100,000. On March
11, 2016, the maturity date the of the $1,100,000 note payable balance was extended from June 31, 2016 to October 1, 2017. As of
October 31, 2016 and 2015, the outstanding principal balance was $1,100,000 and $1,100,000 respectively and is included
in ‘Notes payable’ as a current liability on the Company’s balance sheet.
In October 2015, the Company entered into a note
payable agreement with an accredited investor for $700,000, and in July 2016 a principal amount of $100,000 of the note was converted
into 5,000,000 shares of common stock. The note expires on October 1, 2017 and bears interest at a fixed rate of 10% per annum.
As of October 31, 2015, the outstanding principal balance of $700,000 is included in ‘Notes payable – long term’
and as of October 31, 2016, the outstanding principal balance of $600,000 is included in “Notes payable” as a current
liability on the Company’s balance sheet.
In October 2015 and November 2015, the Company
entered into related party promissory notes payable agreements with its director and chief executive officer James Askew. In December
2015, the principal balances were paid in full by the Company (see Note 6 - Related Party Transactions).
NOTE 8 – NOTES RECEIVABLE
In October 2016, the Company loaned the principal
amount of $47,138 to a third party under an interest free, demand promissory note agreement for the purpose of travel expenses.
Subsequent to October 31, 2016, the note was further increased to $131,645.
NOTE 9 - INCOME TAXES
The Company follows ASC 740. Deferred income taxes
reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and
the amounts used for income tax reporting purposes, and (b) net operating loss carryforwards. No net provision for refundable Federal
income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no
deferred tax asset attributable to the net operating loss carryforward has been recognized, as it is not deemed likely to be realized.
The provision for refundable federal income tax
consists of the following for the periods ending:
|
|
October 31, 2016
|
|
|
October 31, 2015
|
|
Federal income tax benefit at the statutory rate:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(616,000
|
)
|
|
$
|
(296,000
|
)
|
Change in valuation allowance
|
|
|
616,000
|
|
|
|
296,000
|
|
Net benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
|
|
October 31, 2016
|
|
|
October 31, 2015
|
|
Deferred tax attributed:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
1,896,000
|
|
|
$
|
1,280,000
|
|
Less: valuation allowance
|
|
|
(1,896,000
|
)
|
|
|
(1,280,000
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
At October 31, 2016, the Company had an unused
net operating loss carryforward approximating $5,576,000 that is available to offset future taxable income; the loss carryforward
will start to expire in 2028.
NOTE 10 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted the FASB standard related to
fair value measurement at inception. The standard defines fair value, establishes a framework for measuring fair value and expands
disclosure of fair value measurements. The standard applies under other accounting pronouncements that require or permit fair value
measurements and, accordingly, does not require any new fair value measurements. The standard clarifies that fair value is an exit
price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. The recorded values of long-term debt approximate their fair values,
as interest approximates market rates. As a basis for considering such assumptions, the standard established a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows.
Level 1. Observable inputs such as quoted
prices in active markets;
Level 2. Inputs, other than quoted prices
in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which
there is little or no market data, which require the reporting entity to develop its own assumptions.
The Company’s financial instruments are cash,
accounts payable, and investment securities. The recorded values of cash and accounts payable approximate their fair values based
on their short-term nature.
Our Level 2 asset consists of investment securities.
The fair value of investment securities (common stock in GulfSlope) is based on $0.01 per share, derived from recent GulfSlope
private placement financing transactions. The GulfSlope common stock is thinly traded, resulting in the private placement transactions
providing the most reliable measurement. In February 2016, the Company sold 5,000,000 shares of GulfSlope common stock with
a cost value of $268,000 for cash proceeds of $50,000 and recorded a realized loss of $218,000.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
See Note 6 for a discussion of Mr. Askew’s
employment agreement and the Company’s financial obligations with respect thereto.
On October 11, 2013, the Company entered
into a consulting agreement with John B. Connally, III providing $10,000 cash compensation per month, which expired in
December 2016. As of October 31, 2015, the Company owed Mr. Connally $110,000 in accrued compensation, which was paid as of
October 31, 2016. During the fiscal year ended October 31, 2016 Mr. Connally was paid $120,000 in consulting fees and a
$5,000 bonus.
NOTE 12 – SUBSEQUENT EVENTS
In December 2016, the Company issued an aggregate
of 11,500,000 shares of its common stock at a purchase price of $0.02 per share receiving gross proceeds of $230,000, which proceeds
were used for general corporate purposes.
In January 2017, the Company issued (i) an aggregate
of 14,250,000 shares of common stock for services rendered, (ii) 100,000,000 shares of common stock pursuant to the asset purchase
agreement to Mr. Mayell, (iii) an aggregate of 92.1 million shares of common stock pursuant to an executive officer and consultant,
and (iv) an aggregate of 6,200,000 shares were issued to certain employees and two consultants.
