Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The following is management’s discussion
and analysis of certain significant factors that have affected aspects of our financial position and the results of operations
during the periods included in the accompanying Condensed Financial Statements. You should read this in conjunction with the discussion
under “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the audited Financial
Statements for the year ended June 30, 2018, included in our Annual Report on Form 10-K and the Consolidated Financial
Statements included elsewhere herein.
Throughout this report, a barrel of oil
or “Bbl” means a stock tank barrel (“STB”) and a thousand cubic feet of gas or “Mcf” means
a thousand standard cubic feet of gas (“Mscf”).
Overview
We are an independent energy company primarily
engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties. Our principal business
is the exploration and development of oil and natural gas properties in the United States.
In June 2018 we signed a purchase and sale
agreement for the sale of the majority of our working interest in the Foreman Butte project in Montana and North Dakota for $40
million. This sale was expected to close on October 15, 2018 however the buyer failed to close. A non-refundable $1 million deposit
placed into escrow by the buyer was released to us and as such we have included it in “other income”. Following the
failure of the buyer to close, we are no longer holding the assets for sale in our balance sheet although efforts to sell the assets
continue. We have terminated the purchase and sale agreement with the buyer and have engaged PLS Energy Advisors Group to remarket
the asset. To the date of this report, we have not received any viable offers for the purchase of the assets and as such we have
continued our discussions with a non-bank lender to consider refinancing our current Mutual of Omaha Bank credit facility. Due
diligence has commenced with respect to this refinancing effort. Although we are confident the refinance will close, we can make
no assurances that it will, or that we will be able to meet the requirements imposed upon us by such refinancing.
Foreman Butte Project
In March 2016 we closed on an acquisition
of certain producing and nonproducing oil and gas assets in North Dakota and Montana (the “Foreman Butte Project”)
for a purchase price of $16 million (the “Foreman Butte Acquisition”). The acquired assets were comprised of producing
oil and gas wells, shut in wells and associated facilities. The wells are located in the Madison and Ratcliffe formations. The
majority of these wells are now operated by us; however, a number of non-operated wells were also included in this package.
We continue to concentrate our efforts
on the operations of this field. Due to financial constraints we have not made substantial progress on the development of the PUD
drilling program in the Home Run Field. Our development efforts are currently constrained by our lack of access to capital to fund
any development activities. We have four current drilling permits for Home Run Field, the most promising non-producing area within
the Foreman Butte Project. We would anticipate the drilling of one or more PUD wells if we obtain the necessary funding through
a refinance of our credit facility or if we retain an interest in the field as part of any future sale of the Foreman Butte Project.
There can be no assurance, however, that either possibility will come to fruition.
Fiscal quarter overview
Our net oil production was 63,618 barrels
of oil for the quarter ended December 31, 2018, compared to 50,846 barrels of oil for the quarter ended December 31, 2017. Production
was higher during the quarter ended December 31, 2018 due to the impact of a number of workovers completed during the current quarter.
Our net gas production was 10,583 Mcf for
the quarter ended December 31, 2018 compared to 7,729 Mcf for the quarter ended December 31, 2017. The increase in the oil price
has meant that some of the more liquid rich gas has been produced rather than flared. This value is immaterial to us.
Lease operating expenses (“LOE”)
increased to $3.0 million for the quarter ended December 31, 2018, from $1.2 million for the quarter ended December 31, 2017 due
to general operating expense increases in the field following an increase in the oil price and an increase in demand for oil field
services.
For the three months ended December 31,
2018 and December 31, 2017 we reported a net loss of $2.3 million from continuing operations and a net loss of $1.5 million from
operations, respectively.
Our ability to continue as a going concern
is dependent on obtaining the capital necessary to permit additional development of our oil and gas properties or a monetization
of some or all of those properties. We are engaged in discussions with a non-bank lender with respect to refinancing our current
credit facility. We are also continuing to market our major asset for sale after the buyer failed to close on the sale contemplated
by the purchase and sale agreement for the Foreman Butte Project executed in June 2018. Mutual of Omaha Bank currently has the
right to issue a notice of default on account of the expiration of the $24 million credit facility, however, to the date of this
report, the bank has not exercised that right.
In addition to pursuing a refinancing of
our debt, we have re-engaged PLS Energy Advisors Group to remarket the Foreman Butte Project following the failure of the previously
contracted buyer to close a $40 million purchase. Based on our current financial position, in both cases, we may now be required
to accept terms less favorable than would otherwise be available to us. There also can be no assurance that we will be successful
in refinancing our debt or the sale of the Foreman Butte Project, with or without a retained interest. These factors indicate there
is substantial doubt about our ability to continue as a going concern.
See “Results of Operations”
below.
Notable Activities and Status of Material
Properties during the Quarter Ended December 31, 2018 and Current Activities
Producing Properties
Foreman Butte Project, McKenzie County,
North Dakota
Mississippian Madison Formation, Williston
Basin
Samson 87% Operated Average Working
Interest
We averaged a gross 1,043 BOEPD from our
operated wells in the Foreman Butte Project this quarter.
During the quarter, we continued our water
flood pilot project for the Home Run Field. The waterflood pilot project utilizes an existing wellbore, the Mays 1-20H, which is
located on the flank of the field and is non-economic to produce for oil. The water flood is being used to add pressure to the
reservoir which is expected to enhance the recovery of oil. The well performance in the offsetting wells will be monitored to establish
the viability of the flood. The water being used is produced formation water so that there is no chemical compatibility issue.
In essence the water is being returned to the reservoir from which it originated. This water is trucked to the injector from the
existing producing wells. The water flood allowed us to resume production at certain wells that have been shut-in for the past
3 years. These shut-in wells were previously uneconomic to produce due to high water disposal costs. We cannot make assurances
regarding the success of the water flood operation.
The Home Run Field (also known as the Foreman
Butte Field) is the largest areal oil field in the Foreman Butte Project. It was developed on a 640-acre spacing pattern and our
engineering and geologic analyses have determined that only 3.2% of the original oil in place has been recovered to date. Given
that oil fields can recover up to 20% of their oil in place, there would appear to be significant un-developed oil to be recovered
from this field.
Undeveloped Properties: Exploration
Activities
Hawk Springs Project, Goshen County,
Wyoming
Permo-Penn Project, Northern D-J Basin
Samson 37.5% working interest
All wells within this project have been
plugged and abandoned with the final work expected to be completed during the quarter.
Cane Creek Project, Grand & San
Juan Counties, Utah
Pennsylvanian Paradox Formation, Paradox
Basin
Samson 100% Working Interest
Our option to lease 8,080 net acres
with Utah SITLA (Utah School and Institutional Trust Lands Administration) at a cost of $75 per acre expired on November 30, 2017,
unexercised. $0.3 million in undeveloped capitalized costs was written off in the three months ended December 31, 2017.
Developed Properties: Drilling
Activities
Rainbow Project, Williams County, North
Dakota
Mississippian Bakken Formation, Williston Basin
Samson 23% and 52% working interest
Kraken Operating, LLC, the operator of
the Gladys 1-20H well, has been producing this well at an average rate of 146 BOPD and 172 MCFPD during the quarter.
Results of Operations
For the three months ended December 31,
2018 we reported a net loss of $2.6 million compared to a net loss of $1.4 million for the same period in 2017.
For the six months ended December 31, 2018
we reported a net loss of $1.4 million compared to a net loss of $3.2 million for the same period in 2017.