In January 2017, the Company entered into an asset
purchase agreement with Sydson Energy, Inc. (“Sydson Energy”) and Sydson Resources, L.P. (“Sydson Resources”
and collectively with Sydson Energy, “Sydson”), where Sydson assigned to us certain onshore oil and gas assets and
interests and certain tangible assets and additionally, certain employees and a consultant of Sydson have agree to become employees
and a consultant of the Company. Sydson is a private oil and gas company with land operations in Texas and Louisiana that has been
in business since 1982. The oil and gas assets include the following:
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●
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In the Bayou Bouillon Field, St. Martin and Iberville Parishes, Louisiana, we acquired a 37.5%
working interest in the Sugarberry South Project comprising 420 acres with a net revenue interest of 70%. The property has two
existing wells which have tested at over 400 BOPD combined from two (2) productive zones above 2,100’ with an additional
shallower zone behind pipe believed to contain approximately 30’ of oil pay and almost 60’ of gas pay. We expect to
install production facilities and drill additional development wells in this fault block and to drill up to three exploratory wells
in adjacent fault blocks targeted in the same zones. Through the Sydson transaction, we also are a party to letters of intent to
acquire up to a 45% working interest in an additional 1,000+ acres in the Bayou Bouillon area based on a proprietary 55 square
mile 3-D seismic survey that demonstrates updip potential in existing reservoirs at about 10,000’. The downdip wells in these
same reservoirs have produced over 20 MMBO and 21 BCFG from 59 completions. Our partner in the Bayou Bouillon project, and the
owner of a 50% working interest in the Bayou Bouillon acreage, is Thyssen Petroleum, USA, a privately held independent oil and
gas exploration and production company based in Houston, Texas and Monaco, France.
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●
|
In Texas, we acquired a 50% working interest in the undrilled acreage above 4,500’ in the
West Tuleta Field, Bee County, Texas comprised of approximately 1,800 gross acres and 900 net acres with a net revenue interest
of approximately75%. The primary drilling objectives are the Vicksburg and Hockley sands which are structurally high on this acreage
to historic downdip production from these sands totaling over 500,000 BO.
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|
●
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In the adjacent Ray Field, also in Bee County, Texas, we acquired a 50% working interest in the
undrilled, acreage on the Walton, Campbell, and Ray leases comprising approximately 75 gross acres with a net revenue interest
of approximately 75%. The primary drilling objectives on this acreage are also the Vicksburg and Hockley sands updip to prior production,
also above 3,700’.
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●
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In other areas of Southeast Texas, we acquired an interest in a proprietary 85 square mile 3-D
seismic survey targeting Lower Wilcox Sands at approximately 10,000’. There are eight currently defined and mapped prospects
in which we intend to acquire leases that are apparent on the seismic data and match the geologic setting of three existing Lower
Wilcox fields within the boundaries of the survey.
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|
●
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Northwest of the survey, we intend to acquire leases covering approximately 1,000 acres for horizontal
projects above 6,000’ in the Austin Chalk and Buda Lime formation. These projects are adjacent to substantial prior production
and contain both conventional and unconventional oil targets.
|
The consideration payable by the Company to Sydson
and affiliates was (i) 100 million shares of Company common stock to Michael J. Mayell, (ii) (A) $250,000 through a promissory
note due March 5, 2017 and (B) $1,250,000 through the payment by the Company of Sydson’s obligations attributable to retained
working interests in the oil and gas prospects conveyed to the Company, to be paid by the Company at the time it pays its associated
costs with respect to its ownership interests in such oil and gas prospects, (iii) carried interests to casing point for its working
interests on the first well in each of the West Tuleta prospect, Ray Field prospect, one prospect under negotiation, and up to
four wells in the Bayou Bouillon prospect to be paid by the Company at the time it pays its associated costs with respect to its
ownership interests in such oil and gas prospects, and (iv) a payment of $500,000 for the seismic data at one prospect under negotiation
after completion of the first well in such prospect.
The Company entered into an employment agreement
with Mr. Mayell on January 4, 2017 that terminates on December 31, 2019. Upon December 31 of each calendar year, commencing on
December 31, 2017, the term shall be extended for one additional year, provided that neither the Company nor Mr. Mayell notify
the other on or prior to 90 days before the applicable December 31
st
date that either party does not intend to extend
this agreement. The Company shall pay to Mr. Mayell a base salary of $420,000 per annum and Mr. Mayell shall be entitled to standard
and customary benefits. Mr. Mayell has agreed to standard non-disclosure and non-competition provisions. Upon termination of Mr.
Mayell by the Company other than for cause, Mr. Mayell is entitled to receive three years of his then compensation as severance.
The Company entered into an employment agreement
with John B. Connally III to serve as chairman of the board that began on January 5, 2017 and terminates on December 31, 2019.
Upon December 31 of each calendar year, commencing on December 31, 2017, the term shall be extended for one additional year, provided
that neither the Company nor Mr. Connally notify the other on or prior to 90 days before the applicable December 31
st
date that either party does not intend to extend this agreement. The Company shall pay to Mr. Connally a base salary of $420,000
per annum, issued him 65.1 million shares, and Mr. Connally shall be entitled to standard and customary benefits. Mr. Connally
has agreed to standard non-disclosure provisions. Upon termination of Mr. Connally by the Company other than for cause, Mr. Connally
is entitled to receive three years of his then compensation as severance.
James M. Askew resigned as an executive officer
and director of Texas South in January 2017 and entered into a consulting agreement with the Company that began on January 5, 2017
and terminates on December 31, 2019, and such term shall be extended for an additional one-year period upon December 31 of each
calendar year, commencing on December 31, 2017, provided that neither the Company nor consultant notify the other on or prior to
90 days before the applicable December 31
st
that either party does not intend to extend this agreement. The Company
shall pay to Mr. Askew $35,000 net per month and issued Mr. Askew 27 million shares of Company common stock. Upon termination of
Mr. Askew by the Company other than for cause, Mr. Askew is entitled to receive three years of his then consulting compensation
as severance.
In November and December 2016, the
Company paid Mr. Askew a bonus of $9,000 cash and $105,000 cash for compensation.
In November and December 2016, the Company paid bonuses and
compensation to Mr. Connally aggregating $164,000.