The following tables set forth selected
operating data for the three months ended:
|
|
Three months ended
|
|
|
|
|
31-Dec-18
|
|
|
|
31-Dec-17
|
|
Production Volume
|
|
|
|
|
|
|
|
|
Oil (Bbls)
|
|
|
63,618
|
|
|
|
50,846
|
|
Natural gas (Mcf)
|
|
|
10,583
|
|
|
|
7,729
|
|
BOE (Barrels of oil equivalent - based on one barrel of oil to six Mcf of natural gas)
|
|
|
65,382
|
|
|
|
52,134
|
|
|
|
|
|
|
|
|
|
|
Sales Price
|
|
|
|
|
|
|
|
|
Realized Oil ($/Bbls)
|
|
$
|
45.89
|
|
|
$
|
51.57
|
|
Impact of settled derivative instruments
|
|
$
|
(3.61
|
)
|
|
$
|
(6.64
|
)
|
Derivative adjusted price
|
|
$
|
42.28
|
|
|
$
|
44.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense per BOE:
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
45.98
|
|
|
$
|
18.91
|
|
Production and property taxes
|
|
$
|
4.60
|
|
|
$
|
5.07
|
|
Depletion, depreciation and amortization
|
|
$
|
15.81
|
|
|
$
|
8.07
|
|
General and administrative expense
|
|
$
|
14.40
|
|
|
$
|
16.12
|
|
|
|
Six months ended
|
|
|
|
|
31-Dec-18
|
|
|
|
31-Dec-17
|
|
Production Volume
|
|
|
|
|
|
|
|
|
Oil (Bbls)
|
|
|
118,397
|
|
|
|
104,644
|
|
Natural gas (Mcf)
|
|
|
22,424
|
|
|
|
12,190
|
|
BOE
|
|
|
122,134
|
|
|
|
106,676
|
|
|
|
|
|
|
|
|
|
|
Sales Price
|
|
|
|
|
|
|
|
|
Realized Oil ($/Bbls)
|
|
$
|
54.52
|
|
|
$
|
49.75
|
|
Impact of settled derivative instruments
|
|
$
|
(6.55
|
)
|
|
$
|
(4.45
|
)
|
|
|
$
|
47.97
|
|
|
$
|
45.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense per BOE:
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
40.45
|
|
|
$
|
22.94
|
|
Production and property taxes
|
|
$
|
4.42
|
|
|
$
|
4.25
|
|
Depletion, depreciation and amortization
|
|
$
|
8.70
|
|
|
$
|
8.42
|
|
General and administrative expense
|
|
$
|
14.56
|
|
|
$
|
20.61
|
|
The following table sets forth results
of operations for the following periods:
|
|
Three months ended
|
|
|
|
|
|
|
|
31-Dec-18
|
|
|
|
31-Dec-17
|
|
|
|
2Q19 to 2Q18 change
|
|
Oil sales
|
|
$
|
2,919,607
|
|
|
$
|
2,621,994
|
|
|
$
|
297,613
|
|
Gas sales
|
|
|
105,464
|
|
|
|
36,033
|
|
|
|
69,431
|
|
Other liquids
|
|
|
4,964
|
|
|
|
1,601
|
|
|
|
3,363
|
|
Interest income
|
|
|
32
|
|
|
|
54
|
|
|
|
(22
|
)
|
Gain on derivative instruments
|
|
|
462,324
|
|
|
|
-
|
|
|
|
462,324
|
|
Lease operating expense
|
|
|
(3,307,215
|
)
|
|
|
(1,249,052
|
)
|
|
|
2,058,163
|
|
Depletion, depreciation and amortization
|
|
|
(1,033,928
|
)
|
|
|
(420,107
|
)
|
|
|
613,821
|
|
Abandonment
|
|
|
-
|
|
|
|
(25,820
|
)
|
|
|
(25,820
|
)
|
Exploration and evaluation expenditure
|
|
|
(10,532
|
)
|
|
|
(279,340
|
)
|
|
|
(268,808
|
)
|
Accretion of asset retirement obligations
|
|
|
(268,835
|
)
|
|
|
(79,715
|
)
|
|
|
189,120
|
|
Interest expense
|
|
|
(481,728
|
)
|
|
|
(331,184
|
)
|
|
|
150,544
|
|
Loss on derivative instruments
|
|
|
-
|
|
|
|
(901,471
|
)
|
|
|
(901,471
|
)
|
Amortization of borrowing costs
|
|
|
-
|
|
|
|
(28,949
|
)
|
|
|
(28,949
|
)
|
General and administrative
|
|
|
(941,567
|
)
|
|
|
(839,282
|
)
|
|
|
102,285
|
|
Net income/(loss)
|
|
$
|
(2,551,414
|
)
|
|
$
|
(1,495,238
|
)
|
|
$
|
1,056,176
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
|
|
|
31-Dec-18
|
|
|
31-Dec-17
|
|
|
2Q18 to 2Q17
|
|
Oil sales
|
|
$
|
6,454,848
|
|
|
$
|
5,206,515
|
|
|
|
1,248,333
|
|
Gas sales
|
|
|
142,741
|
|
|
|
85,290
|
|
|
|
57,451
|
|
Other liquids
|
|
|
8,833
|
|
|
|
3,180
|
|
|
|
5,653
|
|
Interest income
|
|
|
450
|
|
|
|
113
|
|
|
|
337
|
|
Gain on derivative instruments
|
|
|
435,345
|
|
|
|
-
|
|
|
|
435,345
|
|
Other
|
|
|
1,000,000
|
|
|
|
178,657
|
|
|
|
821,343
|
|
Lease operating expense
|
|
|
(5,480,332
|
)
|
|
|
(2,901,004
|
)
|
|
|
(2,579,328
|
)
|
Depletion, depreciation and amortization
|
|
|
(1,061,971
|
)
|
|
|
(898,165
|
)
|
|
|
(163,806
|
)
|
Abandonment Expense
|
|
|
-
|
|
|
|
(66,676
|
)
|
|
|
66,676
|
|
Exploration and evaluation expenditure
|
|
|
(39,310
|
)
|
|
|
(282,513
|
)
|
|
|
243,203
|
|
Accretion of asset retirement obligations
|
|
|
(277,356
|
)
|
|
|
(159,886
|
)
|
|
|
(117,470
|
)
|
Interest expense
|
|
|
(756,138
|
)
|
|
|
(578,874
|
)
|
|
|
(177,264
|
)
|
Loss on derivative instruments
|
|
|
-
|
|
|
|
(1,568,866
|
)
|
|
|
1,568,866
|
|
Amortization of borrowing costs
|
|
|
-
|
|
|
|
(57,899
|
)
|
|
|
57,899
|
|
General and administrative
|
|
|
(1,777,870
|
)
|
|
|
(2,198,570
|
)
|
|
|
420,700
|
|
Net loss
|
|
$
|
(1,350,760
|
)
|
|
$
|
(3,238,698
|
)
|
|
|
1,887,938
|
|
Comparison of three months and six months
ended December 31, 2018 to three months and six months ended December 31, 2017
Oil and gas revenues
Oil revenues increased from $2.6 million
for the three months ended December 31, 2017 to $0.3 million for the three months ended December 31, 2018, as a result of the increase
in oil production. Oil production increased from 50,846 barrels for the three months ended December 31, 2017 to 63,618 barrels
for the three months ended December 31, 2018.
The realized oil price decreased from $51.57
per Bbl for the three months ended December 31, 2017 to $45.89 per Bbl (excluding the impact of derivatives) for the three months
ended December 31, 2018 following a recent decline in the global oil price. Also contributing to the decrease in the realized oil
price during the quarter ended December 31, 2018 was the increase in the differential (the difference between WTI and local pricing)
increased from the usual $5.00 to $7.00 per barrel to $21 per barrel in December 2018 as a result of additional Canadian crude
being available. The differential in January and February has returned to more normal levels as a result of several factors including
mandatory production curtailment by the State of Alberta and additional demand for oil barrels at the Gulf Coast.
Gas revenues increased from $0.04 million
for the three months ended December 31, 2017 to $0.1 million for the three months ended December 31, 2018 as a result of increased
production.
Oil revenues increased from $5.2 million
for the six months ended December 31, 2017 to $6.4 million for the six months ended December 31, 2018. The increase in revenue
is a result of the increase in production from 104,644 for the six months ended December 31, 2017 to 118,397 for the six months
ended December 31, 2018.
Gas revenues remained consistent at $0.1
million for the six months ended December 31, 2018 and 2017.
Sale of Assets
No sales of assets were recorded in the
three months ended December 31, 2018 or 2017.
For the six months ended December 31, 2018
we recognized $1.0 million in profit on the partial proposed sale of the Foreman Butte project. At the signing of the purchase
and sale agreement in June 2018 a deposit of $1 million was placed into escrow by the purchaser. Following the failure of the buyer
to close on the transaction in September 2018, the escrow was released to the Company.
For the six months ended December 31, 2017
we recognized $0.2 million in profit on the sale of our working interest in a number of non operated wells in Wyoming. The wells
were sold for the value of the current accounts payable owed to the operator and the plugging liability. No such sales were recognized
in the current quarter and six month period.
Exploration expense
Excluding deferred exploration costs written
off, exploration expenditures for the quarter and six months ended December 31, 2018 and December 31, 2017 were less than $30,000
for either quarter.
In the quarter ended December 31, 2017,
$0.3 million in previously deferred expenditure were written off to the income statement following the expiration of the option
for us to lease acreage in the Cane Creek area in Utah.
Lease operating expense
Lease operating expenses (“LOE”)
increased from $1.2 million for the quarter ended December 31, 2017, to $3.3 million for the quarter ended December 31, 2018 due
to increased prices following an increase in the demand for oil field services in conjunction with the increase in the oil price.
The wells in the Foreman Butte project area, and in the Home Run Field are also older wells than those we have previously owned
and require additional fresh water and hot oil cleanouts which may increase operating costs of the wells. We are continuing to
review our lease operating expenses and will shut wells in that are not economic to produce in the current oil pricing environment.
We also performed a number of workovers at a cost of $0.8 million (included in LOE) during the quarter to increase and maintain
production during the quarter. Workovers will likely need to completed from time to time. It is expected that these workovers will
be completed, if possible, using our rig.
Lease operating expense increased from
$2.9 million for the six months ended December 31, 2017 to $5.5 million for six months ended December 31, 2018. This increase was
due to an increase in production and an increase in oil field costs. Also included in lease operating expense is $1.5 million in
workover costs. As the field is an older field, workovers are required from time to time. It is expected that workovers will be
completed using the rig we own.
Depletion, depreciation and amortization
expense
Depletion, depreciation and amortization
increased from $0.4 million for the quarter ended December 31, 2017 to $1.0 million for the quarter ended December 31, 2018. Following
the change in status from assets held for sale to remaining in continuing operations, depletion, depreciation and amortization
expense has been calculated since the assets were initially held for sale. Depletion, depreciation and amortization booked in the
current quarter covers the period from April 2018 to December 2018.
Depletion, depreciation and amortization
expense increased from $0.9 million for the six months ended December 31, 2017 to $1.1 million for the six months ended December
31, 2018 following an increase in production.
General and administrative expense
General and administrative expense increased
slightly from $0.8 million for the quarter ended December 31, 2017 to $0.9 million for the quarter ended December 31, 2018. We
have been actively trying to reduce our general and administrative costs in recent periods. Effective October 1, 2017, all staff
and directors took 25% pay cuts in order to reduce salary costs. The cost of a number of consultants have also been reduced.
General and administrative expense decreased
from $2.2 million for the six months ended December 31, 2017 to $1.7 million for the six months ended December 31, 2018.
Cash Flows
The table below shows cash flows for the
following periods:
|
|
Six months ended
|
|
|
|
|
31-Dec-18
|
|
|
|
31-Dec-17
|
|
Cash provided by/(used in) operating activities
|
|
$
|
(36,712
|
)
|
|
$
|
(66,034
|
)
|
Cash (used in)/provided by investing activities
|
|
|
403,765
|
|
|
|
(170,161
|
)
|
Cash provided by/(used in) financing activities
|
|
|
-
|
|
|
|
450,000
|
|
Cash used in operations increased from
a net outflow of $0.1 million for the six months ended December 31, 2017, to a net outflow of $0.04 million for the six months
ended December 31, 2018. Cash receipts from customers increased from $6.1 million for the six months ended December 31, 2017 to
$8.7 million for the six months ended December 31, 2018 following an increase in production.
Payments to suppliers and employees increased
from $5.1 million for the six months ended December 31, 2017 to $7.2 million for the six months ended December 31, 2018. Payments
for derivative instruments increased from $0.5 million for the six months ended December 31, 2017 to $0.8 million for the six months
ended December 31, 2018.
Cash used in investing activities increased
from an outflow of $0.2 million for the six months ended December 31, 2017 to an inflow of $0.4 million for the six months ended
December 31, 2018 following the receipt of previously escrowed funds relating to the sale of assets that failed to closed.
All options outstanding as at December
31, 2018 are currently out of the money.
Liquidity, Capital Resources and Capital
Expenditures
Our primary use of capital has been acquiring,
developing and exploring oil and natural gas properties. While we are planning for this to be our primary use of capital during
fiscal year 2018-2019, we cannot conduct any further acquisition, development or exploration activities until we secure additional
funding. There can be no guarantee we will be able to secure this funding.
In January 2014, we entered into a $25.0
million credit facility with our primary lender, Mutual of Omaha Bank, with an initial borrowing base of $8.0 million, which was
increased to $15.5 million in June 2014. In November 2014, the borrowing base was increased to $19.0 million, which was fully drawn
prior to the closing of the Foreman Butte Acquisition. In March 2016, our credit facility was amended to increase the borrowing
base to $30.5 million to partially fund the Foreman Butte Acquisition. An additional $4 million in financing was also provided
by the seller. This promissory note was paid off in May 2017. We were required under the amended credit agreement to repay Mutual
of Omaha $10 million by June 30, 2016. This was ultimately increased to $11.5 million and extended to October 31, 2016. The pay
down was achieved through the sale of our North Stockyard property for $14.95 million on October 28, 2016 and was made on October
31, 2016.
In March 2016, the facility was extended
to $30.5 million to partly fund the Foreman Butte Acquisition. As a result of this amendment to the facility agreement, the following
changes were made to the original facility agreement:
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The addition of more restrictive financial
covenants (including the debt to EBITDA ratio and the minimum liquidity requirement);
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Increases in the interest rate and unused
facility fee;
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The addition of a minimum hedging requirement
of 75% of forecasted production;
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A requirement to reduce our general and
administrative costs from $6 million per year to $3 million per year;
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A requirement to raise $5 million in equity
on or before September 30, 2016, which deadline was extended and the condition was subsequently satisfied;
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A requirement to pay down at least $10
million of the loan by June 30, 2016, which total was increased to $11.5 million and extended to October 31, 2016, and the condition
was satisfied on October 31, 2016; and
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The addition of a monthly cash flow sweep
whereby 50% of cash operating income will be used to repay outstanding borrowings under the Credit Agreement. To date, $0.1 million
in repayments have been made under this covenant.
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The amended credit facility included the
following covenants, tested on a quarterly basis:
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Current ratio greater than 1
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Debt to EBITDAX (annualized) ratio no
greater than 4.00 for the quarter ended September 30, 2017 and thereafter
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Senior leverage ratio of no greater than
3.75 for the quarter ending December 31, 2016 and thereafter
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Interest coverage ratio minimum of between
2.5 and 1.0
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In May 2017, Mutual of Omaha Bank agreed
to repay our outstanding promissory note to the seller of the Foreman Butte Acquisition through a term note in addition to our
current facility. This closed on May 5, 2017. Samson paid $0.45 million in interest from existing cash reserves, while Mutual of
Omaha Bank paid $4.0 million in principal.
As a result of this amendment to the credit
facility the interest changed from being based on LIBOR to the Wall Street Journal published Prime Rate (“Prime”).
The interest rate on the term loan became Prime plus 2.5% or approximately 7.75% and the credit facility became Prime plus 1.0%
or 6.25%.
In June 2017, Samson and Mutual of Omaha
Bank agreed to extend both the $4 million term loan and our $19.45 million reserve base facility until October 2018.
On February 9, 2018 we entered into an
agreement (the “Agreement”) with Mutual of Omaha Bank. Under the Agreement we were required to provide Mutual of Omaha
Bank, on or before March 31, 2018, with either (a) an executed purchase and sale agreement evidencing the sale of Samson and its
subsidiaries or its respective businesses and assets, or (b) a fully-executed letter of intent or other form of commitment letter
from a credible lender or other financing source reflecting a proposed refinance or payment of Samson’s outstanding obligations.
Following our breach of the Agreement and multiple breaches of the covenants in the amended credit facility, on June 14, 2018 we
entered into a forbearance agreement with Mutual of Omaha Bank pursuant to which the Bank agreed to forbear on exercising its remedies
under the credit facility contingent upon the success of our effort to sell the Foreman Butte Project. This agreement, as amended,
terminated in accordance with its terms on October 15, 2018. The $23.9 million outstanding under our credit facility was due for
repayment October 31, 2018 but we did not repay it by that deadline. As a result, Mutual of Omaha Bank may issue a notice of default
and seek repayment of the facility or pursue alternative repayment methods, including the sale of the outstanding loan to a third
party, at any time.
It was our intention to repay the outstanding
credit facility with the proceeds from the contracted sale after closing on October 15, 2018, however this sale failed to close.
Mutual of Omaha Bank has the right to issue us with a notice of default in relation to the facility, however they have yet to do
so.
The current balance due under the facility
is $23.9 million and was due for repayment October 31, 2018.
On account of our breaches of the Agreement
and the loan facility covenants, our credit facility has been recorded as a current liability and was due for repayment October
2018.
The uncertainties surrounding our capital
resources and requirements are further exacerbated by the variable results of our exploration and drilling program and changes
in oil and natural gas prices, either of which could lead us to accelerate or decelerate exploration and drilling activities, as
funding permits. The aggregate levels of capital expenditures for our fiscal year ending June 30, 2018, and the allocation of those
expenditures, are dependent on a variety of factors, including the availability of capital resources to fund those expenditures
and changes in our business assessments as to where our capital can be most profitably employed. Accordingly, the actual levels
of capital resources and expenditures and the allocation of those expenditures may vary materially from our estimates.
We are continually monitoring the capital
resources available to us to meet our future financial obligations, planned capital expenditure activities and liquidity. Our
future success in growing our proved reserves and production will be highly dependent on capital resources available to us and
our success in finding or acquiring such additional productive reserves.
Our main source of liquidity during the
three months ended December 31, 2018 was cash on hand and the release of escrow funds from the terminated sale of assets.
During the prior four fiscal years, our
three main sources of liquidity were (i) borrowings under our credit facility, (ii) equity issued to raise $21.4 million and (iii)
our tax refund of $5.6 million from the Internal Revenue Service, received in February 2013. During the years prior to the fiscal
year ended June 30, 2012, our primary sources of liquidity were the sale of acreage and other oil and gas assets.
Our cash position as of December 31, 2018
increased slightly from June 30, 2018 largely due an increase in our accounts payable balance and the release of escrow funds from
the termination of the purchase agreement for our Foreman Butte assets.
If future production rates are less than
anticipated, and/or the oil price deteriorates for an extended period, the value of our position in affected areas will decline,
our results of operations, financial condition and liquidity will be adversely impacted and we could incur material write-downs
of oil and gas properties. Our ability to continue operations could also be adversely affected. See the risk factors in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2018. See also Part II, Item 1A of this report below.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged
in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.
Looking Ahead
We plan to focus on the following objectives
in the coming 12 months:
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Achieving the sale of our business or
assets, or a refinancing of our debt;
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Continued focus on cost savings and efficiency
across all aspects of the Company, including lease operating costs and general and administrative costs; and
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Strengthening the balance sheet through
diligent capital management.
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